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Money for nothing
SoVaNow.com / November 21, 2012Dear Viewpoint,
Regarding “The New Heartland” (The Sun, editorial page, Nov. 4, 2012) Tom McLaughlin thinks the prospect of a new bipartisan comity will speed investments in infrastructure and actions to deal with our supposed vulnerability to catastrophic “global warming” (or “climate change” as it now has to be called since the globe is not warming). Don’t hold your breath. Leaving aside any discussion whether such spending even makes sense, we have a far more fundamental problem. We don’t have any money. We are Greece on steroids. Our national debt is about $16 trillion and by the end of Obama’s new term is projected to be greater than $20 trillion. This is an unfathomable sum. It is so far beyond our everyday range of experience that our minds stagger when trying to comprehend it in familiar terms. There is no adequate frame of reference. Therefore, I’ve developed some simple metrics to help us understand.
1) Consider 25 miles of two-lane road, say Highway 15 from Clarksville to Oxford, NC. Begin laying dollar bills across the road like floor tiles. Do this from one edge of the pavement to the other and continue down the road for 25 miles. That will take $30.4 million dollars. If we continue for 303 more times this “greenback” pavement will stand one-inch high and will require about $9.2 billion dollars. This is a huge amount of money, but still chump change for a federal government that spends this amount every day of the year. Since this is far more than the government actually collects in revenues, it has to borrow (or print) this same amount of money about every six days just to sustain its addiction to spending. To visualize $20 trillion dollars imagine about 658,000 layers of dollar bills. Our new resurfacing project will be 181 feet high, or about the equivalent to a 25-mile long, 18 story building. Will we ever be able to repay such a sum?
2) Most of us have a workable grasp of the size of the United States and of various states. A single layer of $20 trillion dollar bills would completely cover Virginia, West Virginia, Maryland, the district of Columbia, Rhode Island and 9% of Delaware. Therefore, should you believe politicians and newspaper pundits who constantly reassure us that the debt and deficit spending is not a problem?
3) Imagine that the United States secured a mortgage of $20 trillion and 1 A.D., near the beginning of the Christian era. At 3% interest (far less than the historic average for Treasury obligations) the U.S. would need $600 billion dollars every hour, $1.14 million dollars every minute or $19,000 every second since Jesus was born. Far from being concerned, our President, many in Congress, and his supporters in the media insist that the best way to overcome this debt problem is to spend even more money in hopes that somehow the economy will grow. Don’t try that at home if you are in debt.
4) Twenty trillion seconds is equal to about 634,000 years, which is about 9,000 human lifetimes taken sequentially. That’s a lot of seconds. Imagine counting out dollars bills as a fast pace for that long.
5) This leads to my final illustration. The federal government has been running budget deficits nearly every year since 1900. The most recent large surplus was $86.4 billion in FY2000 with President Clinton and a Republican Congress. (This was the total reported surplus minus the excess Social Security taxes that were collected by the government that year since those taxes are supposed to be earmarked for future payments to beneficiaries. Actually, there is no Trust Fund and the money has already been spent, but we’ll pretend otherwise.) If we adopt FY2000 as our target (although we’ve only managed to achieve it once in many decades), and if we vowed to repeat it every year in the future, it would take 231 years to erase the federal debt even at zero-percent interest. That’s longer than the United States has been in existence.
Bear in mind also that the state debt of $20 trillion is merely the amount of money the federal government has already spent that it doesn’t have. If we include promises of future payments that it has made for programs such as Social Security, Medicare, Medicaid, government and military pensions and a host of other items, these “unfunded liabilities” (promises made with no money to pay for them) grow by an additional $80 trillion according to the government’s own actuaries and some investigators, such as Boston University, have placed this figure at $120 trillion. No illustrations are needed. These numbers are simply unimaginable.
Sometime before January we will hear of some new grand bargain that has been worked out in Washington to avoid the “fiscal cliff”. What it will really mean is that the political leadership has kicked the can down the road for a few months. In the meanwhile, according to the Congressional Budget Office, our rate of spending can continue only as long as the rest of the world is willing to send us $19% of their combined GDP to fund just a portion of our rising debts. The U.S. Treasury will have to continue creating money out of thin air to cover the remainder so as to avoid the embarrassment of having a Treasury bond auction fail, since this would set off a worldwide financial panic. This process (called “quantitative easing”) has never been attempted on this scale by any major economy in the modern era since the Weimar Republic destroyed itself by the same mechanism after World War I. This is, of course, how banana republics have routinely operated. But the U.S. is not a banana republic. We control what has been the world’s reserve currency. This wasn’t always so, and there is no guarantee that it will be so in the future. As long as it has continued, however, we have had the luxury of living far beyond our means without suffering the horrendous consequences of other countries such as Argentina, Greece, and Spain who cannot simply print money to cover their debts without destroying their currency and banking systems process. How long will the Chinese, Saudis and others who will lend us their savings and accept dollars in payment for their goods, be willing to keep playing a sucker’s game? No one knows, but one thing is for sure, if we don’t mend our ways quickly we run the risk that the music will finally stop. When it does we will face a financial shock far worse than anything we could imagine.