Default is Inevitable, Part II

Talking points are truly amazing things. They capture the essence of the obsessions of political operatives. The political news has recently been dominated by the talking points surrounding the debt ceiling debate, with the main terms of choice being the assorted variants of “apocalypse.”

First of all, failing to raise the debt ceiling would not automatically lead to a default on the national debt. The federal government would continue to collect revenue, and could use that revenue to pay debt obligations as they fall due, or in other words, pay the coupon interest on time. This would involve deep cuts to everything else, and if you are a professional politician that is synonymous with impossible, so there is an assumption that default would be the result.

And that default would be “apocalyptic,” “a catastrophe,” “a disaster,” or would “cost us our credit rating,” – which is doomed anyway because it is a mirage; the federal government is borrowing 40% of the money it spends this year and is projected to do so for the next ten. This is not a debtor worthy of a AAA rating, and the only reason we haven’t seen a failed bond auction is because the Federal Reserve has been buying everything in sight.

Professional politicians who never saw a dollar belonging to somebody else that they wouldn’t spend, now lecture us on the importance of borrowing money to pay the obligations on the money they borrowed to spend on political goodies. We are told of the need to increase our debts to stay current on our debt payments.

When individuals pay debts with new debts (called “Surfing” by finance experts) it is usually the last desperate trick before they call a bankruptcy lawyer. When our political overlords do it, they demand to be: 1. Re-elected; 2. Paid more; 3. Given a medal or an honorary Ivy League doctorate.

The apocalypse for the Democrats is that this issue is coming to a head too soon. Over the next ten years, a majority of the baby-boom generation will be enrolled in Social Security and Medicare. And, as the American economy continues to die over the next ten years, it is thought that these voters will be more frightened of losing benefits than of the country collapsing under the weight of the debt. Government dependency is the Democratic Party’s stock-in-trade, and they will be there to defend all government spending with borrowed (or more likely, printed) money.

In their calculation, if they can only delay the eventual tipping point where the economy just can’t take more debt, then as things continue to get worse more voters will fear losing Big Government than losing everything to Big Government.

While we’re talking about Medicare, some time soon you should do a web search for “unemployed college graduates,” and see how many news articles you can find. Think about this: A generation wants to get government-financed benefits, while a younger generation is chronically underemployed and not paying much money in FICA (Federal Insurance Contributions Act), the tax that funds Medicare. No job means no wages; no wages means no FICA; no FICA means no Medicare – unless they print the money and finance it with pure, un-tempered inflation.

The professional politicians cannot get us out of this problem; it is in their best interest to make the problem bigger. The cynicism is downright psychopathic – make sure that so many people depend on your appropriations that you cannot lose power even if the country is completely bankrupted. This, I fear, is what most Congressional Democrats, and probably most Congressional Republicans, intend to do.

It must stop. It is time to stop rewarding politicians who successfully loot the public treasury by affixing their names to schools, institutes, nature trails and wildlife refuges as recognition of their long and illustrious careers of running the nation into serfdom.

I’ve been told that veteran bankruptcy lawyers have a common speech they give to their clients who feel guilty or ashamed about the debts they’ve run up. They say “Stop that. Do you think corporate CEO’s feel guilty when they restructure debt? No! You are Mr. and Mrs. X, Incorporated, and you are getting out of debt.”

We need to put down the pride, the guilt, and the illusions of prosperity fashioned by self-interested politicians, and declare that we are the United States of America, Incorporated, and we are getting out of debt. If we don’t, we will default eventually anyway either directly or through currency devaluation, but by then our nation will not have a future. At all.

[Note: The first article “On National Debt, Default is Inevitable,” the numbers in the article were from the Monthly Statement of the Public Debt, June 2011, but the link inside the article was to the Monthly Statement of the Public Debt from June 2010. Apologies for the error.]

Photo Becky Stares – Fotolia.com

About the Author

Mr. Waechter is an attorney and a recent graduate of Drake University.

 

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