Tuesday, May 24, 2011

The Federal Debt Ceiling and What To Do About It

By Zach Foster

It finally happened last week… the Federal Government officially reached the absolute be-all/end-all limit to the money it can borrow.  It was amazing when George W. Bush’s administration took the national debt from the hundreds of billions to over three trillion dollars, and even more amazing—downright phenomenal—that the Obama administration has taken the debt from the arena of three trillion to over fourteen trillion.  Does anyone else see a problem with this?

Reckless spending is charging the limit on one’s credit card in one shopping spree at the mall.  Reckless spending is buying a new car instead of paying off the final year’s worth of mortgage payments.  Adding over eleven trillion dollars to the national debt it not reckless spending—it goes beyond the realm of criminal negligence.

The only ways the federal government can continue running (at its rate of spending) are: 1) to suspend paying for other expenditures deemed less important (Secretary of the Treasury Tim “the Bailout Thug” Geithner has already authorized temporarily defunding retirement pensions for federal employees in order to fund other operations), or 2) to ask Congress to raise the debt ceiling.  Many are worried that the Bailout Thug will continue to do the first while accomplishing the second.

While Congressional Republicans have been vigilant this year in cutting expenditures from the budget, they have made little progress in debt payment.  Spending less is a first step, but just because a debtor stops accumulating additional debt does not mean that the present debt goes away.  Even if no additional funds were borrowed, the debt will still grow from the racking up of interest fees from the interest rates of the unpaid balances.

There are several steps that need to be taken in order to prevent a Third Great Depression (the first being the 1929 disaster and the second being the 2008 collapse).

First and foremost, the budget needs to be cut even more while the debt is paid off simultaneously.  Furthermore, while the debt is being paid off (and the process will be slow) the federal government must not continue to borrow money.

The size of the military needs to be reduced.  This ought not to hurt the war efforts in Iraq and Afghanistan, since troops are being heavily withdrawn as the Iraqi forces hold their own against dwindling insurgents, and slow withdrawals are beginning in Afghanistan.  There are U.S. troops and operations occurring in over one hundred countries (this does not include embassy duty).  The bases and outposts not absolutely vital to the Global War on Terror need to be scrapped, and the money budgeted to pay for them can be redirected to paying off the national debt.

The $670 billion bailout needs to be treated as a loan and not a gift—the crooks that broke the free market must not be allowed to slide.  Every bank and corporation that received bailout money should be put on a time table to pay it back to the federal government plus interest.

The Federal Reserve needs to be abolished.  Despite the propaganda and deceit, the Federal Reserve is a quasi-governmental bank at best, and not a part of the Department of the Treasury.  It is not accountable to the President or to Congress.  Every dollar that is printed at the U.S. Mint is actually “loaned” to the federal government by the Federal Reserve, plus interest fees.  This means that the federal government is already in debt for every dollar it calls into existence.  Abolishing the Federal Reserve will be difficult but it can be done; the first sixty-or-so years of this country’s existence, the federal government got along just fine without the Fed or a national bank.   Ron Paul makes an excellent case for abolishing the Federal Reserve in his book End the Fed.
The gold standard needs to be reinstated.  Gold has value and so does silver; paper has no value.  Gold is money, not paper.  Furthermore, the more paper money that gets printed only makes inflation rise.  When there is more of a wanted commodity, it goes down in value; when there is less of a wanted commodity, it goes up in value.  Gold cannot be mass produced, and that is why it has value.  Getting back to the gold standard will also make it easier to get the nation out of debt.  Paper money is useless to foreign governments; gold bullion is valuable and is universally treated as a concrete monetary supply.  Ron Paul lays out such a plan in his books End the Fed, The Case For Gold, and Pillars of Prosperity.

Foreign aid needs to be eliminated except where the U.S. is currently directly involved in nation building (Iraq and Afghanistan).  While providing aid to Pakistan is somewhat crucial to the Afghanistan War, it should be eliminated until the Pakistani government stops playing on both sides of the war.  The Afghan Border Police must be strengthened and increased in order to eliminate the Taliban elements criss-crossing from Pakistan.  With a strong Afghan Border Police, Pakistan will no longer be a major factor in the war, and without aide from the U.S. the Pakistani government will be free to go to bed with the Taliban, Al Qaeda, and anyone else they fancy.

Over time, nation building needs to cease.  It is one thing to send advisors in military, political, or economic matters, but it is completely different if the U.S. has to hold their hand or do it for them.  The U.S. can either be the world’s police or it can’t.  It must either go all out and stop oppression everywhere, or it needs to not get involved in foreign affairs.  The U.S. has a responsibility to fulfill the needs of its own citizens first before saving the world.

U.S. territories like Puerto Rico, Guam, the Virgin Islands, etc. need to either be granted statehood or completely emancipated.  The economies of the territories are virtually dependent on food stamps and what limited federal funding trickles down to them.  The citizens of these territories are United States citizens and they ought to be treated as citizens, not as estranged stepchildren from a spouse’s previous marriage.   This will be expensive, but it is a necessity.  They must either receive the full funding, benefits, and inclusion that comes with statehood, or they must be fully emancipated to grow as independent nations, eventually developing booming economies rivaling those of Hong Kong and Singapore.

Frequently mistaken economists like the Great Inflationist Alan Greenspan and others need to be ignored.  Those consulting the federal government should be well-known economists from the Austrian school of economics, whose theories have history as their testimony.

Lastly—perhaps the hardest thing of all—, parents will have to teach their children the values of patience and hard work.  After all, neither one can yield fruit without the other.  This idea of instant gratification must be abandoned, because such instant gratification thinking is what got the country into out-of-control debt.  Alexander Hamilton, the first Secretary of the Treasury, said repeatedly that debt can be a good thing as long as such debt is manageable, acquired sparingly, and used to create good things.  Clearly, such reasonable thinking has been abandoned.  It is time to discard the ideas of instant gratification and policies of inflation, rather taking up the ideas of financial responsibility.  Such is a pillar of moral responsibility.

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