By Jon N. Hall
Although it takes a little longer than bombing, one sure way to destroy a nation is from within. Just ruin a nation's people, and you can walk right in and take over. In Cormac McCarthy's 2005 novel No Country for Old Men, Sheriff Bell muses: "I think if you were Satan and you were settin around tryin to think up somethin that would just bring the human race to its knees what you would probably come up with is narcotics." Surely no sober person would disagree with that; just look at our neighbor across the Rio Grande.
There's another road a nation can take to perdition that is just as sure as drugs, and that's debt, as in sovereign debt -- i.e., a nation's debt. When a nation goes too deeply into debt, its options become sorely limited. If a debt-laden nation tries to borrow its way out of debt by floating new bonds, it may find that it must pay ever-higher interest rates to attract investors. If a debt-laden nation has its own currency, however, it can "print" more money to pay off its debt. Of course, nations in the Eurozone don't have that option.
Ultimately, a nation's creditors might ride to the rescue and restructure loans, even forgiving (writing off) a portion of their debt. But these final accommodations with debtor nations come with a price. In exchange for restructured loans or infusions of more cash from new loans to help them get on their feet, a nation must agree to make severe alterations to the way it operates. A nation must cut back on government spending for entitlements and pensions. It's called "austerity," and it's not going down very well in the debtor nations of the Eurozone, as the mayhem in their streets confirms.
If a nation faces a debt crisis, it is left with no good options. The starkness of what must be done to deal with a nation's debt is so daunting that some want to just default and start over. In such an endgame, individuals must decide what is best for them. They may send their bank deposits abroad, before the government confiscates them. And the young, who didn't cause the crisis, may decide to seek opportunity abroad, which leaves a debtor nation that much poorer. The thought is to save oneself, not one's nation, which is seen as beyond redemption. Time to abandon ship!
Ever since the onset of the "recovery" in America, all we've heard from progressives is that we must fix the economy first, and fix the national debt later. We've been assured that the debt is a long-term problem and that what government should tackle first is growth and employment. But after four years and a trillion-dollar stimulus, employment and growth remain anemic. Progressives defend their approach by arguing that the stimulus was too small, and that Congress needs to spend even more. In other words, progressives want to continue running huge federal deficits.
If Congress ran a surplus of $100B every year that would be used solely to pay down the debt, it would take more than 112 years to retire the debt held by the public. Such a debt retirement schedule would require more fiscal discipline than Congress has ever dreamt of exercising. (We should remember that the only time Congress has run surpluses that big was during the stock market bubble at the turn of the century -- hardly normal times.) But even if there were no wars or emergencies to thwart such fiscal discipline, running a surplus, or even a balanced budget, for more than a century would be quite difficult. That's because of the interest payments on the debt, which have no place to go but up.
The reason the federal debt hasn't already ruined America is because interest rates are at historic lows. Interest on the debt is an item in the federal budget, it is paid continually, and it currently amounts to $222B. So the average interest rate on our $11.3T publicly held debt is just under 2 percent. Were interest rates to return to historical norms, debt service could easily top half a trillion a year. The Congressional Budget Office has warned that in 10 years, interest on the debt could approach $900B.
So we don't need to add another penny to the national debt for it to kill us -- interest payments on the debt we've already accumulated can do the job quite nicely.
And when do interest rates usually go up? One time is when economies start improving. So here we are in a double-bind; the very moment we see economic improvement, there's pressure on a precondition of that improvement: low interest rates. Another time interest rates shoot up is when there's inflation. With all the money-printing the Fed has done in the last four years, inflation should someday return. The last time inflation got out of control, around 1980, both the federal funds rate and the prime rate were around 20 percent. What would that do to our recovery?
For heavily indebted nations, debt becomes a trap. If a nation has huge debts, it doesn't have the wherewithal needed to fix its lousy economy, but it can't fix its debt because its economy is so lousy. It's the "Paradox of Debt" writ large.
September 16 at The Wall Street Journal, five senior fellows at the Hoover Institution authored an article headlined "The Magnitude of the Mess We're In," and it's all about debt and spending and the coming crisis. It's especially worth reading for its treatment of the Federal Reserve. The opening blurb: "The next Treasury secretary will confront problems so daunting that even Alexander Hamilton would have trouble preserving the full faith and credit of the United States[.]"
In a debt crisis, the citizens of spendthrift nations must be weaned off the teat of debt. But they've become so hooked on debt and what it buys them, their life of ease, that they can't make the adjustment; they want to continue suckling; they've been infantilized; they've been...ruined. And the chief agent of their ruin, their enabler, is government.
Politicians on the left and gurus in the media tell us that the number-one issue in the November election is the economy. But if America suffers a debt crisis, the economy will come to a screeching halt and then contract. The number-one economic issue in the November election should be the debt.
The ongoing turmoil in the Eurozone, with its riots and Molotov cocktails, is a crisis of debt. Yes, their economies are awful, but what they're reeling from is debt. America is never going to fix the economy if we don't fix the federal debt, which means getting spending under control. Doing this will be painful, and no one, not even feted celebrity economists with Nobel prizes, can save us from the pain.
Given the propensity of Obama and the Democrats to postpone grappling with big problems, the question becomes: how much longer does America have before a debt crisis brings us to our knees?
Before you answer that question, read this interesting article. After reading it, you may think that it would be easier to just go straight to perdition.