How Sound Is the Wealthiest Nation?
MEASURED by the value of goods and services produced, the United States is the world’s wealthiest nation. It also has one of the highest living standards.
In Vital Speeches of the Day, an economist observed: “It is true that the United States’ economy has raised our standard of living to an unprecedented level of affluence. But it is no less true that in the space of one generation we have imposed on our economy the greatest debt structure in human history.”
Yes, much of the current high standard of living has been attained on borrowed money.
As a result, the United States has an enormous debt load, with more debts piling up each year. Externally, the country often runs deficits. Internally, its debts are enormous.
Robert Swinarton, vice-chairman of Dean Witter & Co., states: “As a nation, we’ve been afflicted with a wild impulse to go into hock, or as a recent editorial in Barron’s put it: ‘Virtually the entire nation, from bureaucrat to breadwinner, has evinced a kind of rage to borrow. This rather universal propensity to burn up the future remains, we’re convinced, one of the excesses for which there has yet to be a day of reckoning.’”
The total debt in the United States is now well over three trillion (three thousand billion) dollars! That is about twice as much as the value of all the goods and services it produces in an entire year.
Regarding this vast debt, U.S. News & World Report asks: “Is It Out of Control?” it answers: “The mountain of debt has become far too heavy for a good many borrowers.”
Of the gigantic debt total, the federal government owes about $650 billion, corporations about $1,500 billion, individuals about $1,000 billion, and city and state governments about $230 billion.
The federal government has had huge deficits in the past few years. These have come about, of course, by spending far more money than it has been making in taxes.
In each of the last two years, the deficits have been enormous. In fiscal 1975, the deficit was $43.6 billion, larger than at any time since World War II. In fiscal 1976, it was $65.6 billion, the largest in U.S. history! Why, the interest alone on the federal debt is now about $40 billion a year! In 1939 it was $1 billion.
Nor would it be easy to cut costs. The government’s “built-in” obligations continue to grow. For instance, the cost of modern armaments continues to rise, now being well over $100 billion a year. The cost of pensions for government employees is six times as high as it was ten years ago, and is expected to double or triple in ten more years. The Civil Service Retirement Fund is paying out more than it is taking in. So is Social Security.
The Wall Street Journal claims that the government’s obligations for just the Social Security System’s payments to the elderly, retired and disabled will mean a future deficit of about 2.5 trillion (2.5 thousand billion) dollars. The newspaper says: “As liberals like to argue, the nation owes this debt to itself, and it will be paid off by raising taxes in the future. Of course this is nonsense. Increasing future taxes by these magnitudes can only disintegrate the tax base.”
When the government runs a deficit during the year, it must borrow money to pay its expenses. One way in which it does this is to sell securities, such as government bonds, to individuals, banks and corporations.
But the government finances its borrowing in another way too. It can ‘create money out of thin air.’ On this, the New York Times comments: “Only one thing is entirely agreed, accepted and understood about the somewhat mysterious and often controversial subject of the Government’s monetary policy, which is conducted by the semi-independent Federal Reserve Board. This is that the Fed, as it is commonly known, can create money out of thin air by writing a check on itself without any deposits to back that check. It can do so in unlimited amounts.” True, Congress must continually approve new and higher debt limits, but it nearly always does.
Of course, the government hopes to make enough money in future taxes to pay back the value of the securities it has issued, in effect canceling the debt. But in the past sixteen years, the United States has had only one small surplus, having deficits the other fifteen years. And the deficits have grown much larger recently.
Many economists feel that government debt is one of the main reasons for inflation. So much excess money pumped into the economy causes the prices of goods and services to go up.
One result of all this excess spending is that in the past four decades the American dollar has lost about 75 percent of its purchasing power. But this has happened elsewhere in the world too.
The American Institute for Economic Research states: “All currencies have been and are being degraded steadily. All now have lost about three-fourths, at least, of their pre-World War II buying power, and all seem destined to depreciate much more in the next several years . . . before they become practically worthless.”
The Institute places the main responsibility for this degrading of money on the “inflationary purchasing media created to finance government deficits.”
“Bitter Lessons” Ahead
Somberly, this report also states: “We see little possibility that there will be a return to sound money-credit procedures until after some bitter lessons have been learned during a future depression.”
Similarly, Baxter says: “The inflationary impact of large and persistent budget deficits is destroying the financial foundation underlying the U.S. economy.”
Gilbert M. Haas, head of an investment counseling firm, also observes: “Constant overextension of debt has caused a steady deterioration of financial liquidity [cash or assets easily converted into cash]. Ultimately this will lead to an international money panic, followed by a worldwide depression.”
Could the government simply cut expenses, bringing its budget into balance? Yes, but that could mean higher unemployment. The economic system is so structured that if the government now stopped pumping “created” money into the economy, many people could lose their jobs. And there are already too many unemployed. Also, taxes are already high, so that raising them to try to balance the budget could meet severe resistance, perhaps even a ‘tax revolt.’
Thus, the world’s wealthiest country has its own serious money troubles. It is awash in debt, and is in a poor position to help other nations that are drowning in debt.
[Picture on page 8]
‘All currencies have lost about three fourths of their pre-World War II buying power’