According to some calculations, when taking into consideration our entire public debt at the federal, state and local levels, including unfunded entitlements and pensions, our true debt picture exceeds $130 trillion. More than $100 trillion is attributed to entitlements.
There needs to be a serious discussion on whether or not the United States can prevent itself from falling into default.
This is especially troublesome considering that a significant portion of our debt is held by China, and Chinese officials have become increasingly vocal in their criticism of American economic leadership.
The most powerful nation on earth defaulting on its debt obligations would seem to be pure science fiction.
But truth be told, in 1933, the first year of Franklin Roosevelt's presidency, the United States did default on its debt. But this was a slight-of-hand trick that bought time to repay the holders of U.S. bonds used to finance World War I. Roosevelt was able to convincingly reassure debt holders that if they wanted their money, it was backed by gold and they could be repaid in gold coin if they chose. Fortunately, few took him up on the offer.
Our dollar is no longer backed by gold. It is merely “vapor paper.” The Treasury Department, with a few key strokes on a computer, creates billions of dollars hoping to forestall an economic collapse. Things are coming to a head.
And if you think sovereign nations rarely default on their debt, 106 countries have defaulted 250 times since the end of the Napoleonic Wars in 1815. The most common defaulters are Costa Rica, Ecuador, Mexico, Uruguay, and Venezuela — each of whom defaulted numerous times.
This phenomenon isn’t limited to Latin America. The United Kingdom, Ireland and Greece came perilously close to defaulting last year, and Japan is in serious trouble. It would be a tragedy of unimaginable proportions if the U.S. found itself in the same situation.
One sure-fire way to get America back on course is to improve our trade imbalance. America’s trade deficit in goods and services increased to $497.8 billion in 2010 from $374.9 billion in 2009. Our deficit with China increased to $273.1 billion in 2010 from $226.9 billion in 2009.
A bit of good news is that U.S. exports increased $261.0 billion to $1,831.8 billion in 2010. One crucial benefit to boosting trade is it restores confidence in the American dollar.
There are perceptions with many of our trading partners around the globe that the dollar is losing its luster. The dollar must continue as the world’s base currency and we must stave off any attempt by China to replace the dollar with the yuan. The American “brand” begins and ends with the importance of the dollar. If it were to be replaced, there would be an accelerated decline in the American standard of living.
Chinese President Hu Jintao fired a warning shot across our bow recently with his statement that “the dollar is the past and the yuan is the future.”
This was a rare moment of the Chinese publicly stating their true intensions. In a world of Chinese economic leadership, there will be very little American job creation and whatever jobs are created will be at Chinese wages. The quickest way to fulfill President Hu’s prophecy is to default on our debt, which would trigger the world community to trash the dollar in favor of the yuan.
Our hope must lay in the ability of our government to reduce spending and the accumulation of more debt.
Already, new estimates based on the Obama administration’s 2012 budget reveals that interest payments on the national debt will quadruple in the next decade to more than $600 billion annually.
History teaches us that the fall of great empires comes when nations can no longer afford the carrying costs of their possessions. We can already see the day when we will spend more on interest than our defense.
I have confidence that the American people fully engaged in our country’s future won’t sit idly by while our government slips into default. Losing our pride will be the easy part. Our security and life as we know it hangs in the balance.
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