Destination: Banana Republic

Senator Jud Gregg is sounding an alarm on American's financial future.  It may already be too late, as Congress is hell bent on refusing to put out the fire.  Instead it is running for the gasoline cans.  

When Senator Judd Gregg (R) New Hampshire, stated that out of control deficits could lead America into status as a Banana Republic, he was right on target.  His web site statement that unless we act soon, these deficits are here to stay was also correct, although with all due respect to the Senator, it appears that we are already too late. 

Deficit budgets have been a way of life for American government ever since the late 1960's, and have never been contained because government has always refused to address those factors that would make a difference – spending, and government expansion.  Even when President Clinton claimed to have achieved a balanced budget he only did so by means of creative accounting.  By offsetting the budget deficit against a temporary Social Security surplus his administration achieved a temporary appearance of fiscal responsibility.  However, the spending continued unabated and the deficit was offset against our own money instead of foreign debt. 

The issues that Senator Gregg is trying to draw attention to are, for practical purposes, twofold.  Firstly, that government cannot spend its way to prosperity, and second, if government overspends by large enough margins for long enough it will end up in a state of effective bankruptcy.  Nations do not file petitions under Chapter 7 or 11; instead they collapse, their currency becomes valueless, their economic base implodes or a combination of the above. 

People who understand history have seen this happen, perhaps best known in Germany during the 1920's.  China experienced a similar phenomenon in 1948 and 1949. Hungary experienced it in 1946, which Wikipedia states holds the record for most extreme monthly rate of inflation, ever at 41,900,000,000,000,000% (4.19 times; 10 to the 16th percent).  Prices at that time doubled every 13 and a half hours.  In 2008 Zimbabwe experienced similar rates.  Turkey dealt with inflation in 2005 by issuing new currency at an exchange rate of one million old Liras to one new Lira.  Other examples include Angola (1991-1995), Argentina (1975-1991), Austria (1914-1923), Bolivia (1984-1986), and Brazil (1986-1994).  There are more. 

A large part of what caused these incidents of inflation has been government overspending.  Governments in trouble often spend more than they take in because they want to fulfill commitments they cannot afford, or because they are attempting to buy their way out of other financial problems such as those caused by the reparation payments the German Weimar Republic were required to pay under the Versailles Treaty. 

Today's situation in the United States is little different, in that the government continues employing a vast, unwieldy and extremely expensive bureaucracy while funding massive social welfare programs including Medicare and Social Security, while maintaining responsibility for duties once handled by the states, and now it intends to add on a national universal health care program which cannot be run at breakeven.  No government program has ever done so, and those few activities that have come in below budget very far between.   If this wasn't enough, it has now become apparent that Mr. Obama intends to sign a climate change treaty which will, inter alia, commit us to paying reparations to third world countries for non-existent damage; reparations which will probably end up in some dictator's Swiss bank account.   

Of course the government has also proposed what is always its first resort in these kinds of situations; tax increases.  It does so because it cannot stomach the alternative of cutting spending and eliminating parts of its bloated carcass that is suffocating the people under useless weight.  It never considers the possibility that increasing taxes will reduce the level of tax revenue, and strangle businesses unless it has Arthur Laffer providing the economic advice.  Raising taxes will not work.  It will only make the problem worse and as it does, unless significant changes are made, the government will certainly continue down the same disastrous road it has been accelerating along for some time.  The only thing that makes the current situation critical is that after going from zero to sixty over a course of many years, it has now decided to go from sixty to 240 as rapidly as possible.  It has a national death wish. 

What is happening here and now rests on a foundation built in the middle of the 20th Century.  A foundation that ignores the fact that governments can go bankrupt, which assumes that we can kick the problem a few more years ahead for someone else to take care of and hopefully solve.  The people in charge have been able to get away with this because they have kept the debt level within reason, and have been able to borrow, on the assumption that future generations will be able to pay the bill.  But now the bill is excessive; we are dealing with a government so addicted to spending that it has decided to intentionally overdose.  Barack Obama said "we're out of money now" as a justification for embarking on even more massive spending programs, as if they would somehow magically create prosperity and a balanced budget. 
 
Congressman Tom Price of the Republican Study Committee wrote in the RSC newsletter for Oct. 19, 2009 "The annual federal deficit came in last week at a record $1.42 trillion. This stunning total should give pause to all in Washington. Americans will be paying the price for the reckless spending of this Congress and President for generations to come…"

It is possible to assume that the people running our nation's financial affairs may not understand; it is certainly possible that they don't care; however the most likely and most obvious conclusion, based on their actions and statements is that they want to destroy the American economy and that they are very much aware of what they are doing.  At the least, it is treason.  At most, there is no name for it as yet.  Who knows what the consequences will be.  With any luck, the punishment will fit the crime.