Use access key #2 to skip to page content.

Repudiating the National Debt

Recs

24

March 13, 2009 – Comments (21)

The climate appears right to approach this subject once again. Take the opportunity, if you have time, to disect this argument for repudiating the national debt. Don't take it at face value but give it some thought. Ask yourself, why should I, and my children, be economically enslaved to fund the waste and war of previous politicians? Of course, there is a possiblilty that debt repudiation could lead to war, but then again, debt expansion has financed every war in American history. And of course there is the possibility that the government could never raise funds again through debt expansion, to which I respond: "thank God."

Here are some highlights from the essay linked above:

Deficits and a mounting debt, therefore, are a growing and intolerable burden on the society and economy, both because they raise the tax burden and increasingly drain resources from the productive to the parasitic, counterproductive, "public" sector. Moreover, whenever deficits are financed by expanding bank credit—in other words, by creating new money—matters become still worse, since credit inflation creates permanent and rising price inflation as well as waves of boombust "business cycles."

It is for all these reasons that the Jeffersonians and Jacksonians (who, contrary to the myths of historians, were extraordinarily knowledgeable in economic and monetary theory) hated and reviled the public debt. Indeed, the national debt was paid off twice in American history, the first time by Thomas Jefferson and the second, and undoubtedly the last time, by Andrew Jackson.

Although largely forgotten by historians and by the public, repudiation of public debt is a solid part of the American tradition. The first wave of repudiation of state debt came during the 1840's, after the panics of 1837 and 1839. Those panics were the consequence of a massive inflationary boom fueled by the Whig-run Second Bank of the United States. Riding the wave of inflationary credit, numerous state governments, largely those run by the Whigs, floated an enormous amount of debt, most of which went into wasteful public works (euphemistically called "internal improvements"), and into the creation of inflationary banks. Outstanding public debt by state governments rose from $26 million to $170 million during the decade of the 1830's. Most of these securities were financed by British and Dutch investors.

The government gets the money by tax-coercion; and the public creditors, far from being innocents, know full well that their proceeds will come out of that selfsame coercion. In short, public creditors are willing to hand over money to the government now in order to receive a share of tax loot in the future. This is the opposite of a free market, or a genuinely voluntary transaction. Both parties are immorally contracting to participate in the violation of the property rights of citizens in the future. Both parties, therefore, are making agreements about other people's property, and both deserve the back of our hand.

Read more

David in Qatar

21 Comments – Post Your Own

#1) On March 13, 2009 at 12:19 PM, alstry (35.42) wrote:

The National Debt is not the problem....it is only $10 trillion dollars.......it is the entitlement obligations and the debt of the American People, Businesses, and State and Local Government....that is closer to $100 trillion dollars.

It is sorta a joke to read the headlines today about China being concerned about our debt to them.  It totals about one trillion dollars.  We could pay it off tomorrow with little impact on the dollar or our economy....heck we have printed multiples of that amount and given it to the banks with little impact on the dollar.

Few really understand the subtle difference between the National debt and entitlement obligations plus NON national debt.

Report this comment
#2) On March 13, 2009 at 12:24 PM, StatsGeek (29.26) wrote:

High debt = loss of liberty = loss of autonomy.  We owe the rest of the world trillions.  I hope no one decides to break our kneecaps in an effort to collect.

If China has half a brain (and I'm sure they've got more than that), they are moving their wealth as quietly as possible from our IOUs to stuff that has real value -- natural resources, energy, metals and food.  Oh wait, that's exactly what they are doing.  Anyone notice the recent new item about they have 100 million barrels of strategic oil reserves and an agreement with Putin for future supply?  Anyone notice the other news item about how they are trying to buy farmland?

 

Report this comment
#3) On March 13, 2009 at 12:34 PM, whereaminow (20.23) wrote:

Great point alstry. The off balance sheet entitlements are very worrisome, particularly since the people have become so dependent upon the government to take care of them.

David in Qatar

Report this comment
#4) On March 13, 2009 at 1:18 PM, chk999 (99.97) wrote:

Russia tried that trick when the Soviets renounced the Tsarist bonds. It haunted them for over 60 years. On a one to ten scale of good ideas this is a -1000

Report this comment
#5) On March 13, 2009 at 1:29 PM, whereaminow (20.23) wrote:

chk999,

I don't think repudiating the national debt would rank in the top 1000 bad ideas of the Communist government.

If it has worked in America in the past, then we can say that it is not always a bad idea. The question is, would it be a good idea now. That's debatable. But saying it haunted russia for 60 years ignores quite a lot of other policies that could have haunted russia.

David in Qatar

Report this comment
#6) On March 13, 2009 at 2:40 PM, BenGriffin71 (27.97) wrote:

David.

Thank you.

I very much appreciate the ideas you bring, and the way in which you introduce these.

Report this comment
#7) On March 13, 2009 at 4:40 PM, jstegma (29.25) wrote:

Very good post.  I agree with chk that this is currently not a good idea at all.  However, at some point the dynamics of the generations will change it.  Once it gets to the point where the money that was borrowed is no longer benefitting the taxpayers that are expected to pay it, repudiation becomes an issue.  It just has to get to the point where it benefits the current and future generations more to get out from under the past debt despite the consequences of difficulty in borrowing any more.

It seems ridiculous at first to talk about repudiating the debt, but when you think about it, we never really run a surplus.  It was talked about at the end of the Clinton years, but that disappeared before it ever materialized when the internet stock bubble burst.  So at this point I think it is beyond any reasonable expectation that we would ever just pay the debt back through spending less than we tax.

Report this comment
#8) On March 13, 2009 at 6:09 PM, whereaminow (20.23) wrote:

Ben,

My pleasure.

jstegma,

Great insight and very convincing. I would agree it is something that we may have to revisit, but probably not right now. With each passing year, decade, etc that Americans believe the debt can't be repaid, repudiation becomes a more likely scenario.

David in Qatar

Report this comment
#9) On March 13, 2009 at 10:56 PM, vriguy (72.29) wrote:

Why repudiate when you can inflate your way out of debt? Our crooked politicians have the ability to do so because our debts are denominated in dollars - not yuan or yen.

Report this comment
#10) On March 14, 2009 at 3:06 AM, DaretothREdux (40.55) wrote:

David,

Just out of curiousity...say you or Ron Paul were president...how would you go about paying off the Nat'l Debt as it currently stands? Print? Tax?

I mean...I know it would great to cut gov't spending to zero and use all gov't funds to pay it off, but I can't see that as fesible for a number of years...we have created a system upon which too many depend. It's not how it should be but it would take a long time to ween them off the teat of gov't...

Dare

Report this comment
#11) On March 14, 2009 at 11:01 AM, whereaminow (20.23) wrote:

Dare,

I don't think I'd be elected LOL, but if I did I would just fulfill my campaign promise to dismantle as much as I could in my 4 years. 

I think Ron Paul has said that reducing American Empire is the easiest way to cut spending and close in on a balanced budget.

David in Qatar

Report this comment
#12) On March 16, 2009 at 12:59 PM, Alex1963 (28.47) wrote:

David,

I tried to reply to your reply to me at Bailouts and Bull with John Stossel: ABC 20/20  your post from 3/13 but couldn't. Is it closed?

Thank you for the reccomended reading but what I was asking is: Is there anyone in the Libertarian movement who has written a comprehensive policy paper on these problem today? I'm not talking about general papers or treatises from 50 years ago on general economics but specific to the problems today. i.e. Here's what allowing banks and businesses to fail would do, Here's how dismantling the gov't would help with todays issues, Here's how employment would be affected, foreclosures etc. 

Anthing like that? That video from your other post referenced above was obviously critical of the stimulus and current fiscal policy but got into zero specifics other than everything should be allowed to "self correct" and businesses left to fail. I contend that they have not fully comprehended the degree to which the free market and global trade and economies are intertwined if they are advocating wholesale and indiscriminate non-intervention.

So who has something recent and more comprehensive?

As I said I'd prefer someone with some credentials (who is alive) but if it's a good position paper and you feel it addresses the full scope of the issue I would be happy to read it. I will review the Ron Paul stuff later today but judguing by the titles there's nothing there.

Also Anotole France quote I included did not sat Libertarians were the "most horrible thing he could imagine". It says nothing of the kind. Maybe you mis-read it? The quote merely commenting on Libertarian principles being rather mercenary, IMO

Thanks

Alex 

 

Report this comment
#13) On March 16, 2009 at 1:48 PM, whereaminow (20.23) wrote:

I don't know if there is anything wrong with the other post. Here is a link that should start you in the right direction.

The Bailout Reader

David in Qatar

Report this comment
#14) On March 16, 2009 at 2:02 PM, nzsvz9 (< 20) wrote:

David,

In the article Rothbard advocates repudiation of the debt to get out from under about 40% (government pays interest to governemtn, at the time) of the debt and liquidate assets to pay for the rest (land, buildings etc.). An alternative is to inflate the currency to make the debt worth-less.

A critical component of this strategy is to stop spending like drunken politicians to stop the debt cycle, but I don't see our ruling class entering a 12-step spend-aholics program any time soon. In fact, they are doubling down ... A smaller governmet would be necessary to bring spending in line, but that too seems unlikely, infact government is growing at a very fast pace. As well, our imperialism continues. We should encourage the formation of other republics for political (demoncratic countries rarley attack each other) and moral (freedom is for all people, created equal) reasons ... but not police the world (or if we do, to be paid for our services for once, at a profit). Pull back as we can to draw down the cost also does not seem to be happening any time soon (Didn't Obama promise to pull out in 90 days from Iraq?!? That'd be around April 21st ...but don't hold your breath).

Another critical component is the assumption that independent banks would not want to loan again in the future to a repudiating government, but I don;t believe this. This would assume that the bankers are not doing anything other than loaning money. If I look at it, the moeny has no real value, so they are not playing for gold. Who cares if the US owes "debt notes" to the Fed? So, if the repayment of more fiat money to the issuer has no real value, what is the motivation to loan money to the government? I have to assume they recieve a seat at the table, or get a voice in how things are run. If it's not money, it's power right? If the US government is in receivership to the banks, then they get to direct us as debtors in possesion right?

I also think that simple repudiation (alebit interesting) would need to be coupled with the issuance of a new stable US dollar (not a fiat dollar) issued by the Federal government. We would need something else to go to once the Federal Reserve notes perish by repudiation or inflation.

What do you think?

Known by my Tae Kwon Do instructor as nzsvz9

Report this comment
#15) On March 16, 2009 at 2:51 PM, whereaminow (20.23) wrote:

nzsvz9,

It certainly seems that we have backed into a corner, either to repudiate or inflate, but I would never rule out the creativity of power brokers. It's possible that another scheme will replace the current one, but I can only speculate on what that would be. Perhaps a global reserve currency would suit their needs for a while until that inevitably collapses.

I belive the only answer is to return to competitive money production, removing the fiat priveledge. Though it seems unlikely, the possibility has increased dramatically and continues to do so as information is disseminated via the Internet combined with government mismanagement.

I agree with you that Power is the motivational factor for our current system, or as I prefer to call it "permanent war." War comes in many forms, but coercion and violence are always its means.

There is a book I want to suggest: Dying of Money: Lessons of the Great German and American Inflations by Jens Parsson.

"The economics of disaster commence when the holders of money wealth revolt. It is as simple as that. The government has little or nothing to say or do about it... They do not fly flags or demonstrate in the streets to express their revolt; they simply get rid of their money.... The duller the holders of money wealth are, the longer the government can go on storing up inflation but, by the same token, the more cataclysmic must the eventual dam burst be. The Germans [of the early 1920s] were among the dullest and most disciplined of all holders of money wealth, and this alone permitted the government to build up so huge a pool of unrealized inflation before the burst."

David in Qatar

Report this comment
#16) On March 16, 2009 at 5:44 PM, Aerius (83.64) wrote:

I totally already coppied this blog, posted it and attributed it to you before you even posted it! It's like you're quoting me quoting you and you don't even know it (seriously, click the link...I found it amusing).

In all honesty great article. You are much better at framing arguments and encouraging thought/discussion than I am, so I'll quit grandstanding and let you keep doing what you do.

Just curious on your take though: If we accept the idea that public debt is contrary to the notion of liberty, would we still try to tie the government's hands fiscally if there were an eminent threat of attack - ie. could we borrow to fund military spending in wartime assuming it was actually in defense of sovereignty? (I understand that there's not much historical precident for any of that, just curious about what you think).

Report this comment
#17) On March 16, 2009 at 6:10 PM, whereaminow (20.23) wrote:

Aerius,

LOL, get out of my head!

Of course the argument that the government must be able to raise money to defend against an eminent threat may be a valid one, but unfortunately, our government seems to find new eminent threats all the time. It's quite convenient, isn't it?

Thanks for the props, seriously and please don't let me get in your way. The only way to learn how present an argument is by presenting an argument.

David in Qatar

Report this comment
#18) On March 17, 2009 at 12:47 PM, Alex1963 (28.47) wrote:

David,

If the Bailout Reader link in rour reply #13 was for me I guess it'll have to do. I may or may not wade thru all that stuff. I take it from your lack of specifics that there is actually no comprehensive plan, nothing endorsed by a majority of Libertarians, no policy paper written in the last 6 months or detailed proposal addressing the questions I have repeatedly asked you about. You simply continue to advocate for radical upheaval without producing analysis of what the repercussions would be to real people and institutions, economies and gov'ts. I guess we should just hope things work out once the dust settles and the US gov't & global economies are turned completely up side down?

I'm really trying here to give you and your views a fair shake, and to be patient and respectful these last few posts of mine-as you requested. You know I'm skeptical but I think you could give me a straightforward answer. But I still feel you are dodging me BIG TIME. If there is no such paper, treatise or detail just tell me. I assume you have greater famialirity with MisesInstitute than I do and could save me hours of surfing. Maybe not. Pretty unsatisfactory response from someone who reccomends this site and material daily. Either you don't know of anything and won't say for whatever reason. Or you don't really care if I or anyone else ever see this info but won't say and are trying to make it appear as though you are actually answering me substantively. I'm asking you for a good plumber and I maintain you keep giving me the number to the plumber's union. 

Thanks a bunch. Blog on David. I've see less wriggling from bait and less doging and bobbing in Jr High Dodgeball. I guess I'll have to catch installment #1-infinity of WhereamINow's endless piecemeal of ideas without ever seeing an overarching plan encompassing todays issues written simply and directly. (My 4th request for this from you by the way-again with no direct reply) Because I don't think you actually have one or know of one you substantially agree with. Fine. Just say so. Because so far what I see at MisesInstitute is an enormous group of radical thinkers advocating half baked platforms which sound plausible but contain very little useful applicability for today and don't hold water after thoughtful anaylisis. Taken as a whole I think even you might be shocked at the how the world would look if even half the ideas you've put forth lately were ever realized. But then I don't really think you care. It is far more fun to be radical without bothering with all that pesky specificity. People are pissed & skeptical with the powers that be (rightly so) and that's fertile ground for sowing nearly anything as long as it sounds like it'd shake up the status quo. Far more satisfying to imply at possessing near infallible analysis than to admit ingnorance or uncertainty and way more fun to be considered an authority and popular than a glib demagogue. Meantime, I will continue to agitate the agitator until I get some decent answers. 

And for the record I'll say this to you yet again: You may be right-maybe we really should: abolish the Fed, substantially shrink gov't & massively privatize, abolish most taxes, let our currency crumble, replace it with something (can't get a handle on your actual position, I think a gold standard or barter?), let corporations and banks fail willy nilly, let homeowners get foreclosed on, let the huge and growing daily population of un or underinsured get by without health insurance, cease unemployment benefits, stop using US dollars and let competings currencies rise, "repudiate" the national debt and so on. But I would like to get your take (or someone's take who agrees with all this) on what would likely be the results. Is this rude or mean of me? Does asking these questions mean I'm attacking you? I really don't think so. I'm not the one blogging at warp speed on these issues every single day here, David, you are.

The critical issue David, IMO is that you are NOT blogging just to discuss, as imply often, you are clearly blogging to proselytize. You advocate very seriously for this agenda. But I have not seen you paint the big picture. That is inexcusable IMO. I at least am honestly interested and yet you keep dismissing me. Well I'm sorry if you can't handle a proactive critical reader and if these questions make you uncomfortable. You claim to be serving anarchy stew. What you are offering is gruel by the bucket load-thin, flavorless and without nourishment. What you actually have is a bunch of partial recipes. You'll happily talk about it all day; it's incomparable flavor and efficacy, but you've never prepared it (no one has) it's never dinner time and the meal never hits the table where anyone can see what's in it. I've seen this movie it's called Peter Pan and they ate the same way in Neverland.

And again, just because an idea is new or never tried does not make it bad. We wouldn't have airplanes otherwise. I'd just like to see the aerodymanic theories in some detail, the flight plan, and Gee how about the landing strip? before I join you in jumping off of the cliff. 

Alex 

 

Report this comment
#19) On March 17, 2009 at 8:37 PM, whereaminow (20.23) wrote:

nzsvz9,

LOL, and here's their answer:

Kremlin to Pitch New Global Currency

Timely, isn't it?

David in Qatar

Report this comment
#20) On March 24, 2009 at 11:53 AM, nzsvz9 (< 20) wrote:

David,

And now some in China are saying the same thing:

Governor Zhou Xiaochuan urged the International Monetary Fund to work on creating a “super-sovereign reserve currency” that would be stable and independent of individual nations. Zhou’s article was posted on the central bank’s Web site yesterday.

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=a6VAJqVQF2FM&refer=home

It would seem the fiat Ponzi scheme is about to go global ... imagine what wealth that will confiscate, and the crash that will bring.

Yikes.

Known by my son's soccer coach as nzsvz9

Report this comment
#21) On March 31, 2009 at 11:30 AM, whereaminow (20.23) wrote:

Alex,

If you're still here, and still following my posts, I hope you are folowing my series on Money. I am advocating very seriously for the things you state and I am about to get into specific policy proposals. I hope you'll remain patient and allow to paint the whole picture.

David in Qatar

Report this comment

Featured Broker Partners


Advertisement