Tuesday, November 20, 2007

Oh My God, The United States Owes A Lot Of Money!

I don’t like to borrow money but, alas, I did so I could buy the house I live in. If I don’t make the mortgage payment, the bank I borrowed from will likely take the house and kick me and my family out onto the street. To buy my 1997 Chevy, I again had to borrow money. I would be walking if I didn’t continue to make the payments; good bye Chevy. Too bad I couldn’t just borrow more money, or legally print some, so I wouldn’t have to worry about paying back the money I borrowed. Too bad I can't do what our government does.

There is a saying, “if you borrow money from the bank, the bank owns you but if you borrow enough money from the bank, you own the bank”. Unfortunately, I could never borrow enough money from the bank to own the bank. Now, if I were the U.S. government I wouldn’t have to worry about paying back my loans, all I would have to do would be print more money or “borrow from Peter to pay Peter”, that is, borrow more money from those that lent me the money in the first place.

By all accounts, our government owes trillions of dollars to China, for example. This concerns many experts, but since I am not an ‘expert’, it doesn’t bother me. It is true that China could call in its debts, which might really mess up our economy (because we don’t have the money to pay them back). If they did, would they, like the farmer’s bank, own us? I don’t think so. On the other hand, since we owe China so much money, do we, like the overextended borrower own China? Well, theoretically, but why would we want to. Just think of all the money we would have to print to pay the welfare costs.

China could theoretically ruin our economy by demanding we pay them what we owe to China, but why would they?

Firstly, it would be economic suicide for China to call in their US debt. Bringing down the US economically does not help China at this time and, indeed, would have an adverse impact on their economy since we are likely their biggest customer (who would buy all the stuff they produce if we couldn’t?). Furthermore, what would China do with all the excess dollars they accumulate from trade? There isn’t any place else for China to invest their money that has even the semblance of stability of the United States.

Secondly, an interesting thing about “paper” is that it burns. What would happen to all our “investors”, China included, if the US developed the cajones in time of crisis to simply declare a bank holiday or nullify all foreign debt by law or decree? Sure, we would be disliked and more on the world stage, but so what? After all, business is business. Can the world bear to have the largest and strongest consumer based economy fail? I think not.

So what is the answer to the question ‘Should we worry about the national deficit’? Well, I don’t like the national debt anymore than anyone else; but I dislike the cause of our national debt even more. It’s one thing to incur debt for basic necessities, like a home, medical care sometimes, and a 1997 Chevy. But creating debt because money is spent on things like studying the mating habits of insects, $500 toilet seats, and pork projects for legislatures to brag about, is something else.

Using our national income for the reasonable benefit of American citizens, like defense of our country and borders, is acceptable; and any resulting national deficit will not bring our creditors down on us.

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