Give Me Liberty or Give Me Debt! (3/5/06)

by Dean T. Hartwell

 

If we are known as people by the company we keep, our nation should be known by the creditors we take.  The United States has accumulated such a large debt that it would be of interest to understand how we got here and how it affects us.

 

What is the federal debt?  It is a combination of two separate debts.  The first is the public debt, or what the government owes its debtors for the services it provides its people.  The second is the debt incurred when the government pledges its guarantee.[1]  For example, the Farm Service, a USDA agency, makes direct and guaranteed loans to farmers.

 

Our federal debt is as old as our nation itself.  The colonialists amassed a $12 million debt (equivalent of approximately $144 million in today’s dollars) in fighting the War against Great Britain.  Just a few years after the war, a separate debt, the public debt, stood at $52.8 million dollars.  Much of that money came from France.

 

Over the years, wars have frequently added to the federal debt.  So have economic recessions and depressions.  Different approaches have been used to handle the federal debt.

 

Throughout the nineteenth century and leading up to the Great Depression, the president typically allowed economic downturns to run their course, opting to pay down the debt instead of adjusting economic policies.

 

When Franklin Roosevelt became president, he employed an economic plan called “Keynesian Economics.”  During the Great Depression, he offered tax cuts and spending increases to the public.  After Roosevelt’s policies reduced the unemployment rate from 25% in 1932 to 7% in 1944, many of the presidents who followed him also used Keynesian Economics.

 

In 1974, Congress passed an important law that increased the federal debt.  Frustrated with President Nixon’s strategy of impounding (refusing to release) money allocated by Congress, the Congress forbid the executive branch from engaging in this practice by passing the Budget Control Act.

 

Not surprisingly, the federal debt began to grow dramatically under the next presidents.  The debt rose from $1 trillion under President Carter in 1980 to $2.7 trillion under President Reagan in 1988.  The Budget Control Act, recessions and wars are leading factors in the current federal debt total of $8.3 trillion.[2]  So, too, are policies of cutting taxes without cutting spending.

 

Whom do we owe?  Most (56%) of the debt is paid by our own citizens and residents who buy Treasury bonds with the assurance they can cash the bonds in for a higher price later.  The remaining 44% of the debt is bought by foreign interests[3] in Japan, China, Taiwan, South Korea, Hong Kong, India and others.[4]

Some observers have suggested that these foreign interests absorb our debt as a way of securing protection from the United States.  This argument holds some merit, since the United States is not at war, nor is likely to be at war, with any of the nations where interests hold its debt.

 

Back home, the debt takes its toll.  We now pay eighteen cents of every dollar on the interest on the debt.  Instead of using this money to fund tax cuts, pay for national health care or maintain Social Security, we pay many in other nations to ensure that we will have our empire.  For a nation born into debt fighting an empire, this status seems altogether fitting.