Only One Day Left!
Only two days until the “end of the world” as we know it. Doom, I say! I mean … really? Are we going to implode if we don’t make our budget by the end of the debt debate? The Republicans say we need to spend less. We need to balance our budget. Democrats say we need to raise the spending limit. I see both sides. If we just cut spending, the seniors who are on Medicare will get screwed out of some of their benefits and the welfare crowd will erupt into an all out riot. It would b e like taking candy from a baby… except with guns. The Democrats want to increase our spending limit. To merely increase the limit would be like getting yet another credit card because you happen to be behind on your mortgage. That simply won’t float either. Sooner or later you will have to pay your debts, be it the mortgage company or all those credit cards.
Our President, as well as the major news media outlets all tell us, with great fanfare, that the US government has “never” defaulted on its debts. Unfortunately, this is just plain wrong. They overlook the very significant defaults of war of 1812, 1862, 1933 and, most recently, 1979. OK, we’re about to default. Lets face it, this country was born in default. I mean, after the “American Revolution” we owed a ton of money to France. Do you think they saw anything? We won our independance from England and we spent every cent available to do it. We were free, but we were also dead broke. That’s just the way it was.
I love looking this stuff up. Wikipedia is simply the best. Anyhow, “default” is not a “never word.” Just prior to 1933, US Treasury bonds were promises to pay gold at $20.67/oz. Yet one of the first acts of the Franklin D. Roosevelt was to revoke this promise. After 1935, foreigners were paid in paper dollars they could redeem for gold. But unfortunately, the paper currency was worth just that… paper.
The government did not just default on its own Treasury obligations, it took the entire US economy down with it by imposing a similar default on private borrowers.
During the Civil War, the Federal government financed many of its expenses with “United States Notes,” or “Greenbacks”. These were, like private banknotes, promises to pay lawful money on demand, which initially meant gold at $20.67 an ounce or silver at $1.29 an ounce. All paid at the government’s discretion… which was whenever.
Throughout 1861, the Treasury kept its promise to pay gold on demand. However, at the end of 1861, it announced it would suspend redemption effective Jan. 1, 1862. Greenbacks began to circulate at a discount relative to gold, and were made legal tender in the interim. Government bonds were still available, but holders of greenbacks never got their promised value until 1879.
It could be said that Greenbacks issued after February 1862 were merely promises to pay at the government’s earliest convenience. So the government was not technically in default, even if they didn’t realize it would take 17 years to collect. However, the greenbacks issued during 1861 clearly defaulted.
So, contrary to the “chicken little” Democrats harping on the television, a Treasury default next week would not be unprecedented, it would clearly be detrimental to the Treasury’s credit rating. With a national debt in excess of $16 trillion, an added 100
points to the loans, the Treasury will have to pay an additional $160 billion per year to its annual deficit. So the Congress (and Obama) should therefore make every effort not to default.
We will have some serious issues with our credibility and also to the economy if we default. On the other hand, most private businesses, and most Americans, for that matter, have been saving money, food and ammo for a rainy day ever since Obama was first elected. I think it’s just now hitting home for many.
As I see it, our government leaders have spent themselves into a hole. They have given away so much “free stuff” to the their constituents that there is no easy way out of this. We are in for some troubled times and in the end, our country will likely slide into a state of condition to equal that of Mexico.