The issue is the maintenance and protection of our individual freedoms and the government’s proper role to not only protect our freedoms, but to advocate and facilitate our God-given right of freedom from government. This is not just an American concern. We Americans have an obligation to help lead the eternal quest for freedom, for the benefit of all humanity.
"Many intellectual elitists would have us believe today that the establishment of the American ideal in our founding was simply a moment in time, which, within a generation passed into the twilight of history; that America is no more special today in relation to the concepts and precepts of a civil society than any other country, past or present."
Many intellectual elitists would have us believe today that the establishment of the American ideal in our founding was simply a moment in time, which, within a generation passed into the twilight of history; that America is no more special today in relation to the concepts and precepts of a civil society than any other country, past or present. They contend that the ideal of individual freedom and limited government must make way for later, more “sophisticated” theories of government. Regardless of their basis for rejecting American exceptionalism, these critics are flat-out wrong.
America is exceptional for three moral reasons. It is the first country in the history of the world to be established on the principle that God is sovereign over man, and man is sovereign over government. Second, it is the first country to abolish all hereditary classes and titles. In the United States birth is not destiny. You are not born into a tribe, a royal order, or a station in life. You are born equal to every other child born that day, or before you, or after you. Third, the United States is the only country in the world where you can do anything you want as long as it’s not against the law. In every other country, you must, more often than not, get the government’s permission to take action and convince the government your endeavor is a good use of the king’s resources.
In America, we trust the individual to make decisions for themselves in their own best interest and the interest of their families. In doing so, we recognize that these decisions aggregate to the best interest of the nation state and the greater community. In other words, we advocate individual freedom, and we trust the individual to pursue freedom as he or she sees fit.
Now what is the great threat today that must be addressed with absolute conviction, if we are to maintain our freedom?
It is the national debt.
"Either there will not be enough money in the world to borrow or the interest rate will increase so high we won’t be able to afford to service the debt. When this occurs, either the government prints the money to pay for its obligations and the currency is destroyed, or the United States defaults on its debt, wreaking havoc on the world’s economy. "
This is not a philosophical statement about whether or not there should be a debt. I’m talking about a debt that has grown so large that, under current deficit spending projections, it cannot be sustained beyond 2013. Either there will not be enough money in the world to borrow or the interest rate will increase so high we won’t be able to afford to service the debt. When this occurs, either the government prints the money to pay for its obligations and the currency is destroyed, or the United States defaults on its debt, wreaking havoc on the world’s economy.
As the manager of the world’s primary reserve currency, our government has a responsibility to manage our finances in a way that allows freedom to prosper. In his speech “A Time for Choosing,” Ronald Reagan said, “Let us not take one step toward a thousand years of darkness.” Darkness is total government control over our lives. If the United States fails to manage this debt, darkness will befall the world.
Our current national debt is $14 trillion or $45,000 per capita. Our current budget deficit is $1.5 trillion or $7,250 per adult.
The measure of a person’s or corporation’s solvency is its debt to equity analysis. For a nation state it is debt to Gross Domestic Product (GDP).
The generally accepted preferred ratio of maximum debt to GDP is 70-80%. Greece is now at 120%, UK is at 125%, and the USA is now at 100%. (Total U.S. debt in 2010 was $14 trillion, while GDP was $14 trillion).
The total liquidity of the world available in all stock markets, bond markets and commodity markets is $140 trillion. These assets, along with cash, are the primary sources of monies to fund government’s sovereign debt.
Based upon world liquidity, the amount of money available to fund sovereign debt in 2011 is between $6-9 trillion, 10-15% of world GDP of $60 trillion. The world’s government projections for deficit financing in 2011 is $8-10 trillion. We are bumping into the ceiling of the world’s ability to fund ongoing sovereign deficits and debt.
The world’s capacity of sustainable debt at 70% of GDP is $42 trillion. Anything above 70% dictates that interest rates must rise if the world’s economy is to grow. Currently, all governments’ debt totals $58 trillion or 97% of debt to GDP. By 2013, world deficits will produce total debt of $70 trillion and 116% of world debt to GDP.
"To fund the ongoing servicing of these deficits will require that monies be taken out of other exchanges, weakening those indexes. In other words, money taken out of a stock market to fund debt will cause the stock market to decline. "
To fund the ongoing servicing of these deficits will require that monies be taken out of other exchanges, weakening those indexes. In other words, money taken out of a stock market to fund debt will cause the stock market to decline.
The catch-22 is that, if the U.S. economy is to grow, the cost of capital must rise. It is a cause and effect principle. The historical average cost of capital in the United States since 1850 has been 4%. If that historical average was being charged today, the interest on our debt would go from $187 billion to $600 billion. To pay for this increased cost, the government would have to borrow even more money and a downward deficit-debt spiral would begin.
The first cracks in our fiscal foundation are appearing at the state level. Forty-six states are in various degrees of negative cash flow. In the past two years, the states have been using federal stimulus money to balance their budgets. They are now facing the proposition that they must make structural cuts in their budgets to make ends meet. Their day of financial reckoning has arrived.
Congress must raise the debt ceiling by the middle of March to allow for further federal borrowing. The House recently passed budget cut recommendations of $61 billion. This is less than 2% of the federal budget. However, any budget cuts will further impact the states. By the summer of 2012, unfunded mandates of the new health care system will begin to materialize at the state level. The states will find that the budget cuts they are making this year in March, April and May will have to be duplicated again in the spring of 2012.
The outraged demonstrations in Wisconsin are just the beginning. By 2012 most states will find themselves in budget crises.
The next point of government moral, fiscal debate will be whether or not to extend federal unemployment benefits which substantially run out by January 31, 2012. If the benefits are extended through 2012, this will put further pressure on the deficit-debt spiral. The catch-22 of interest rates will become clear. If the Treasury prints the money and the Federal Reserve implements another “quantitative easing,” rates may stay low for a while, but the currency will have been debased.
At current rates of world deficit spending, by the end of 2013 the world will be approaching a liquidity crisis.
The U.S. government simply must find the courage to balance its budget.
Our debt must be reduced to no more than 70% of GDP.
The question being asked in our capitol today is, “Can we buy time?” President Obama has presented a budget to Congress which is $1.67 trillion in deficit by its own estimate. The world liquidity formula can only be addressed if the final budget is cut by more than the net growth of the economy in real dollar terms.
"This deficit problem will not heal itself. The current revenue of the United States government is approximately $2 trillion... For the budget process to heal itself, the economy would have to double in size without additional debt and without an interest rate increase. This is not going to happen. "
This deficit problem will not heal itself. The current revenue of the United States government is approximately $2 trillion. Right now, 42.8% of every federal dollar spent is either printed or borrowed. For the budget process to heal itself, the economy would have to double in size without additional debt and without an interest rate increase. This is not going to happen.
We have not been telling the American public the truth. If they understood the extent of this debt crisis, they would rally to the cause. They would make the sacrifices necessary for their children’s future. It is encouraging that Republican Governors like Mitch Daniels, of Indiana, Chris Christie of New Jersey, Scott Walker of Wisconsin, and John Kasich of Ohio are attempting to tell the people the truth. The day of borrowing and spending has reached the point of unsustainability. If not corrected, federal pension funds, Social Security, Medicaid and Medicare will be severely curtailed or lost as government programs.
The late Milton Friedman, noted economist and an advisor to President Reagan, counseled that ultimately a government must balance its checkbook. He used the example of the kings of the Middle Ages. Think about a medieval king, with ultimate power, who owned all the lands and rents, whose word was law, who “owned” his peasants as serfs, and had the power to mint his own money—If such a ruler could not borrow and spend his way out of trouble, what in the world makes anyone think that governments today can pull that off?
Make no mistake; our future is at risk, yet our destiny is still in our hands. We have a responsibility to never take even one step toward a thousand years of darkness. Darkness is too much government taking too much of our freedom. The key is to defend the rights we’ve been guaranteed by the Constitution with every breath we take, regardless of the cost. We must defend for the world the ideals of American Exceptionalism. We must never give in to the temptation to let someone else do for us what we must do for ourselves. Our children are too precious and their future too critical to the legacy of generations for us to be any less resolved.
This essay is drawn from a speech delivered by Marc Nuttle February 9, 2011, on the U.S. Capitol grounds in the Capitol Visitor’s Center in Washington, D.C. at a celebration of the 100th anniversary of Ronald Reagan’s birth, sponsored by the National Tax Limitation Committee. Mr. Nuttle has advised foreign governments, international corporations, Members of Congress, and U.S. Presidents. He is the author of the book, Moment of Truth, (Frontline, 2008).