If Karl Marx was writing today, we think he might amend his famous comment about religion and replace it with the statement above.
We have been struck time and time again by the fact that the American voting public, on both ends of the political spectrum, actually has been persuaded and ‘numbed’ to believe that ever-increasing amounts of debt are ‘sustainable’ and ‘A-OK!’
Huge national debt amounts are not. Most definitely, they are not sustainable or ‘A-OK!’ in any language, country or time period.
Check out and read a great article by Harvard history professor, Nialls Ferguson. He plainly points to facts as borne out by history regarding past powers and empires that have been crippled or ruined by excessive debt.
The Athenian Democracy. The Roman Empire. The British Empire. The Soviet Union. It doesn’t really matter who you are or what your perceived ‘superpower’ status is at the time or has been in the past. When you can’t pay your bills on time, balance your budget or borrow any more because your currency has become unstable and ravaged by inflation, you can just hang it up, according to Mr. Ferguson.
We hope (against hope) that he is wrong. But what if he is right?
It can come on like a ‘thief in the night’ as in the Biblical analogy. So why dare we take any chance whatsoever to allow excessive debt to cripple us as a great national power?
If you had had a chance to sit in on perhaps hundreds of congressional hearings on economic policy and the federal budget over the past 30 years in Washington, you would have heard Fed Chairmen from Paul Volcker to Alan Greenspan to Ben Bernanke say the following:
‘Budget deficits on the order of 3% of GDP each year are ‘sustainable’ in the short-run. However, accumulated debt over the long-run can lead to ever-increasing amounts of interest payments that steadily consume more and more of the federal budget which will take away valuable resources from other discretionary programs such as education, environment, energy and transportation programs.
At some point in time, this debt will have to be repaid in full. Public holders of debt, such as foreign sovereign nations like China and Japan, will not look kindly on any effort to renege on payment of interest owed to them, nor any inflation that deteriorates their assets held in US bond or cash-denominated holdings.
From a macroeconomic level, it does not make much difference how the budget deficits are reduced. Just the fact that they are reduced, or there is a solid plan that shows how they can be reduced in the near future, will give comfort to the world financial markets.
However, the preferable solution is to reduce federal spending in the aggregate since raising taxes has a deleterious effect on job creation and economic expansion.’
I ran into Alan Greenspan one time in an elevator on Connecticut Avenue and told him I had listened to dozens of his testimonies to Congress, particularly on the House Budget Committee. He asked: “Did you understand everything I said?” I said, ‘No sir….I have to admit, I did not.’
He smiled slyly and said: ‘Good. Then I did my job right!” and walked off the elevator into the streets of Washington.