The most exciting episode of the neverending (and always distracting from far more important matters) political soap opera is without doubt the ongoing debate over the debt ceiling (which may legally be breached as soon as the week of May 1). For what it's worth, this is a complete sideshow as i) the ceiling will be raised, ii) both parties will blame each other for this outcome while shaking hands behind the scenes in expectation of more "gifts" from Wall Street and iii) the world will realize just how broke America is now that its debt ceiling, which we believe will be raised by just over $2 trillion to last the country until after the next presidential election, will for the first time ever be greater than its GDP, an event that has never before occurred. And so the distraction will shift to another even more meaningless debate. In the meantime, few ask themselves the key question: why is there government debt? In that regard, many have made the point against government debt, but few have done so as successfully and as succinctly as Bill Buckler does in his latest issue of the Privateer. In the below segment, Buckler does the definitive and most commonsensical reduction of the "government debt" issue and why what America is doing is nothing short of allowing itself to be hijacked on the road to a dictatorship.
The Case Against Government Debt - PERIOD:
A debt is an unfinished TRANSACTION. It is an agreement voluntarily entered into by BOTH lender and borrower to exchange present goods for future goods. Any economic transaction presupposes the existence of the goods being exchanged. If no goods exist, no transaction can take place.
In the marketplace, a loan is successful for the lender if and when the terms of the loan are met in full by the borrower. It is successful for the borrower if and when he can fulfill the terms and stand with capital left over afterwards. If the terms of the loan are not fulfilled, both lender and borrower lose. The lender loses part or perhaps all of what was lent. The borrower may end up in jail. At the very least, he will findit more difficult or impossible to borrow in future.
In the “private” world of the marketplace, the lender has no power to create what is lent out of thin air and the borrower has no power to create the means of “payment” using the same method. The goods or money must first be created or earned and then SAVED. The means of paying back the loan must be acquired the same way. In all cases of MARKET lending, force cannot enter the picture. There is no way to force anyone to accept a “legal tender” which settles “all debts public and private”.
A government produces NOTHING. Since it produces nothing, it has no ECONOMIC means of servicing or repaying any debt obligations it may take on. Its means are strictly “political”. The only way a government can service and repay ANY level of debt it takes on is to extract the means from those who do produce wealth. Those who rely on the “full faith and credit” of government are relying on the exercise of naked political POWER. They are relying on the government to extract the means of payment from its citizens - or - to manipulate the terms of the loan (usually by manipulating interest rates) - or - to depreciate the purchasing power of the “legal tender” to make “payment” possible. In reality, government “creditors” are relying upon all three methods. The key to any government’s power is its ability to consume more than it extracts in taxes and charges. Until that power is curbed, no solution to the global financial crisis is possible. Until it is abolished, no return to genuine political freedom is possible.
We hope that more Americans realize that this is the key, and only, issue. Not whether Geithner can issue another $35 billion in 3 Year notes all of which will ultimately end up going to pad the uber rich's pocket even more. Not even whether America has a AAA or DD rating. It is whether we are willing to give up, day by day, the key freedom that once upon a time made America the great countries that future generations will only read about in history books.