Why National Debt Matters

Benjamin Franklin wrote: "...think what you do when you run in debt; you give to another power over your liberty."

The Founders considered public debt a necessary evil. They found it necessary to borrow to finance war-time spending and establish a brand new nation. Then they went to work trying to pay it off before it was passed to the next generation. Thomas Jefferson stated, "I, however, place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared." One of Andrew Jackson's greatest personal triumphs was to pay off the public debt in 1835. Although short-lived he was the only one to do so, but not the only one that worked towards that end. Modern attitudes towards public debt and deficit spending have changed.

Warren Buffet wrote about grave concerns over deficit spending in his recent op-ed The Greenback Effect in the August 18th NYT *(free registration required). Key observations that he makes:

To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory...

Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Please go learn a little bit about the national debt, what it means, and the implications for you as an individual. If you go to the website for the Bureau of Public Debt you can do a little research on where we currently stand. Wikipedia, as flawed as it is, has a decent article on United States national debt with plenty of external links to flow.

High debt carries repercussions for nations just as it does for individuals and families. Take for instance these headlines all appearing on a single day, 9/8:
UN wants new global currency to replace dollar
Senate must raise debt ceiling above $12T
China alarmed by US money printing
Barack Obama accused of making 'Depression' mistakes
U.S. no longer most competitive economy

We may be in for a roller-coaster ride.

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