I love America. Don’t get me wrong. But when we let our love of country distort our understanding of history, we become blind. Case in point is Peter Welch (D-Vermont), who is right now addressing the House. He says that by playing chicken with the current debt crises, the US is risking losing the reputation we have had since the time of the founding fathers: a reputation as a country which honestly pays our bills. Oh, wait — now Earl Blumenaur (D-Oregon) is saying that we are, for the first time in American history, risking default. And here’s Representative Keith Ellison, in fiery indignation, saying that this current situation, brought on by Republicans, of course, is in “direct contradiction” to “everything” this country has ever stood for. All three of these empty suits we allow to rule over us, as well as the great mass of Congress, are too blinded by appalling ignorance of our history to realize the truth: the US has continually been irresponsible and dishonest with its debt.
Let’s look at our actual history. The very existence of our nation is founded on default: the phrase “not worth a Continental” is a testament to the way that the US reneged on its promises and sneakily devalued the Continental to avoid paying off our Revolutionary War debts in 1779. In addition to the currency default of 1779, Congress turned around and defaulted on its domestic debt in 1782. When the Civil War came around, the US issued redeemable-on-demand “Greenbacks”, upon which it proceeded to default in 1862. Now, for most of our nation’s history, both printed currency and bonds were were debt — they were both promises to redeem the currency in gold on demand. Like all large power-crazed Empires, the US spent beyond its means, and by the beginning of the Great Depression, merely paying interest on US debt was draining the treasury of gold. (Ah, for the good old days when a “treasury” held real treasure instead of just worthless paper money!) So in 1934, Roosevelt engaged in a default by refusing to redeem domestic debt in gold, and by shaving 40% of the dollars gold value off in foreign markets. It was at this same time that he forcibly seized the gold from all US citizens and put it in Fort Knox. By this point the dollar had been defaulted on for purposes of domestic use, but foreign central banks still had the right to redeem dollars for gold. Because holding dollars was a handy way to hoard gold without having to physically worrying about it, foreign governments began to accumulate US dollars — which they exchanged for some of their national assets — as US debt, knowing they could redeem them for gold at any time. But the US government spent and borrowed and printed, and gradually it began clear that the US did not have even close to enough gold to cover its foreign dollar debt. So a number of foreign banks, more or less lead by Charles de Gaulle, began to cash in their dollars for gold. Sure enough, the United States did what it always does when faced with crisis: we defaulted on our obligations by refusing to redeem the debt for gold as promised.
Instead, forty years ago, we utterly delinked the dollar from any hard assets. Since that day, we have indeed paid our bills, but only in word, because we’ve paid each round of debt by borrowing even more, and all payments are made in a rapidly depreciating currency which has already lost 97.5% of its value against gold in just a generation and a half.
This debt crises is the largest one we’ve had yet. We will default. Period. There simply is no other option. We will, again, tarnish the much-vaunted “full faith and credit” of the United States. But, if anything, we should not react in shock and outrage to a nation doing what it has always done. We should, soberly, start running the math and finding a way to wind this game down. We will have balanced budgets, and not too far off the in the future. The question is whether they will be balanced now, by voluntary action, or later, by the US running out of assets and creditors. Neither party has pointed out anything like a credible plan for how to close the 1400 billion / year deficit and to start paying down the debt. So I fear the latter.
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Peter Welch, Earl Blumenaur, and Keith Ellison: blinded by patriotism
I love America. Don’t get me wrong. But when we let our love of country distort our understanding of history, we become blind. Case in point is Peter Welch (D-Vermont), who is right now addressing the House. He says that by playing chicken with the current debt crises, the US is risking losing the reputation we have had since the time of the founding fathers: a reputation as a country which honestly pays our bills. Oh, wait — now Earl Blumenaur (D-Oregon) is saying that we are, for the first time in American history, risking default. And here’s Representative Keith Ellison, in fiery indignation, saying that this current situation, brought on by Republicans, of course, is in “direct contradiction” to “everything” this country has ever stood for. All three of these empty suits we allow to rule over us, as well as the great mass of Congress, are too blinded by appalling ignorance of our history to realize the truth: the US has continually been irresponsible and dishonest with its debt.
Let’s look at our actual history. The very existence of our nation is founded on default: the phrase “not worth a Continental” is a testament to the way that the US reneged on its promises and sneakily devalued the Continental to avoid paying off our Revolutionary War debts in 1779. In addition to the currency default of 1779, Congress turned around and defaulted on its domestic debt in 1782. When the Civil War came around, the US issued redeemable-on-demand “Greenbacks”, upon which it proceeded to default in 1862. Now, for most of our nation’s history, both printed currency and bonds were were debt — they were both promises to redeem the currency in gold on demand. Like all large power-crazed Empires, the US spent beyond its means, and by the beginning of the Great Depression, merely paying interest on US debt was draining the treasury of gold. (Ah, for the good old days when a “treasury” held real treasure instead of just worthless paper money!) So in 1934, Roosevelt engaged in a default by refusing to redeem domestic debt in gold, and by shaving 40% of the dollars gold value off in foreign markets. It was at this same time that he forcibly seized the gold from all US citizens and put it in Fort Knox. By this point the dollar had been defaulted on for purposes of domestic use, but foreign central banks still had the right to redeem dollars for gold. Because holding dollars was a handy way to hoard gold without having to physically worrying about it, foreign governments began to accumulate US dollars — which they exchanged for some of their national assets — as US debt, knowing they could redeem them for gold at any time. But the US government spent and borrowed and printed, and gradually it began clear that the US did not have even close to enough gold to cover its foreign dollar debt. So a number of foreign banks, more or less lead by Charles de Gaulle, began to cash in their dollars for gold. Sure enough, the United States did what it always does when faced with crisis: we defaulted on our obligations by refusing to redeem the debt for gold as promised.
Instead, forty years ago, we utterly delinked the dollar from any hard assets. Since that day, we have indeed paid our bills, but only in word, because we’ve paid each round of debt by borrowing even more, and all payments are made in a rapidly depreciating currency which has already lost 97.5% of its value against gold in just a generation and a half.
This debt crises is the largest one we’ve had yet. We will default. Period. There simply is no other option. We will, again, tarnish the much-vaunted “full faith and credit” of the United States. But, if anything, we should not react in shock and outrage to a nation doing what it has always done. We should, soberly, start running the math and finding a way to wind this game down. We will have balanced budgets, and not too far off the in the future. The question is whether they will be balanced now, by voluntary action, or later, by the US running out of assets and creditors. Neither party has pointed out anything like a credible plan for how to close the 1400 billion / year deficit and to start paying down the debt. So I fear the latter.
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