Sometimes the current economic pundits talk about our current debt and indicate that it is not as severe a problem as others think. This in spite of the fact that even those in the current administration do give lip service to the notion that the deficits and debt growth are “unsustainable”. They just want to sustain them for the indefinite future–however long that might turn out to be. The existing projections from the CBO and administration don’t indicate when there will be any downturn in the debt growth or the deficits. Indeed the projections show nothing but a continuing debt growth all the way to 2019. That is ten more years with deficits growing exponentially. Those seemingly unconcerned about the debt at the moment often speak of the debt not being that bad compared to the debt we had right after the end of WWII.
They use that debt after the War as an indicator that things really aren’t so bad and that we can work down the debt just like we did at that time. After the War our debt was indeed more than 100% of our GDP. Other than that fact though the analogy breaks down rather quickly and the circumstances now extant are not similar at all to those existing in the ’40’s after the War. The first huge difference is the fact that almost all of that debt after the War was owed to ourselves. Almost all that debt had been incurred to finance the War itself. You have seen those old movies about the War Bond rallies and surely have at least heard that buying War Bonds was pushed very hard as a patriotic duty. Besides they were also promoted as a great way to save for the future. It is true that millions of Americans during the War bought those War Bonds and even after the War many continued the habit of buying government bonds, the old E bonds. Just as we have regular auctions now selling our Treasury bonds on the open market to finance our government expenditures we financed them then with those War and E bonds.
But those bonds were bought and owned by Americans. They were not owned by foreigners. Remember the situation during and right after the war. England and the rest of Europe was devastated both physically and certainly financially. Europeans couldn’t afford to buy US bonds. They needed every cent they had to rebuild their infrastructure and societies after the war. Asia was a very poor place. The Japanese weren’t buying any US bonds for sure. We were having to spend money in both Europe and in Japan and throughout other parts of Asia to help them out. The Middle East was not flush with money yet from oil production. Believe it or not the US was energy independent in those days. We didn’t really have to have their oil production to meet our energy and economic growth needs. Latin Americans didn’t have any money to buy anything to speak of at that time. The Soviets weren’t buying anything. They were completely dominated by their communist philosophy and they wouldn’t and couldn’t buy any bonds. All that debt was owed to ourselves after the war.
Today a very substantial portion and indeed a majority of all our recent debt is owned by foreigners. They are the ones buying US Treasury bonds and notes. Yes, we buy some too, no doubt about it, but foreigners now are a very significant creditor group we have to deal with. Many of them are not necessarily our friends. The Chinese are not our friends. They are nothing more than trading partners and they definitely have their own interest at heart with every economic move they make. Those moves never forget are still controlled by the Communist Party in China. They will be doing what it their best interest. They will always be tough creditors. Yes, they have an incentive to work with us some because we are their major customer for their exports but that willingness will extend only so far.
When the US debt was owed to ourselves we had much greater flexibility about how we were going to deal with it. Also we were on the verge of a big boom in our economy as everyone could tell with about 13 millions men returning home and wanting to buy everything from cars to TVs. The rest of the world was dependent on us for a great deal of our manufactoring output. They needed the US for everything at that time and their were all very glad to have US dollars contrary today when our currency is weakening in value against all major foreign currencies. There isn’t a good analogy between that time frame and today at all. Any attempt to do so is sophistry at best or an outright effort to mislead and hide the ball from the American people about our current debt crisis. It is a crisis. Unless it is brought to heel we face either huge inflation risks or taxes so high that our economy will struggle and sputter for decades to work down the debt load.
How we want to spend our money is our choice. How much debt we want it our choice. The consequences of those choices are also ours. The Chinese and Europeans will not bear the brunt of unwise decisions, we will. I don’t propose here the exact remedy. But we all have some semblance of common sense and lowering expenditures by Government, Inc. is essential if we are going to reduce the debt. Do the politicians have the gumption to face that reality and disappoint their constitutients who are expecting largese from the government?
Divide 300 million into 11.3 trillion and that is your share of the National debt and that is before it doubles by 2019. Think about it. How is it going to be paid? www.olcranky.wordpress.com