Debt Payments

Weekly Musings – Debt Payments
J. Sweeney
07/31/2009

Imagine for a moment that upon the death of your parent, you became responsible for their debts. The phone rings and calls start to pour in from banks, credit card companies, the mortgage company, the nursing home, even the state and local government. In total you find that you, your siblings, and all of your children each owe approximately $37,700 (or $60,000 per worker). Further, the amount that you owe is growing each day.

The western world has a tradition of debts being obligations of the individual not to be passed on to the children. After all, how can you hold me accountable for the choices of my parents? Since I have no say over their spending, no authority, then it stands to reason that I cannot be held accountable for the outcome, no responsibility. We take this idea very seriously. In fact it underpins our financial freedom to act as individuals instead of patriarchal family units.

Unfortunately, it is breaking down. Indeed, you, your siblings and worst of all your children and any living grandchildren now each owe approximately $37,000. Our national debt has grown to over eleven trillion dollars ($11,000,000,000,000.00).

So what? For as long as most of us can remember (except briefly with President Clinton and a Republican Congress) we have run deficits and the debt has thereby grown. We’ve grown accustomed to the idea and for a long time the rest of the world celebrated our debt-based spending spree.

Soon, very soon, the bill is coming due. In the past this meant that the government issued bonds and then printed money and bought back (retired) some of the bonds. Nice trick eh? Let me explain that again. Our government is not allowed to print money to pay the bills. So, if there is not enough money from taxes, they issue bonds to the public. Then, the government goes out and buys the bonds back with new money.

Sounds good right? Well, obviously not. Imagine that you hold a lot of our debt and a lot of our currency and we start paying you with these newly created dollars. You might get a bit annoyed. You might, and here is the big change coming, demand that we start paying our debt with something other than dollars.

If, instead of paying our debt with dollars, our children and grandchildren were required to pay in Euros, or gold, or oil, what would that be like?

For example US proven oil reserves are approximately 21 billion barrels. At today’s spot price of $70 the total proven reserves of the country are worth $1,470,000,000,000 or only $1.47 trillion. Clearly, we’re not paying our debt with oil.

We also have about 11 or 12 billion dollars of gold bullion, and an estimated 63 billion in foreign currency.
In other words, we could nationalize every drop of oil in this country and hand it along with all of our gold and foreign currency over to China to pay that share of the debt and we would still owe other countries and private citizens more than $10 trillion.

China is not the problem. We are.

The problem is that we are spending money without earning it. Unless we dramatically slash government spending across the board but especially for Social Security and Medicare or dramatically raise taxes, we will go broke.

How will we actually go broke? When foreign governments begin to require payment in goods or currencies other than our phony dollar bills, we’re toast.


My solution:

The Baby Boomers are about to retire. But, they can’t afford it. We can’t afford to let them leave us with the tab for the debts they’ve run up. They have spent without prudence or thought for the future and are about to leave without paying the tab.

It’s time to start demanding responsible government. No more bank bailouts, clunker car incentives, National Endowment of the Arts, bridges to nowhere, or rainforests in the Midwest. It is time to stop spending. It’s going to hurt like hell because it will lead to a massive recession. Unfortunately this is the inheritance the Boomers are leaving us.

The Social Security and Medicare minimum age requirements need to be moved immediately to 75. Not tomorrow, not in over a decade, immediately. It should then be means tested, meaning only the very poorest would qualify.