To Dissolve the People and Elect Another
Let us see….
Joe Biden’s $1.9T spending package is heading to the US Senate where it will pass in some form, thus creating more debt and throwing more cash on an American public sitting on $1.6T — while the Federal Reserve is quietly telling folks that job creation should overcome any fears about double-digit inflation.
Why start with this tidbit? Because it represents an alarming trend among policy makers that debt is of no concern.
Think of it this way. Someone loans another person $10,000 at 8% interest. This individual faithfully pays their interest on the loan and occasionally pays down that principle. Quite suddenly, this debt becomes an asset that is transferable to other individuals. I can now sell you an asset that faithfully pays a 6% return every year — which might make you more emboldened to take other risks in the market in the hopes of making 10-15% on that 401K or money market fund.
Here’s the vicious circle we have discovered in a post QE environment:
- The United States and United Kingdom are currencies of last resort.
- The US and UK are “too big to fail”.
- The US dollar is backed by the full faith and credit of the United States — which means we are backed by precious metals: copper and lead.
- Ergo, the US and UK can issue debt safe in the knowledge that there will always be a willing buyer at the end of the rabbit trail.
- Developing nations will buy up our national debt, and failing that…
- …the United States government buys up our existing debt.
That was before COVID. The current national debt is set to exceed $28T in the next few days and clear $30T should the Biden stimulus package pass.
Of course, this works for the federal government because — should there be a shortfall — they simply issue more debt and sell the assets to themselves.
Now one might think that the grand problem in this is rather simple. What happens when the “full faith and credit of the United States” runs out?
The answer to that is a shocking “AHA!” with some rehashing of an old truism: Owe a million, the bank owns you; owe a billion, you own the bank.
In short, the United States government is quite literally too big to fail by virtue of its massive national debt. If the federal government were to singlehandedly repudiate the debt? Guess who gets hurt? The military pension system, social security, the federal retirement system, and your 401k and 403b savings.
Don’t worry — it gets worse.
The fiscal impact to the national economy of a lack of federal spending combined with a lack of individual or household spending creates a double-whammy where reliable spending of government (a dollar in; a dollar out) begins to impact the wealth creation of individuals and small businesses engaging in the wider economy itself.
In short, you reverse the Laffer Curve. For those who need a refresher, if the government is spending too much, President Reagan would cut your taxes so that the free market can generate growth. In converse, if your government isn’t spending enough? Then the economy is far more susceptible to economic variations than it would otherwise might be — the economy relying upon a firm, steady, and constant supply of cash from the federal trough.
So if the federal government doesn’t create wealth, what magical property could it connive in order to make government something more than a constant? What if it issued bonds? What if it put the value of money in its own hands rather than in the price of commodities such as gold or silver?
What if we adopted a more Roman definition of value in society, where the might of our legions defined the value of our coinage? Or to borrow from Richard III, let our strong arms be our law?
Welcome to the value of the American dollar today.
Of course, as a consequence, the Pax Americana is the price we pay for cheap gasoline and cheap food. In the past, it was the British Empire who fought the small wars of the world in far off places: America, South Africa, Afghanistan, India, and Argentina. Today, the United States picks up the pieces on behalf of the Mother Country: Korea, Vietnam, Iraq, Afghanistan, Syria and Yemen.
Far be it from me to start spouting off Austrian-style economics to argue that the United States dollar should be tied to something more permanent such as gold (which is equally suspect to variations and speculations).
Far be it from me to point towards blockchain technologies as a bulwark against such speculation (BitCoin, though interesting, has lost $10,000 of value per BTC over the last month).
Far be it from me to point towards automation making the full transition from work to labor to capital and this radically altering the nature of value in society (read Heinrich Pesch, SJ).
So why bring all of this up?
Consider for a moment that the way most folks pay for their government is taxes. We consent through our representatives the method and rates of taxations and pay this from our own trade or labor.
Yet what we have at present is a method of financing our government through fiat capital — not through taxation — that does not require much deliberation or consent from the political commons.
In fact, the political commons doesn’t even occur. Name the last time you saw a true debate on the floor of the US House or US Senate? This right here — reading political commentary and engaging in thoughts — is the only political exchange most of us perform.
Yet when the apparatchiks in Washington decide to do this on our behalf? For our own benefit? To pad our 401ks and pension system? To buy up developing economies? Or worse, to buy up constituencies with a $1,400 check?
At some point this piper will demand to be paid.
The alternative to this entanglement of debt is to create value in durable things. That used to be precious metals such as gold and silver. Yet as we are discovering in a world fueled with energy and blockchain technologies, we may be a lot closer to determining what a unit of value really is.
Here’s the other item to consider. Once upon a time, citizens selected their government. Today, with the rough alliance between finance and bureaucracy, economies seem to exist for the sake of the elites rather than families. Knowing they cannot obtain the consent of the governed, the government seeks out a new consent.
Bertold Brecht summarized the problem neatly in East Germany during the 1950s:
After the uprising of the 17th June
The Secretary of the Writers Union
Had leaflets distributed in the Stalinallee
Stating that the people
Had forfeited the confidence of the government
And could win it back only
By redoubled efforts. Would it not be easier
In that case for the government
To dissolve the people
And elect another?
Brecht was subsequently cancelled for writing Die Loesung (The Solution) and other poems — first by Nazi Germany, then by the US House Un-American Activities Committee under suspicion of being a communist, and finally by East Germany on suspicion of being a capitalist.
Yet I suspect that Brecht was on to something here. Our governments, feeling that we the people have forfeited their confidence, seek to manage us in certain ways — be that monetary policy, fiscal policy, economic policy, or social policy. Correct opinions are rewarded; incorrect opinions are cancelled. The tyranny of the problematic is becoming the new inquisition and we are the fodder.
Can’t raise taxes? Simply issue more debt and pay the people you are bribing with their own credit card…
Who will notice? Our grandchildren perhaps. Though it might be more important to ask whom our grandchildren will blame?
Shaun Kenney is the editor of The Republican Standard, former chairman of the Board of Supervisors for Fluvanna County, and a former executive director of the Republican Party of Virginia.