About 20 years ago, we pitied small Belgium for having a national debt exceeding 100 percent of their yearly gross national product (GDP). Little did we guess then that Japan in 2013, according to the CIA, had a national debt of 226 percent of their GDP.
In comparison with their government liabilities, our own debt amounting to $18 trillion, being only 103.5 percent of GDP, look almost paltry.
Not to worry; after all, it amounts to only about $60,000 dollar for every man, woman, and child in this country. Can it be paid back? Yes, of our government taxes every family an additional tax of about 10 percent of their yearly income over a period of 20 years. This, of course is under the assumption that, in the meantime, nothing is added to the debt. Seems a fat chance, under our “pork barrel” congress.
While our newspaper writers and the political party out of power, at any given time, blame Congress for creating this admittedly huge debt. Sadly to say, this is only half the story.
Almost $8 trillion of the current total of $18 trillion is due to our accumulated current account imbalance, caused by our persistent trade deficit; meaning that we always import more goods than we export.
Instead of paying the Chinese exporter in dollars, which we don’t have enough of, the Federal Reserve Bank (serving as a clearing house) accepts the dollars paid by the U.S. importers but in turn gives the Chinese National Bank US treasury bonds instead of U.S., or foreign cash, which we don’t have.
In turn, the Chinese exporter then gets paid Chinese money from their Central Bank, in proportion to the dollar value of the U.S. bonds received. The Chinese trade is only one example, but we do this with many other countries such as Japan, Germany and even some Arab countries.
There practically is no way to ever pay back such a large foreign debt. Our economy would collapse, if foreign governments ever want their bonds cashed in. Of course, if it ever comes to a war with China, then our debt to them is written off!
While this IOU payment system is going on for over 30 years (since the beginning of outsourcing) the sad thing is, that we still are adding about between $400 billion and $450 billion every year to the foreign debt.
That adds about $1 trillion dollars every two years to our national debt. Will it ever end? I doubt it, unless we rebuild our manufacturing sector sufficiently in order to at least stop the importation, or better yet export more than we import.
Here is one example: According to reports, 70 percent of all parts for the famous Boeing Dreamliner are produced in foreign countries. Is this necessary? I bet at least two-thirds of these parts could easily be produced in this country, saving us billions of dollars worth in foreign currency.
The sad fact is, that by replacing foreign manufactured items such as toasters, toys, or clothing, with those manufactured here, we not only reduced our foreign debt but also employ more people, thus reducing the welfare and unemployment outlays of the federal government, hence, reducing the budget deficit as well.
There has been periodic calling by some congressmen to audit the Federal Reserve Bank. The hope is to go into the bank’s vault and count money. Alas, all they would see is a huge computer with multiple memory banks, each housing billions of bites of stored electronic data.
The only thing a congressman might see, is the about $13 trillion of federal obligations displaced on a computer screen. How to increase the deficit? No problem, the only thing Janet Yellen will need is a computer terminal and to make a few keystrokes.
A strange world indeed.
Hans Baumann is a licensed engineer in four states and a member of Sigma Xi, the Scientific Research Society. He is an adviser to the dean of the University of New Hampshire Business School. Baumann has published manuals on valves and was a contributor to many works including the "Instrument Engineers' Handbook" and the "Control Valves Handbook." He has also published several books on business management and German history. His book "Hitler's Fate," suggests that Adolf Hitler did not commit suicide and survived World War II. For more of his reports, Go Here Now.
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