Our Debt, Our Burden, Our Doom?

Alexander Hamilton said that the accumulation of debt is perhaps the natural disease of all governments. While I cannot speak for all governments, Hamilton was certainly right about our federal government.

Next week our national debt crosses the $16 trillion mark. This is made up of $4.8 trillion of intra-governmental holdings (think borrowing from the Social Security trust funds, along with government employees’ civil service retirement money) and nearly $11.2 trillion of “public debt”. Public debt is anything from your savings bonds to what we owe the Chinese. Much of the state and local government pension funds are tied up in our national debt.

Liberal economists and politicians used to say that we shouldn’t worry about the debt because it is money that we owe ourselves. You could make an argument for this viewpoint in the years that the shortfall between what the government spent and what it took in was at a reasonable level. Then, it was possible to fund the debt with savings bonds, treasury notes bought by banks and states and borrowing from Social Security. However, those days are past.

Today, paying for our deficit requires foreign nations, with lots of cash that they have to invest, to buy our debt. On inauguration day in 2009, our debt stood at $10.6 trillion. In the nearly four years that Obama has been president, the debt has gone up $4.6 trillion. The American people cannot internally buy enough treasury bonds to fund over a trillion dollars of new debt each year, especially with a moribund economy that has greatly suppressed people’s and business’ surplus money. You need a foreign power to pay our bills.

The Chinese are the biggest buyers of our debt but don’t discount other large holders like the Saudis and the other OPEC countries. In days when our economy was robust and our annual deficit did not seem like it was going to bring down the house around our ears, investing in American treasury securities was the safest place in the world to put your money. This is an extremely valuable asset when you are a foreign dictatorship and you need a safe harbor for your money. Now, however, that safe harbor doesn’t seem as appealing.

In some respects, the Chinese and others holding our debt is like a person holding a wolf by his ears. You dare not let go. These countries are compelled to continue buying U.S. debt because if they did not, our government would not be able to meet its financial obligations. If the federal government went into default, these holders would be left with a lot of useless paper. So would many Americans. But this cannot go on forever.

Earlier this year, as the Euro crisis was deepening, the European Central Bank reached out to the Chinese government about buying ECB debt to help prop up the Euro. China declined. It did not see the stability in the Euro and did not want to be stuck with bad debt. It is hard enough to hold one wolf by the ears. You can’t hold two.

That does not mean that the United States debt is safe. At some point, China could decide to cut its losses and stop funding us. It would be hard on them but the communists have made really tough decisions in the past. What would keep them buying our debts is some assurance that we could get spending under control. Under Obama this is not going to happen.

Our federal government has spent more than three years without a budget because the Democrats controlling the Senate refuse to vote on one. The Democrats have stumbled upon a new, effective and totally unethical strategy to get their way. They simply refuse to vote on something. In order to have a budget, the House has to initiate it (the Constitution requires that all appropriations start in the House); the Senate has to vote on it or their version; the differences have to be reconciled (this is the reconciliation process that you hear of) and the president has to sign the final bill into law. By failing to vote on their budget, the Senate effectively stops any budget being signed into law.

Our government has been funded by a series of continuing resolutions over the last several years. A continuing resolution is simply an agreement to let the government spend as they have in the past while the budget is “being passed”. Because the House Republicans are spineless, they never insist on lower spending limits in the continuing resolutions or refuse to agree to a continuation unless the Senate agrees to pass a budget. The result is the deficits continue to accumulate at the same outrageous rates with everyone blaming the other party and nobody taking responsibility. This is why at some point China is going to say enough is enough and let us fall on our faces.

Enter Mitt Romney. A lot of conservatives think Romney only pays lip service to conservative values in order to get the nomination. I think Romney is a pragmatist and a fixer.

Romney made his mark in business by seeing companies with potential, investing in them and making money. What he will bring to the presidency is the business sense to cut the waste, get the government back to essential services and bring spending back under control. And here is how we know that he will do this.

Romney picked Paul Ryan as his running mate. As chairman of the House budget committee, Ryan has put forth concrete plans to balance the budget and assure the solvency of both Social Security and Medicare. Romney knew that selecting Ryan meant Obama and the Democrats would attack Ryan’s budget proposals but it also did two things. First, it contrasts the Romney-Ryan ticket’s specific proposals to address the problems with the Obama-Biden deficit spending history. Obama can attack the plan but he cannot refute the fact that the debt went up nearly $5 trillion during his administration. Second, the selection of Ryan shows that Romney is serious about fixing the problem. You don’t pick somebody with a specific deficit reduction plan to be your vice president and then tell him to sit quietly in the corner. Remember, Romney is a fixer and Ryan will be the tool that he uses to fix the problem.

From Alexander Hamilton’s perspective, this government is very diseased. The cure is to stop spending and to get our finances in order, as Hamilton did when our country was founded. The medicine is Romney-Ryan. Obama will never cure us of this disease.

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