The Daily Reckoning
Paris, France
Friday, 6 February 2004
The Daily Reckoning PRESENTS: Against the backdrop of
history, the 'accomplishments' of the 2nd Bush administration
appear even more spectacular... and scandalous.
The Daily Reckoning
SEX, LIES AND AMERICA'S EMPIRE OF DEBT
by Bill Bonner
A recent NYTimes provides a comment from David M. Walker,
Comptroller General of the United States.
"The Federal government's gross debt - the accumulation of
its annual deficits - was about $7 trillion last September,
which works out to about $24,000 for every man, woman and
child in the country," he announces. "But that number
excludes items like the gap between the government's Social
Security and Medicare commitments and the money put aside to
pay for them. If these items are factored in, the burden for
every American rises to well over $100,000."
We add to Walker's lament:
One out of every 4 dollars spent by the federal government is
borrowed. And for every dollar that comes in the door from
income taxes, the feds borrow another 80 cents. Economists
used to worry about government using up the nation's savings.
But now Americans have no more savings to use. And still, the
nation that can't save a dime... sets out to save the entire
planet.
The cost is as monumental as the project. Taking out Social
Security surpluses, federal deficits are expected to be about
half a trillion dollars each year for the next ten years - or
$5 trillion in total (half of GDP). We put no exclamation
point following that last sentence, because the numbers
seemed to shriek without one. Still, America's economists are
deaf to the problem... just as its policymakers are dumb to
any solution. After all, we are reminded of the words of Dick
Cheney: "Deficits don't matter."
Myths, fraud, lies and claptrap.
Here at the Daily Reckoning, we do not so much lament the
humbug... we enjoy frolicking it in. But early this week, we
were suddenly struck by a feeling of such abject
pointlessness we had to stop and order a drink.
"Of course, it is all phony," Merryn Somerset Webb, editor of
MoneyWeek magazine, had explained. "But our lives are made up
with this stuff."
'Get over it,' she might have added.
We drank and reflected on this. We realized that we had to
come to terms with it. We could not write another Daily
Reckoning or mock a single economist until we had made peace
with this unsettling realization. For it was true: it is all
illusion. And if we were to strip away all the vain, pompous,
foolish, puerile... and lovely... illusions, what would be
left? We would be banishing all the sentimental and
terrifying romance from life. If we never spoke again to a
vain charlatan or pompous mountebank, we would spend the rest
of our days in a sort of self-imposed Trappist isolation.
What fun would that be?
No, dear reader, God has placed us all in His great comedy so
that we may play our parts. And so we get on with it with
neither a snicker of contempt nor an open-mouthed awe of the
naïve believer... but with the mischievous smirk of the man
who is ready to do his duty... and enjoy it.
Some are dangerous illusions; others are welcome ones, we
conclude. When your wife tells you she loves you, you might
as well believe it as though it were Holy Writ. What do you
gain by questioning motives or deconstructing meaning?
Every illusion has its price, of course. You will as pay
dearly for a chimera of love as for all others... but you will
pay in kisses and caresses, a currency better spent than
saved.
But other illusions are more costly; some are fatal.
"When the government tells you do to something," said a
French friend at lunch yesterday, "it is usually a good idea
to do the exact opposite."
We thought about the advice recently offered by Fed
officials. Spend, spend, spend... advised Robert McTeer,
pointing to a shiny, new SUV. "Preferably a Navigator."
Borrow, borrow, borrow... suggested Alan Greenspan, pointing
to his lower EZ credit interest rates.
Print, print, print... added Ben Bernanke, pointing in the
direction of the U.S. Bureau of Printing and Engraving.
Worse advice has been urged on voters. Every election
campaign brings out a plague of it, like a nasty species of
4-year locust. Our friend had in mind the period, more than
60 years ago, when the Vichy government summoned Jews to
railroad stations, where they would be shipped to 'work
camps' in the East. And of course, every war comes with its
incitations to murder and mayhem.
Each branch of government has its own particular expertise.
Politicians specialize in bad voting advice. The Fed gives
ruinous financial advice. And the Pentagon offers young men
and women often-lethal career suggestions.
But here at the Daily Reckoning, money is our beat. And so we
focus on America's leading economic illusion-du-jour:
deficits don't matter. Here, once again, we climb a pile of
bones to get a clearer view. This is not the first time a
nation has gone head-over-heels into debt.
"Since Prime Minister Sir Robert Walpole's introduction of
the funding system in England during the 1720s," writes H.A.
Scott Trask for the Mises Institute, "the secret was out that
government debt need never be repaid... Walpole's system
proved its worth in financing British overseas expansion and
imperial wars in the eighteenth and nineteenth centuries. The
government could now maintain a huge peacetime naval and
military establishment, readily fund new wars, and need not
retrench afterward. The British Empire was built on more than
the blood of its soldiers and sailors; it was built on debt."
The new system was slow to catch on in America. Jefferson was
against it. In 1789, in a letter to James Madison, he
wondered whether "one generation of men has a right to bind
another." His answer was 'no.' "The earth belongs in usufruct
to the living," he concluded. "No generation can contract
debts greater than may be paid during the course of its own
existence."
But dead men don't talk and the unborn don't vote.
Politicians in America - just as those in Britain, Italy and
Germany - gradually came to see that they could get the
benefits of spending money in the present, while passing on
the debts to the next administration and the next generation.
Then, as now, war provided cover for excess spending. First,
there were the debts from the Revolution itself... which were
paid down quickly. Then came the War of 1812, War with
Mexico, and the Civil War. Each time, spending was increased,
debts were taken on, and then... after the war... the debt was
paid down, or paid off completely.
WWI saw federal debt explode from $3 billion to $26 billion.
Presidents Harding and Hoover paid it down to $16 billion.
But then came the Depression, Roosevelt, and WWII. By 1945,
federal debt had reached $260 billion. But then came
something new. The war did not end. It continued as "The Cold
War"... which meant, rather than paying down the debt, it was
increased.
Under Ronald Reagan, America's debt seemed on course for
Mars. Less than $1 trillion in 1980, it soared to $2.7
trillion before Reagan left office. One might have expected
some relief after the Cold War was over. But the habit of
getting something for nothing is hard to break. By the time
George W. Bush took office, the debt had risen to $5.7
trillion.
Mr. Bush, a conservative, might have seized the opportunity
to pay down the debt. The nation was at peace and expected
huge budget surpluses. He promised as much when he stood
before a joint session of Congress in 2001 and announced his
budget.
"That night," Paul O'Neill tells us in his book with Ron
Suskind, The Price of Loyalty, "Bush stood before the nation
and said something that knowledgeable people in the U.S.
government knew to be false."
But the paradox was there. Generations of Republicans had
promised balanced budgets. Only war had permitted them to
wriggle off the hook and continue running up debt. With no
war, the Republicans just squirmed. Then came a remarkable
event: 9/11. All of a sudden, another, strange war was
announced... a war on an enemy no one could find on a map... a
war on "Terror." Now, the war, the spending and the debts
could go on forever.
In the following 24 months, the Bush Administration added
more debt to the nation than had been built up in the first
200 years of its existence. Jefferson and the generations of
dead men who paid their debts must weep in their coffins. The
tadpoles of the unborn must shiver.
Your editor,
Bill Bonner
The Daily Reckoning
Editor's Note: Bill Bonner is the founder and editor of The
Daily Reckoning. He is also the author, with Addison Wiggin,
of the NY Times, Wall Street Journal and international
bestseller: "Financial Reckoning Day: Surviving The Soft
Depression of The 21st Century" (John Wiley & Sons).