The Truth Clinic: What did I get for 16 trillion of debt? That’s the real question.
By James Breedlove
The fiscal cliff deadline specter has dominated the media spotlight as Washington’s divided politicians dicker over higher taxes and spending cuts while simultaneously trying to convince a confused and disgruntled constituency that opponents on the other side are holding up the cliff saving life line.
The Congressional Budget Office (CBO) estimates that if no agreement is reached the US would enter a recession in 2013 with gross domestic product (GDP) shrinking by about half a percent for the year. Unemployment would rise from current levels of just under 8 percent to a little over 9 percent, and the economy would create about 2.5 million fewer jobs than previously predicted. With a few exceptions, all government agencies would be cut between 8 and 10 percent. An average household earning $50,000 per year would pay approximately $2,000 more in taxes in 2013.
I felt myself getting a bit anxious and panicky with January 1, 2013 just hours away after hearing President Obama warn that a failure to act would be a “politically self-inflicted wound to our economy” that we can ill afford.
While having my morning coffee it suddenly occurred to me that I might be running scared with the herd; the vision of a spooked bison stampede came to mind as the animals galloped full speed toward a real cliff and toppled over unable to stop because of the crushing force of the animals at the rear.
How does an issue of this magnitude (Trillions) and importance to the country (potential recession) get bogged down in petty politics or any other special interest priority? The so called experts drone on about out of control spending, unfair taxes, an unregulated Federal reserve and a do-nothing congress.
Fine, but I’m a simple person. I worked hard. Went to college on the G.I. bill. Pursued a career that permitted me to raise a family and live a modest middle class life. Did not mind paying taxes. Now when I should be able to enjoy the fruits of my labor in retirement it feels like my middle class is being sucked away by forces with strange names like fiscal cliff, inflation, and debt default.
More importantly since the current cliff fiasco is directly connected to the 16 Trillion dollars of debt that America has accumulated I wondered how has the 16 Trillion dollars of debt benefitted me? It seems that as a taxpayer I am somehow currently responsible for $142,000 of debt that nobody asked me did I want.
Perhaps understanding how this massive financial obligation came into being might shed some light on why the fiscal cliff has become so terrifying.
Unlike the constitutions of most states, the United States Constitution does not require the Congress to pass a balanced budget, one in which the projected government income from taxes, fees, and other revenues equals proposed expenditures. Except for a short period during the presidency of Andrew Jackson the United States federal government has always been in debt.
However, there was one key difference in monetary control between those early days and now. From the ratification of the Constitution in 1789 until 1971, the gold standard was the main constraint on Federal spending and thus, the main control on the US national debt. It took the United States almost 200 years to create the first 1 trillion dollars in non-gold backed paper currency. And the government managed its finances, had budget surpluses and only occasional glitches. But due to rampant deficit spending it only took 41 years to create the next next15 trillion. There are two major players in this game of extraordinary deficit spending; each benefitting from what amounts to an endless supply of money.
First, the Federal Reserve, as the central bank of the US Government, can print money that is exchanged for US debt. The Federal reserve trades newly printed US dollars for Treasury Bills (US bonds) floated by the government. As holders of the debt the Fed can collect the interest on bonds that they purchased with dollars that they simply printed. While they pay profits to the government they are guaranteed a dividend for being the Fed. Nice work if you can get it.
Second, the Congress is a willing co-conspirator in this burgeoning US National Debt crisis, even though they lament otherwise. Congress passed the bill creating the Fed in 1913. Congress sets the debt ceiling ever higher and higher. Congress approves all the spending bills. Finally, it is Congress that has refused to pass a budget since April 2009 – opting instead to use the emergency mode of operating by funding government in stop gap months instead of on a fiscal year. More spending can be kept out of public view using the emergency mode.
The fiscal cliff is not some unexpected crisis that suddenly showed up in Washington. Washington has been building this cliff for years by embracing a patchwork philosophy of minimally addressing fiscal problems with short term solutions and stealth bookkeeping that made future spending look lower than actual. Kicking the can down the road eventually lead to the recent bailouts and the infamous sequester which introduced America to the bipartisan super committee; the group of seasoned congressmen whose primary mission was to find budget cuts that would offset the debt ceiling increase authorized under duress in 2011.
Yet that super committee failed to super anything, shackled by allegiance to party dogma, and disbanded leaving the draconian sequester hatchet looming over an already shell shocked public.
Now the day of reckoning is at hand and it appears that the spineless congress of the past will remain spineless as they find it now difficult to even kick the can.
What have I and millions of Americans gotten for 16 Trillion of debt? A dollar that is now worth 7 cents compared to its worth in 1980 and continuing to decrease in value as the Fed prints more fiat dollars to support increasing national debt. That is why my middle class life style is slipping away.