Timothy Geithner warned that a failure to raise the debt limit would mean the government would not be able to make the payments on the current debt in the very near future.

Consult the official record and you’ll read that the U.S. has never defaulted on its obligations. That’s technically true…but then what about when France’s prime minister Charles de Gaulle politely asked the U.S. to hand over the gold it promised was backing the U.S. dollars held by France and other nations?

“No gold for you!” Nixon was heard to say. That’s because the U.S. had printed a lot of dollars in order to pay for Lyndon Johnson’s social programs and war (among other things). There was no way that the ratio of dollars to gold held by the U.S. was still anywhere near an amount that would support the official $35/oz.

What was the real price of gold with all those extra dollars floating around? Who knows? But when they were allowed to own gold again beginning in 1974 Americans bid gold up to over $887/oz in just six years.

Nixon knew back in 1971 that there was no way the U.S. could make good on the dollar at the official rate. The official rate was a lie. If every yahoo with $35 U.S. were to show up at the gold window then, only a small percentage of them would get their gold. So Nixon “closed the gold window.”

But a default by any other name apparently isn’t really a default.

And now Mr. Geithner tells us that in order not to default, the U.S. government has to take on more debt.

Remember, there are certain ways government gets purchasing power…

Steal it directly by openly taxing its subjects (on income, payrolls, transactions, imports, exports, etc)…

Steal it sneakily through currency debasement (inflate paper money supply or clip the coins).

Borrow it.

Number three really isn’t really income, however. And it often leads to number two.

Geithner just admitted that if the U.S. doesn’t borrow more than the current debt ceiling allows, the government wouldn’t be able to meet its obligations. When you can’t pay for your expenses — including the interest on the debt you already owe — is it really a good idea to borrow more?

Maybe you should cut up the credit card, move to a smaller apartment, sell the car and take public transportation, stop eating out so much…any of these things in any combination would help. Borrowing more to fund your lifestyle doesn’t make the list. It just guarantees there will be even more pain to reckon with later.

Borrowing is what got them in this jam. Raising the debt ceiling at this point is about as healthy as having the credit card company extend an individual more credit when he already owes more than he can make in a year.

Some would say not to worry so much. Sure, the national debt is unthinkably high in absolute terms, but as a percentage of GDP the debt isn’t as bad as it was right after WWII. And, say, didn’t the national debt go to zero briefly under President Jackson?

Today the choices for dealing with the debt are pretty simple…

…They raise income by stealing more in taxes, less money is available for business investment and tax revenues ultimately fall.

…They lower expenditures and the net tax recipients could get violent.

…They default honestly and the dollar falls hard and fast.

…They default sneakily by creating new money to monetize the debt and the dollar falls slowly at first…and then hard and fast.

Or they could just raise the debt ceiling and let the next couple of generations worry about it.

They’ll probably just raise the ceiling. They’ll put off the day of reckoning. Who wants to contend with currency collapse and hyperinflationary chaos today? Let it be on our children’s heads…and that of our children’s children.

Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder

January 7, 2011

A National Debt That Will Never Be Repaid was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

We have managed to create enemies around the world by interfering in others’ business, lifestyles, and politics, especially in Muslim nations. Why are we in Afghanistan, and Iraq? Why are we responsible for millions of innocents being put to death in Iraq, Afghanistan, Vietnam, and Korea? Did any of these nations harm or threaten us? It goes back to economics again, because those wars have reduced the value of our dollar so much, that it will buy but perhaps 10% of what it bought before Korea. The devaluation of the dollar has made saving in it stupid, but most still do. We have decapitated cities, jobs and manufacturing gone overseas, and a huge underclass. How did it happen?

Several things happened, and not just when FDR came into office. They all have been committed by…the federal government. Every single problem or situation we have now, in this once land of the free and home of the brave, was instigated by the federal government and the Congress and Presidency which operates it. The concept of public schools, and for that matter ‘public’ anything, is certain to lead to corruption, inefficiency, huge costs, and little accomplished. Would you rather use a private bathroom, or a public rest room? The concept of public schools, arose from the usual reasons, which politicians always use, and that is ‘for the public good.’ ‘Everyone should have an education!’ Everyone should be rich too, and have a car, nice home, ample food, vacations, free air travel, and admission to movies and amusement parks also. But everyone isn’t going to get those things, at least for now, so why should government make taxpayers pay for and force attendance to a public school? Public schools are a disaster, simply because they are ‘public,’ and everyone thinks they are ‘free.’ Before public schools, America was infinitely better educated than it is now. Check out a McGuffy’s Reader of 125 years ago, and see for yourself.

Voting used to require people to be able to pass a literacy test and pay a small poll tax before they were allowed to vote. This sifted out those who were unable to make a good decision, or even know what they were voting for, and the poll tax paid for the cost of the election. When the voter rights act was passed, do-gooder liberals invaded poor sections of America. As a result, we had, and have even more now, inept voters, who always vote for the Democrat who promises the most largess from the public treasury. This takes us back to economics again, and a huge debt. America has a crop of politicians in office, who are an absolute disgrace, because of the overwhelming number of inept, low IQ, un-educated, voters. What is wrong with a voter being able to know what’s going on, and to have to pay a dollar or so to be able to vote? As an addition, why not require a voter to prove he has a job, or even own property?

When FDR and his Democrats passed Social Security, which has naturally become a habit-forming nightmare, Americans forgot how to prepare for the future, and Social Security will be with us forever. Its cost will escalate infinitely, and is already bankrupt, with not a single dime in the till. A nightmare conceived by politicians, because everyone ‘needs to have a good retirement,’ which is the same as saying, “everyone needs an education.” The result of both is a disaster. What everyone ‘needs,’ and what our Constitution says government should do, are opposites. People should have to work for what they “need,” and not have it given to them, because it destroys the mind and incentive when they are given what politicos have told them they “need.” For every freebie or subsidy, the deficit grows larger, and collapse grows nearer, which will bring on violence. Try to get out of the big cities before the inevitable happens.

The public school idea, has proven to be a disaster of titanic proportions, but no one knows how to stop it or tame it. It’s that way with all supposedly important and needy things, such as food and health care, to name two more examples. When Medicare was passed in 1965, because ‘everyone needs to have good health,’ the camel got its foot in the tent, and now he is in the tent, and the medical system will go down the tubes. Medicare, was simply the first step towards what Obama, Democrats, and probably too many RINO Republicans want, and that is what Canada, the UK, and other socialistic nations have, and that is total government medical care. This will mean that America will no longer be the primary discoverer of new drugs, and have the world’s best hospitals and doctors. We’ll just be another cog oin the big wheel of socialism, communism, and totalitarianism, or total government.

When the first public housing was built in 1937, because “people need to have a place to live,” that spelled the ruin of our cities, caused white flight, huge oil consumption for commuting, expensive, taxpayer paid for highways, air pollution, frayed nerves, billions of hours wasted in travel time, and lost tax base in the cities. There will always be public housing now, because no one could possibly do away with it. Those people vote for their Democrat representatives and senators.

When food stamps were started in 1972, because ‘poor people need to eat,’ another cog in the communistic wheel of total government was cast, and it will never go away. I haven’t even mentioned the income tax and Federal Reserve, which was sneaked into law in 1913. (The word “snuck” is terrible grammar, and far too many use it!). The Federal Reserve, which is not ‘federal,’ and has no ‘reserves,’ caused the great depression, as well as the one we are currently in, but no one in D.C. has the guts to look at the fed, and realize that it has helped to kill America. The 16th Amendment (income tax) was not legally ratified, but the Supremes say it was, even though absolute proof exists that its ratification was totally unconstitutional. Two volumes in my possession, titled, “The Law That Never Was,” volumes one and two, give every state’s vote, and every single detail of that state’s vote for the 16th Amendment, and this unequivocally proves that it was never constitutionally passed. So we continue to pay, and probably always will. No one in D.C. has the guts to stand up and say ‘ENOUGH.”

If all these things were immediately stopped dead in their tracks, we would have mass rioting, which we might have anyway, when the debt problem causes a dollar melt-down. There may be ways to correct it still, if the Tea Party Movement gets really into gear. Here’s how it could happen if the right politicians got into office.

(1) Prohibit any new entries into Social Security, but allow those in it already to continue. Give a refund of all that was put in, for citizens under the age of 30. That would rid us of it in 32 years.

(2) Prohibit any new entries into Medicare, and refund all that those under 30 have put in, plus abort the new Obamacare law.

(3) Eliminate all federal subsidies for public schools, public housing, and public anything. Let the states decide what to do, and what to tax.

(4) Gradually eliminate 90% of federal bureaucracies, beginning with immediate removal of the Department of Education. Want a shocker? Google “Federal bureaucracies and agencies,” and you’ll be amazed at the nonsense that goes on in D.C.

(5) Eliminate all federal mandates to states, counties and cities. These cost taxpayers lots of dollars, and are throttling their legitimate functions.

(6) Naturally, bring all the troops home, and declare total neutrality, which might bring a semblance of sanity to D.C.

(7 to 100) you name it!

We are at a time in history, when it might be possible to save America from the natural progression of things throughout the history of all nations and civilizations, which seem to have had a lifespan of about 200 years. We’re way past that. It will be difficult, seeing the low quality of voters who always vote for the Democrat who promises them the most. We got the low quality because of the above. To win, the thinkers and logical, patriotic citizens, must out-vote those who are hooked on handouts, Medicare, Social Security, food stamps, public schools, and public housing. It will not be an easy job! There is so much wrong here, all caused by ever growing government. Mistakenly, people look to government to fix things, but government not only makes things worse, but creates ever more destructive laws, bureaucracies, and mandates, which have destroyed America. Ten years ago, would any American have thought we’d have a couple dozen “Czars?”  Chin up, protect yourself, and go to one of 2,000 Tea Parties today!

Regards,
Don Stott
Whiskey & Gunpowder

April 16, 2010

Federal Government Provides Entitlements at the Cost of Collapse was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Old Whiskey Rebellion and Modern Tea Party

During the Whiskey Rebellion of old, irate Western Pennsylvanians burned down the house of George Washington’s appointed tax collector, General John Neville.  This wasn’t without provocation, of course.  The bonfire started after one of Neville’s federal marshals shot and killed an unarmed tax protester.  Lesson to the feds:  Be careful who you shoot, especially when they can shoot back.

The recent Pittsburgh Tea Party was far less inflammatory, although some of the issues and basic sentiments are much the same as those of the 1790s.  The original Whiskey rebels opposed a distant and aloof government that reflected the interests of an East Coast cultural aristocracy.  Despite the personal popularity of George Washington, his federal government was imperial and out of touch.  To answer a summons in federal court, for example, a Western Pennsylvania farmer had to trek near 300 miles across the mountains to Philadelphia.  And the lack of a useful national currency – one of the key functions of any government — handicapped economic growth.  In fact, for lack of real money on the western frontier, people used whiskey as a form of currency.

The final straw came in 1792 when Treasury Secretary Alexander Hamilton proposed raising revenue by taxing the capacity of stills.  And in those days, stills were no mere means of making recreational moonshine.  By 1794, the draconian collection of Mr. Hamilton’s new tax placed at risk the ability of farmers to transform their surplus grain into more transportable and saleable whiskey.

In other words, the whiskey tax damaged the farm economy, which was about all there was west of the Alleghenies.  Inept government economic and monetary policy placed the future at risk.  Thus did many citizens rebel.  And rightfully so, some say.

Rooted in Citizen Anger and Frustration

What’s behind the modern “Tea Party” sentiment?  I believe that it’s rooted in citizen anger and frustration that the federal government just spends and spends and spends, with no evident heed for tomorrow.

The justification for heedless increases in government spending – even worse, increased spending with borrowed money — is along the lines of Pres. Franklin Roosevelt’s famous comment that “If we borrow funds, then we owe it to ourselves.”  The modern justification, as a Federal Reserve official once explained to me, is that “As long as we can afford to pay the interest on the debt, it’ll be OK.”

But the people are not blind, let alone stupid.  It is clear that the federal debt just grows and grows.  How much longer can this last?   Today many informed citizens understand that the national debt is way too big.  The rate of growth is out of control.  We don’t “owe it to ourselves.”  We owe it to the Chinese, the Japanese, the Middle Easterners.  And we cannot afford to pay the interest anymore.  Well, not if we want to be able to do anything else as a nation except work like tax-slaves to pay interest on past debt.

By any technical measure, the federal government is insolvent — except for that quaint custom of inflating the currency with fiat dollars.  So really, the nation is long overdue for a national discussion on the fundamental nature of its money.  Hence the Tea Parties.

The Pittsburgh Tea Party Crowd

In Pittsburgh a crowd of several thousand (estimates range from 2,500 to 5,000) formed last week in the city’s old, historic Market Square.  Market Square dates to the 1700s, and perhaps the bedrock still recalls the events from the days of George Washington.  The mid-April weather was characteristically lousy, with drizzle and rain falling in 50-degree temperatures.  If you were there, it was because you wanted to be there.

The Tea Party attendees struck me as a cross section of Western Pennsylvanians.  There were many Steelers jackets, and ball-caps with military logos and veteran patches.  I asked around, and met business owners and office workers, factory workers, lawyers, health care providers, restaurant workers, and a few people who are, as they put it, “between jobs.”  There were off-duty cops and firefighters, courthouse employees, bus drivers and even a few bikers resplendent in their leather and tattoos.

The Tea Party brought out the creative side of attendees as well, with people dressed in Colonial period costumes.  To my observation, it was an orderly and respectful crowd, filled with sincere people who appeared to know their American history.  My gut feeling was that the Tea Party attendees understood why they were out standing in the cold rain.  (One 30-something woman told me, “I’ve never been to a political rally in my life.  But I’m just scared for the country’s future.  We’re going to be broke.”)

The makeup of the crowd was young and old, men and women.  There were retirees (as indicated by their hats and T-shirts), middle-aged people, and young people complete with pink hair and metal in their ears.  There were parents with children.  (One participant told me, “I brought my son with me because I want him to remember this day.  I think we’re at the beginning of something that’s going to change the country.”)  There were white and black, Asian and Indians.

Many Tea Party attendees carried signs, all apparently homemade.  The verbiage ranged across a conservative to libertarian political spectrum.  Some signs were historical, with deep roots in the 1913 coup d’etat of American Progressivism under Pres. Woodrow Wilson.  (“The Fed is Illegitimate.” and “Abolish the 17th Amendment.”)  You don’t see many signs like that these days, that’s for sure.

Other signs were rock-ribbed statements of protest about taxes and spending.  (“Give me Liberty, Don’t Give Me Debt.” and “Born Free, Taxed Beyond the Grave.” and “Abolish the IRS, Support the Fair Tax.”  and “Wall Street Banks Got Billions, and All I Got Was This Lousy Sign.”)

Other signs – not many — knocked Pres. Obama; but I would not characterize the Tea Party as just an anti-Obama rally.  There were indications of deeper dissatisfaction with the federal government, at a systemic level.  One sign knocked the “Bush-Obama Ripoff.”  Other signs were along the lines of “Abolish Congress,” which is not exactly realistic, considering the wording of the U.S. Constitution.  (Vote the bums out, maybe?)

One sign hit on the corruption of the process of governance, stating, “Big Fraud from Little ACORN Grows.”  These were not the usual mass-produced, “union-label” signs that you see at those “other” kinds of political rallies.  I’m sure you get the idea.

The Tea Party Organization

The 2009 Pittsburgh Tea Party was organized by a suburban housewife, albeit one with an MBA from the Harvard Business School.  From what I heard, a few politicians volunteered to speak.  The terse reply from the organizers was along the lines of, “No, this is where the people will speak.  You politicians need to shut up and listen.”

There was no indication that the Tea Party was an “Astroturf” event.  The Tea Party received almost ZERO media coverage in the days leading up to it.  It had all the markings of a “flash rally,” organized on the Internet.  The local talk radio guys scarcely mentioned it, to my knowledge.  (If they did, I missed it.)  The local newspapers gave no advance publicity.  The local TV stations were too busy covering the usual pabulum about car crashes and house fires.  If it doesn’t bleed, it doesn’t lead.

It seemed to me that the attendees of the Pittsburgh Tea Party were there of their own volition.  I sensed no mind-control from the evil Fox-News Network, and I wasn’t even wearing my radio-blocking aluminum skull-cap.  Contrary to the defamatory stereotype pushed by the incompetent mainstream media (the LA Times characterized Tea Party attendees as “insane”), the Tea Party people seemed to be decent folk, able to think for themselves and form independent opinions.  And many Tea Partiers have apparently formed the opinion that the federal government is spending the country into ruin.  To those of us who follow the issue, it’s a valid point.

The Tea Party Festivities

The Tea Party stage was decked out with flags.  Festivities began with a musical mixture of patriotic tunes and Country-Western music.  The Tea Party kicked off with a brief welcome from the organizers, followed by a moment of silence in memory of three Pittsburgh police officers who were killed in the line of duty a couple weeks ago.  Then a prayer.  Then the Pledge of Allegiance.  Then the national anthem.  In other words, it was as patriotic as the 4th of July.  Nothing radical.

The first speaker discussed the ever-expanding federal budget.  If you’ve seen the movie I.O.U.S.A., produced by Addison Wiggin of Agora Financial, then it was nothing new except that this was a Tea Party protest in downtown Pittsburgh.  And criticizing federal spending in downtown Pittsburgh is not something that happens very often.

Another speaker gave a spirited history lesson about the origins of the Federal Reserve.  It was Creature from Jeckyll Island-kind of stuff.  It was surprising (to me) how much of the discussion the crowd appeared to understand.  It was astonishing, really.  I think that most of the Federal Reserve scholars in town must have been in the audience, because people seemed to know exactly what the guy was talking about.

A third speaker gave a solid speech about the evils of ever-expanding government.  This guy is a multi-millionaire who built his own nationally-ranked high-tech business and made a fortune.  He’s met a few payrolls in his career.  He discussed the exploding levels of federal expenditures.  He hit on the ballooning national debt, and asked rhetorically how the nation ever intends to pay just the interest, let alone the principal.

And so it went, with more speakers giving talks along the same lines.

The Hecklers in the Crowd

Of course, a few hecklers showed up to make noise.  While one of the early speakers was discussing how federal borrowing is crowding out private investment, a group of five (I counted them) people started to chant, “O-Bam-A!  O-Bam-A!  O-Bam-A!”

At first, the crowd ignored the hecklers.  Then the hecklers realized that they were having no effect, so they yelled louder.  Eventually, it was kind of hard to hear the speaker.  A few members of the Tea Party crowd turned to the hecklers and told them to shut up, have some respect, etc.  That was like throwing kerosene on a fire.  Now the hecklers were hollering at the top of their lungs.

There were a few TV cameramen from local stations covering the event.  Needless to say, the camera-guys rushed over to film the hecklers in action.  By now the five hecklers were having a great time, yelling and making enough noise to disrupt the proceedings.  Then some Pittsburgh cops and event organizers walked over to tell the hecklers to keep it down.

The cops must have said something, because the hecklers broke up and started walking around the edge of the Tea Party crowd, yelling epithets like, “You’re all racists.  You can’t deal with a black man in the White House.”  To which a black guy standing next to me said, “I’ll bet these punks are ACORN activists.”  He turned and talked right at one of the hecklers, saying, “Why are you causing a disturbance?  Get out of here.  Go home to your mama.”  So the heckler called the black guy an “Oreo,” as well as a few other words that I thought were banned from modern vocabulary.  Then a Pittsburgh cop walked up to the heckler and politely asked him to “move along, unless you have some other reason to be here.”  Pittsburgh’s finest.

Media Coverage

The local media gave almost no coverage to the Pittsburgh Tea Party.  The TV stations focused on the hockey playoffs between the Pittsburgh Penguins and the Philadelphia Flyers.  One station ran a short, insubstantial fluff piece, with plenty of attention to the five hecklers.

The Pittsburgh Post-Gazette, located three blocks from Market Square, buried its next-day coverage within a critical, anti-Tea Party story distributed by the Washington Post.  The photo on the inside pages of the Post-Gazette was from a Tea Party in Cincinnati.  On its editorial page, the Post-Gazette ran an insulting cartoon by the predictable and pedestrian Rob Rogers.  The cartoon showed three raw-looking, hirsute men sitting around a table, sipping tea and bellyaching (get it?  Tea Party?)  Meanwhile, the circulation of the Post-Gazette is falling and the newspaper is laying off staff.  Gee, I wonder why people don’t bother to read the Post-Gazette?

What Were the Tea Parties About?

But it’s not just the Pittsburgh Post-Gazette that’s missing the boat.  The talking-head androids of Big Media also missed the point of the Tea Parties.  To the extent that there is any remotely accurate reportage going on, the focus seems to be that the Tea Parties are well-off people bitching about high taxes.  Even the Gallup Poll organization took the bait, publishing a recent report stating:

“A new Gallup Poll finds 48% of Americans saying the amount of federal income taxes they pay is “about right,” with 46% saying “too high” — one of the most positive assessments Gallup has measured since 1956. Typically, a majority of Americans say their taxes are too high, and relatively few say their taxes are too low.

But focusing on the level of taxation is the wrong issue for Gallup to track.  It struck me that the Tea Party attendees in Pittsburgh were worried more about the use of their tax dollars, and the explosion in federal deficit spending.  The Tea Party movement strikes me as more about the dangerously growing size of the federal government.  From what I could gather, the Tea Party attendees opposed the unalterable trend of endless federal growth.  And coupled with this there is, of course, a deep fear about the eventual decline in value of the dollar.

Like I said earlier in the article, it’s about time for the U.S. to have a national discussion about the nature of its money.  What is a U.S. dollar any more?  Where does national wealth come from?  We ought have that national chat while we still have some money, and while we can still create wealth.  Because a lot of people appear to sense that something important is coming to an end.

And when things fall apart, we’ll be in for a generation or two of very tough times.  So the political class, and its Big Media androids, are ignoring the Tea Party movement at their peril.

Until we meet again,
Byron King

April 22, 2009

The Pittsburgh Tea Party was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.