Notwithstanding President Obama's pledge to freeze government spending, the Congressional Budget Office is forecasting huge budget deficits in the next five years. According to the CBO report our deficit will balloon by between 500 billion and 1.5 trillion each year for the next five years leaving us with an extra 4.32 trillion in debt or a total of over 18 trillion in debt by 2015.
Currently the amount of debt we owe as a country is not just still increasing but it is increasing rapidly. We are not paying any of this debt back nor are we stopping the accumulation of debt. In fact we are still accumulating additional debt at a dramatic rate. This is madness in my opinion and sets us on a course headed for complete societal and economic disaster.
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Phil Cavuto pointed out on Fox Business that the interest alone on this debt is accumulating at the rate of 4 billion dollars per day. He went on to say that even if we did nothing and we did not borrow another penny, the debt will continue to increase by 4 billion dollars per day due to this interest. This amounts to 120 billion per month and almost 1.5 trillion added to our debt each year attributable only to the interest on money that we already owe. So next year our debt will be 15.5 trillion even if we don't borrow any more money at all.
Worse still is the CBO prediction that as the debt grows we will have to pay higher and higher interest rates to get people to buy it. This will cost even more and make the debt really spiral upward. This is exactly what happened in Greece where borrowing became very expensive for the Greek government which exacerbated their problems tremendously.
We are close to having our debt equal 100% of our gross domestic product which is an extremely dangerous amount. Greece reached the 110% level which has devastated their economy and led to extreme austerity measures and tax increases. We will reach this level in 10 years. Greece, as part of the EEC, was eventually bailed out temporarily by Germany but the Germans were not at all happy about it. Who will bail us out when we reach 100% debt to GDP? There is no one who can bail us out. These debts are too large and no country has the inclination to do it.
But we have added 1 trillion to the debt in just the last seven months and all the politicians can do is argue about raising the debt limit or freezing spending at its current rate. We should be lowering this debt limit, cutting government massively, and paying off this debt. A freeze in government spending is not nearly enough and would save us only 30 to 40 billion a year when we need 1.5 trillion for this year.
We in fact need massive cuts (including the military, social security and Medicare), elimination of whole departments in the federal government, a lowering of wages for every federal employee, massive layoffs of federal employees, as well as a sale of government land and property just to begin to save the 1.5 trillion in debt we will amass just this year. John Stossel recommends closing the Departments of Education, Housing and Urban Development, Commerce, selling Amtrak, ending the drug war, and repealing Obamacare. I think we need to do all of this and more. The English are putting Sherwood Forest up for sale and the French and Italians are selling and leasing their historic palaces to balance their budgets. It's time we do the same.
For a good start we need my 25/25 solution where 25% of federal employees are laid off and those remaining are given a 25% pay cut. The CBO recommends a 20% cut in spending. Once we do the cuts then we can talk about selling some of the lands that the government owns out in the west and we can begin to discuss which federal government departments should be completely eliminated. After the cuts and layoffs are made and the assets sold then I think the American people will be more open to talking about tax increases if this would help pay this debt back.
It appears though as if we are neither cutting nor selling anything and we seem to be just borrowing more money just to pay the interest on this debt. Now I don't know about you but I see a real problem here. I am beginning to think that Glen Beck is right and that there is a real reckoning coming for America. How can we ever hope to pay this debt back with these kinds of totally inadequate measures? It's unsustainable and it's quite possibly heading us down the road to catastrophic economic and societal failure. Historically this is not without precedent.
Remember the Weimar Republic? After World War I ended in 1919 and the Treaty of Versailles was enacted, Britain, France, and America demanded that Germany pay reparations for all damages caused by the war down to the last barn, cow, and chicken destroyed. The war was not Germany's fault alone as it was others who started and waged it before Germany's participation began. The Serbians assassinated the Arch Duke of Austria-Hungary, the Austro-Hungarians invaded Serbia in response, the Russians mobilized their military to defend Serbia. Only then did Germany feel threatened enough to enter the war.
France was allied to Russia and German military doctrine at the time said that Germany needed to defeat France quickly before Russia was able to mobilize and attack Germany. If that happened Germany would then face a two front war she could not win. So poor France got invaded by Germany.
Once the Germans invaded France and Belgium they occupied their countries and waged war in them for 4 years. The Germans inflicted very heavy damages and which devastated France and Belgium. After the war the French and Belgians wanted the Germans to pay for the damages of a war which had ravaged every country in Europe. The fallout of the war was that not just France and Belgium were destroyed but also the Russians had a revolution and the Austro-Hungarian and Ottoman empires collapsed and were broken up. 20 million people died before it was all over but the Germans were blamed for all of it and they were forced to agree to pay huge reparations. If the Germans did not agree then the allies threatened to resume the war. These same reparation demands also created a huge resentment and a deep desire for revenge among the Germans people.
These reparations were in the end beyond Germany's ability to pay just like our 14 trillion debt is beyond our ability to pay. In short this caused Germany to try to inflate their way out of debt so they printed money endlessly which led to extreme currency devaluation. The hyperinflation that resulted was so bad that when workers were paid they were immediately released to go to stores to buy food before their currency was worthless that very same night. The government had to print million mark notes to keep up with the hyperinflation and prices for a single family's bread and meat rose into the billions of marks.
The worst of it though is that as Hitler himself stated in his book, Mein Kampf, this hyperinflation in the early 1920s and the troubles it created for the whole of Germany made a Nazi takeover inevitable in Germany. There was a perception among the German people that democracy had failed to do anything about the hyperinflation crisis in post-war Germany so a call for a strongman went out. This cry grew louder and louder as riots and political clashes occurred in the streets between communists, fascists and nationalists. Anarchy reigned in Germany and former soldiers formed armed groups which clashed with other armed groups.
When Hitler appeared on the scene he seemed to be the strong man the country was waiting for to bring peace and stability to the nation and to solve the problems that democracy had failed to solve. Since the ground was primed people took to Hitler in a big way. Women would swoon and whole crowds would get in a kind of trance when he spoke. Women wrote to him to ask him to marry them. Some saw through him but too many became blind followers or at least acquiesced in what he did and said. It was the chaos of hyperinflation, default and monetary instability that brought Germany (and the world) Hitler.
Hitler originally came to power by taking over the obscure National Workers Party and renamed it the National Socialist (NAZI) Party. Hitler's fiery rhetoric initially attracted many more members to the party causing it to grow dramatically as he ranted about the social and economic chaos of Germany and he blamed the Jewish people for all of it. After establishing a strong party base the Nazis were poised to take over all of Germany after Germany's economic troubles deepened during the worldwide great depression of 1929. Hitler so wanted revenge for World War One that after he defeated the French he had them sign an armistice in the same railroad car that the Germans had to sign an armistice in is 1919.
The question is whether a situation similar what happened to post-war Germany could happen here if we default on or try to hyper inflate our way out of our $14 trillion debt. And further could the resulting terrible economic fallout lead to a call for a strongman like an American Adolf Hitler? Will hyperinflation occur here which will lead to street riots and clashes and a perceived failure of democracy? And who will be scapegoated and attacked this time for the failure of America?
The politicians now seem to be doing nothing while we steadily accumulate more debt. When the house of cards inevitably collapses will our politicians continue to do nothing so that people again look for a strong man to save them from the riots, violence, and massive inflation that will inevitably occur? Will that strongman scapegoat a group of people who will eventually be slaughtered?
With an unsustainable 14 trillion debt (that we keep increasing by more borrowing) how long will it be until the government has to "monetize" the debt which means how long until they to print money excessively to try to pay for the debt and its ever-increasing interest? They now call money printing "quantitative easing" but it is still the same thing. Money printing and hyperinflation was what happened in Weimar and we in America appear to be on the same course. If and when this happens hyperinflation will assuredly come to America as the currency becomes worthless and chaos will ensue.
If America tries to default on the debt instead of inflating the currency then how long before our creditors demand that we pay it back? This is what happened in Weimar Germany as the French and Belgians rode into Germany and occupied the Ruhr valley in 1923 which was the German industrial heartland. France and Belgium occupied the Ruhr because Germany naturally defaulted on the reparations payments. To ensure repayment France took over and occupied this industrial area and forcibly extracted the resources necessary to get their money paid back. This action infuriated the Germans who went on strike and refused to work as slaves for the French but the anger and resentment this occupation caused helped pave the way for a fascist Hitler takeover.
If we now default on our debt payments to (our landlords) the Chinese like the Germans did in the 1920s how would we Americans react to Chinese troops occupying part of our heartland to ensure that they get their money back? However unlikely and impossible to imagine this has happened before. Default on the debt that we owe to the Chinese and others could lead to drastic things happening like what happened to post WWI Germany. The countries that lent us the money will not be any more understanding than England and France were in 1919.
In fact if history repeats itself in any way then these lenders will just ruthlessly demand their money at any cost to America including its destruction. Indeed the Chinese leaders have their own concerns and they will surely not be concerned with what happens to America. They don't want their people to riot and overthrow the Chinese communist leadership if America defaults on what it owes to the Chinese. The Chinese government will only care about retaining power if it runs short of money sufficient in quantity to keep the Chinese people happy.
The French Premier (Poincaré) in the 1920s argued that the continued forced reparation payments were necessary to keep Germany in "chains" because once those chains were removed Germany would again become powerful and start another world war. I expect that many anti-Americans in the world today would make the same argument against America when they demand extreme measures be imposed against us to ensure repayment. America haters will also demand that America be kept down so that America cannot cause any trouble in the world.
Though occupation is unlikely China and other lenders will surely at least stop lending us more money in response to our default on our debts we owe to them. When that happens will we end up like Greece with riots in the streets as the government shuts down and is unable to operate or disperse payments to its employees or to the recipients of government aid? How many people are now dependent on the government one way or another? When the faucet is turned off and government dependents don't get the money they have come to rely on they will surely riot here as they are doing in Europe.
Many radical groups from diverse ideological backgrounds are now waiting in the wings for this kind of crisis to attempt a seizure of power just like in Weimar Germany. When they clash with other groups in the streets like in Weimar in the 1902s, how long will it be before people are clamoring for a solution to the chaos. Will we too be attracted to a "strong man" who promises peace and security? In the 1930s fascism was widely popular across the world. Will we too view democracy as a failure and a modern-day Hitler as a great hope?
If we lose democracy we will lose all of our freedoms which we have relied on for 200 years and we will have dictators ruling us. Democracies almost never go to war against each other but only sometimes go to war against another dictatorship. Two dictatorships will often war against each other. So if democracy dies then prepare for more war, no freedoms, rule by a dictator, and a dark ages that could last indefinitely because there is no one in the world to save our freedoms as America has saved other countries from dictatorships in the past. Who will be there to defend democracy if America fails? This is what Reagan said in the 1980s.
As a bankruptcy attorney I know that when you have a huge debt you cannot pay back, and you can't (or won't) cut spending, and you have to borrow money just to pay the interest on this debt then the financial end is near. Borrowing money just to make interest payments is a signal that the situation is critical, unsustainable, and near the end. If no one steps in to pay there is nowhere to go but bankruptcy.
For individuals, businesses, and even for cities bankruptcy is the best alternative when the financial end is at hand for one of these entities. Bankruptcy gives the entity a fresh start and the debts are wiped away. The problem with this 14 trillion national debt is that states and nations are sovereign entities and sovereign entities cannot go bankrupt. They must either pay their debts or default on them. Both of these options have extremely bad consequences. America appears headed for a deeper disaster than we can imagine.
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