By DAN VALENTI
PLANET VALENTI News and Commentary
(FORTRESS OF SOLITUDE, TUESDAY, JULY 26, 2011) — The greatest misstatement of fact in the debt-ceiling discussion, made worse by acceptance and repetition, is that “the United State has never defaulted on its financial obligations.” In fact, the “full faith and credit of the U.S.” has been violated at least five times throughout history. The second greatest misstatement of fact involves the amount the U.S. government is in arrears.
THE U.S. HAS DEFAULTED FIVE TIMES — That everyone, from the President to the mainstream media to the blog chat rooms, doesn’t know this points to how marginalized the study of history has become. History has a way of presenting too many inconvenient facts. In class, when Prof. Valenti makes reference to a historical fact once safely assumed to be common knowledge (i.e., the combatants and issues in World War II), he has to ask: “Does everyone know what I’m talking about.” The blank looks on the young faces tells all.
Here are the five previous defaults,identified by Chris Mayer in Forbes magazine. You can look it up, as Casey Stengel used to say, and find:
(1) 1779, the nascent U.S. government cannot redeem “continental” currency issued to finance the Revolution War. It defaults.
(2) 1782, still struggling to emerge as a nation, the U.S. defaults on the debt taken out to pay for the war.
(3) 1862, because of the cost of the Civil War, the Union government in Washington is unable to redeem bonds for gold under terms stated at the time of issuance. Holders of Union debt have to settle for 40 cents on the dollar.
(4) 1934, the United States defaults on the debt issued to finance World War I by refusing to redeem it in gold, as the terms stipulate. The U.S. dollar is devaluated 40 percent against gold.
(5) 1979, the U.S. fails to pay bills because of a bureaucratic error. This default, unlike the other four, did not result from a structural inability to finance borrowing obligations. As such, THE PLANET would not include this as an actual default. Some middle managers screwed up.
In each of the first four cases, as Forbes explains, “the U.S. simply ran out of money each time. The end result was that the dollar had to be devalued. Meaning [sic] it lost its purchasing power.”
The U.S. Will Default, But Neither Party Will Have the Guts to Call it That
Most independent financial observers such as Forbes, Fortune, Bloomberg, and many academics say that the U.S. will default again by Aug. 2. Of course, no one will call it a “default.” The President, the Democrats, and the Republicans will term it something else, and each side will position itself as the hero and the other side as the villain. Poisonous politics will be the true winner. Once again, the American people will get stuffed.
The country will do what it did in the aftermath of the September 2008 fiscal crisis: It will print a whole lot of new money, not tied to anything of value, and backed only by the flimsy filaments of trust. If the world takes “our word” when we say, with a straight face, that the currency has “value,” the crisis will be avoided, temporarily, until after the 2012 elections.
By the end of 2013 — assuming the Mayan prophecy about the world ending on 12/21/11 resulted from a shaman’s indigestion and not authentic contact with The Great Beyond — the standard of living in the United States will drop, measurably, for that is the consequence of rapid and continual devaluation in face of ever-mounting piles of debt. Raising the debt ceiling is the worst “solution” of all, akin to an opium eater solving his withdrawal problems with more dope.
How can the solution to “too much debt” be “more debt”? Is anyone asking this question, particularly those who argue for a raise in the debt ceiling from $14.3 trillion.
The Actual U.S. Debt is $97.4 Trillion, Not $14.3 Trillion
Speaking of that much-bandied figure, $14.3 trillion, will that be the amount of money owed by and in the United States of America on Aug. 2? No, and that’s the second most egregious misstatement of fact accepted as “truth” in these current discussions.
Again, we turn to Forbes, this time to information compiled by writer Addison Wiggin:
* Officially, the U.S. lists its debt as $14.3 trillion. This is the debt ceiling, or the amount the government can legally borrow to pay its bills. This stacks up against an economy measured at $14.7 trillion GNP. Pretty good so far, but a closer look produces economic agita.
* To rescue Fannie Mae and Freddie Mac during the recent mortgage fiasco, U.S. taxpayers went on the hook for $5 trillion. These obligations, every bit as real as any other debt, do not show up in debt ceiling calculations. Actual U.S. debt: $19.3 trillion.
* The two biggest “entitlement” (hate that word) obligations of Uncle Sam are Social Security and Medicare. The bill for these unfunded liabilities, now that the Baby Boom is beginning to retire: $62 trillion. Actual U.S. debt: $81.3 trillion.
* The “too big to fail” emergency loans U.S. taxpayers shelled out between Dec. 1, 2007 and July 21, 2010, amounted to $16.1 trillion, according to the Government Accountability Office. We only know this because of the persistance of congressman Ron Paul (R-Texas), who pushed for the GAO to undergo first-ever audit (“accountability schmacountability”). Thus, add another $16.1 trillion to the number. Actual U.S. debt: $97.4 trillion, since there is, incredibly, no accounting of how much of that money, if any, has been paid back.
When Paul questioned Fed chief Ben Bernanke about these emergency loans to the private sector, Bernanke did not dispute any of Paul’s figures.
Consequently, the much more accurate figure for the total U.S. debt is $97.4 trillion.
The time has come for severe, radical action, far more ambitious than either the President or Congress has proposed in the various washed-out, watered-down compromise packages being floated. According to Boston University professor Laurence Kotlikoff, “the U.S. must cut spending or raise tax revenue by $20 trillion over the next decade, far more than either the President wants of the House Republicans seek.”
The $20 trillion, by the way, is the minimum amount that suffices to actually put a dent in the nearly $100 trillion debt problem.
Ah, but what the heck. A trillion here, a trillion there — pretty soon, you’re talking real money.
OFF TO OTHER ADVENTURES NOW, BUT BE BACK LATER AFTER A BIT OF SPATCHKA, OH MY BROTHERS AND SISTERS.
“OPEN THE WINDOW, AUNT MILLIE.”
LOVE TO ALL.