I posted on this subject Yesterday. It is so serious that I will continue to post. I have little saved in Dollars but am moving that little into other currencies and considering buying gold. Following are excerpts from a very good article which can be found here. The basic point is clear: push up your debt and you will weaken your currency.
By John Steele Gordon Monday, September 7, 2009
How the richest country in the history of the world got into a position where its debt is spiraling out of control.
At the end of fiscal 2008, which came on September 30 of last year, the American national debt stood at $9.6 trillion. That sum is, perhaps, quite beyond the imagining of most people. It is, after all, 250 million times the average per capita income. Even the total fortunes of the entire Forbes 400 list add up to less than 15 percent of it. To use a journalistic measure that dates back to the late 18th century—when the British national debt had become a major political issue in that country—if you laid 9.6 trillion silver dollars end to end, they would reach to the sun and back, with enough left over to wrap around the Earth more than 1,700 times.
But while that is a nice little bit of mathematical calculation, it still does not tell us much that is useful, for the size of a national debt in absolute terms is meaningless. Only when it is measured against the size of a country’s GDP do we get a sense of a national debt’s real size, just as a bank looks at a family’s income to determine how large a mortgage it is willing to give.
And the United States’ economy is so large that the seemingly titanic sum of $9.6 trillion is only 60.8 percent of American GDP. The national debts of France and Canada are similar, with France at 68.1 percent of GDP and Canada at 63.8 percent. Italy’s debt, in contrast, is over 100 percent of its GDP, while Japan’s is a staggering 173 percent. The world’s two emerging economic giants, India and China, have sharply different debt loads. India’s national debt is 61.3 percent of its rapidly rising GDP, while China’s is a mere 16.2 percent.
So the United States’ national debt is not out of line with those of other major countries and has been much higher in the past. At the end of World War II, the debt was nearly 130 percent of GDP.
The budget deficit for fiscal 2009 is estimated to be a staggering $1.6 trillion, larger than the entire national debt as recently as 1984.
That’s the good news.
The bad news is that the debt is rapidly rising, both in absolute terms and relative to GDP, thanks to the current recession, the stimulus effort to end that recession, and the bailout of the country’s financial system. The budget deficit for fiscal 2009 is estimated to be a staggering $1.6 trillion, larger than the entire national debt as recently as 1984. It is the largest peacetime deficit (measured as a percentage of federal revenues) since 1936, when the country was still in the throes of a far worse economic downturn. The deficit will cause the ratio of debt to GDP to rise to over 80 percent by the end of fiscal 2009. That will be the highest it has been since 1950.
Congress has proved over the last 35 years that it is utterly incapable of fiscal discipline over the long term. And the president does not have the power to impose it. So what to do?
A line-item veto designed to avoid the Supreme Court’s specific objections to the 1996 act might pass muster with a more conservative Supreme Court than was in place in 1998. This would make the president a major player in budget battles as he could use the threat to veto individual items to line up congressional support for general spending restraint. But the Supreme Court might well decide that a line-item veto is inherently unconstitutional. A constitutional amendment would then be necessary but the chances of two-thirds of each house agreeing to such a restraint on congressional power are small.
However, the reinstatement of the president’s power of impoundment, taken away by the Budget Control Act of 1974, would give the president much the same power as a line-item and would certainly be constitutional.
Only when it is measured against the size of a country’s GDP do we get a sense of a national debt’s real size.
Taking away the power of Congress and the president to decide how to keep the government’s books would also be a big step in the right direction and require only congressional action. Wall Street recognized more than 100 years ago that corporate managements could not be trusted to keep honest and transparent books and neither can the managers of governments because, like corporate managers, they are human and therefore self-interested.
An independent accounting board, modeled on the Federal Reserve (which keeps the power to print money out of the hands of Congress) would accomplish that. It should have the power to set the rules of accounting for the federal government, “score” the costs of new programs (which the Congressional Budget Office does now), and monitor all federal programs for cost-effectiveness (something Congress often forbids government agencies to do, obviously fearing what it might learn).
Finally, the adoption by Congress of a limit on total spending, so that it could only increase to reflect population growth and inflation, unless a two-thirds majority agreed to suspend the limit, would force Congress to make the hard choices it now works so hard to avoid. Several states have similar provisions in place, and these are the states suffering the least from the downturn in revenues due to the current recession. California’s budget began to go out of control in the early 1990s precisely because it effectively repealed such a law.
Only necessity will force Congress to control long-term spending on its own. And unless the body politic forces the needed changes, that necessity in the form of overwhelming debt is inescapable.
John Steele Gordon is the author of Hamilton’s Blessing: The Extraordinary Life and Times of Our National Debt; a revised edition of it will be published in early 2010.
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