Whitley's Journal

Where Does the US Debt Come From?

The United States is the only country in the world besides Denmark that has a debt ceiling, and Denmark's is intentionally set so high that it will never be reached. So why do we have one? Historically, it was put in place during World War I so that congress could quickly deal with the need to rapidly increase debt. It was never intended to be what it has become, which is a source of political leverage.

This is not a partisan political discussion, incidentally. I am a political moderate. I think that history has already demonstrated that no ideology is ever inclusive enough or flexible enough to meet all the problems it encounters in the real world, and therefore that they should all be discarded.

Since 1980, both parties have engaged in essentially the same process of spending in excess of revenue not only during times of national emergency such as the Great Depression and World War II, but also in times of peace.

The current federal debt level was agreed upon by both Republicans and Democrats when they passed the current budget. The debt ceiling has not been reached because of new spending, it has been reached because of spending that had already been agreed to, and there has never been any question, from the day the budget was passed, that the debt ceiling would need to be raised this summer in order to meet obligations that congress had already made.

The 2011 budget was enacted on April 15, with two hours to go before the deadline. It was enacted only because Republican leadership promised the Tea Party congressmen that they would revisit budget cuts when the debt ceiling was reached in August, and this is what has happened.

Whether or not the United States can constitutionally default on its debts is an unresolved question. The 14th Amendment says: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

To default on existing debt is like deciding to somehow "unbuy" things that you have already purchased on credit and are currently using.

The reason that other countries don't have debt ceilings is that they assume that they must pay their sovereign debt, and therefore, when a budget is passed, they must either obtain enough tax revenue to pay the obligations thus incurred, or borrow to make up the difference.

Right now, the US debt is nearing the size of its gross national product, but that isn't exceptionally high compared to the world's other great economies. Japan's debt is 225% of its GDP, and there is not the slightest chance of that country going bankrupt. China's officially stated debt is only 19% of its GDP, but this is not a real figure, due to the way the Chinese choose to calculate their national debt. Canada's is 82%, Germany's is 75%, Britain's is 76%.

It is interesting to contemplate why our debt has grown so dramatically. This growth, which is greater than any time since World War II, started in the 1980s. What is it? Where has it come from? How did it become so large?

Throughout the 1980s, the Reagan Administration increased defense spending against a background of permanent tax cuts. The difference was made up by increased debt. By 1989, the debt had increased to $1.9 trillion.

The first debt ceiling battle took place in 1990, when congress refused George HW Bush's spending plan. Nevertheless, by 1994, the debt had reached $4 trillion dollars. The reason was that the tax reductions of the 1980s had not resulted in increased economic activity, but a recession had set in instead. Tax revenues had not met expectations.

By 1996, the debt was $5.5 trillion dollars. The government was caught in a trap: if taxes were increased, economic activity might decline. But the tax reductions had not caused it to improve in such a way that taxe revenues were meeting obligations. As had George HW Bush, Bill Clinton had a battle with congress over the debt ceiling.

Under George W. Bush, the debt ceiling was raised 7 times. By the end of the Bush Administration, the combination of tax cuts, war spending and increases to entitlements, primarily Medicare, and the failure of the 'trickle down' theory that cutting only the taxes of the rich would lead to more economic activity, had caused the national debt to rise to $10.4 trillion dollars.

Presently, the US national debt is $14.5 trillion. It has increased approximately $4.0 trillion dollars during the Obama administration. While defense spending has dropped, the continuation of the bailout process begun under the Bush administration and additional spending programs such as extending unemployment benefits have combined to increase it.

As has been true from the beginning of this process since the days of President Reagan, there have been no tax increases to offset the debt, and the 'trickle down' theory has continued to fail. Instead, the gap between rich and poor in the United States has become so great that the top .01% of households now make an average of $27 million dollars a year, while the bottom 90% of households make an average of $31 thousand a year.

The profound distortions in American society that have resulted from our tax policies are similar to the distortions that occurred in French society between 1680 and 1780. By 1750, French society displayed a wealth distribution profile similar to what is present in the modern US. Drought and crop failures over the next thirty years, and the continuous taxation of the middle class to support the aristocracy, resulted in the effective destruction of the middle class in the 1780s. Finally, the crop failures led to hunger among people who had not known famine for generations.

The result was the French Revolution.

Americans are not yet hungry. But if present climate trends worsen--in other words, if the drought gripping the US midwest and southwest results in dramatic reductions in crop yields--it is possible that food shortages could develop not only in the US, but in other areas of the developed world as well, with unknown social consequences.

There is a fundamental reason that our world is struggling economically. It is that we have reached the limits of growth. Every time economic activity increases, shortages appear and prices begin to rise. We need core innovation in order to restore our economies to health. And, incidentally, that includes Asian economies. The Chinese economy, for example, has enjoyed years of artificially induced growth that will end if the US dollar falls much further. Only by keeping the value of their own currency artificially low have the Chinese sustained their enconomic miracle. Right now, China is experiencing a level of economic stagnation that has not yet been reported.

What is 'core innovation?' Let me give you one example: propulsion technology. There has been no significant innovation in this area since the invention of the jet engine. It is incredible that this would be true, and is the reason that we are struggling on planet Earth. There are too many of us here, and we have to find a way to express very significant population off the planet or we are going to get into extremely serious trouble with uncontrollable environmental decline. We cannot do it with jets and rockets.

Core innovation is something that changes life fundamentally for the better. The invention of the wheel, the harnessing of fire, the discovery of electricity and radio and digital computing--this was core innovation.

We need more, and we need it in the area of propulsion, and we need it now.







Thanks for Writing on this Whitely. I believe that the faux debt issues has been created for two reasons. First to blame Obama when the economy takes another down turn. And second to prevent another spending program, or fiscal incentive, that would fund out of work voters who would likely vote for Obama next time around.

The debt ceiling limit forces Obama to make cuts when he should be creating a jobs programs. The way the bill is worded it also protects the Republican donors from new taxes.

Unfortunately Obama's actions have really damaged the support from his base, making him more vulnerable to defeat next time around. The Republicans fear what would happen if a liberal Democrat got a working majority in both the house and senate, so they want to blame him for not succeeding even though they were the ones who made it impossible.

Whitley said, "We need core innovation in order to restore our economies to health."

There is a deep nugget of truth in this statement, but the sad fact is that powerful industrialists, since the time of Tesla's tinkering in the early 20th century, have successfully quashed such innovations to protect their financial base. This protectionism hasn't changed, and will not change until the world is awash with geophysical change which will necessitate the reawakening of individual resourcefulness once imbued in the human quest for survival. After numerous economic and political failures I think we'll be more interested in the protection and survival of small, barter-system communities, and less interested in individual monetary leverage involving increasingly worthless currency. In this case, the withholding of technology or invention would be self-defeating when one is dependent on the entire community for individual survival. The idea of promoting a for-profit innovation will become a pointless endeavor, and I see this in the very close future.

In the end, the powerful people and corporations stifling innovation either by refusing to fund it or actually working against innovative ideas like free energy, are going to end up with exactly nothing. But in the process of their collapse, the rest of us are going to suffer unnecessarily, and greatly.

Whitley you are touching on the core issue of today--namely that as a civilization, our priorities are totally messed up and are rapidly consuming the resources of the planet. Everyone in the World wants to live like Americans do with our throw-away, disposable culture that has everyone in a race to accumulate junk that eventually will end up in a landfill. Yet for all of their "stuff", people have never been unhappier. Americans take so much Prozac that this drug is in the tissues of most fish and in most drinking water supplies. In addition, there are not enough raw materials,electricity, or fuel to have everyone in the World live like this -----we would destroy the planet if we tried---and we sure are trying.

The only salvation is a spiritual (absolutely NOT religious) evolution of mankind where we stop the crazy obsession over material things and start worrying more about the care of our fellow man as well as the betterment and advancement of mankind. If we don't do this, either we will destroy ourselves or the Earth will cleanse itself--kill most humans--and mankind will be back to the Stone Age.

The best thing that could happen is that all the oil fields were somehow destroyed and then we would be forced to get a new source of energy.Too many people in positions of power make too much money off oil or have connections with other key people that do.
There was a man in England back in the 90's that had developed a ships engine that could soley run off seawater.The banks refused to back him.
The same thing happened to Nikola tesla with his free electricity,he was stopped by i believe one of the rockafellas who made the banks aware they would be bankcrupted if they funded him.
If someone needs funding they need to get in touch with someone like Richard Branson that is keen on innovation.
The other reason which you've touched on yourself is are we actually allowed to leave the close vicinity of the Earth?Is that the real reason that the kind of technology we need to extend into the universe is not being developed or being sabotaged?How long ago were we last on the moon?We need to evolve more before we are allowed to go anywhere,all wars and destruction must end first.Could you imagine what reasons our politicians and corporate bigwigs would invent to wipe out other races for profit and greed?Any technologically evolved entities out there with a spark of intelligence would quarantine the planet in the interests of all.
That is one hard circle to square.

@Nanci - Well said.

Thanks for writing this Whitley, excellent comments as well. Time to innovate.

If we want to be around for the next million years we had bettar smarten up. We are using up resources, eventually we will run out. Chris Martenson has an excellent series about this on Youtube:
http://www.youtube.com/watch?v=eidQTDjQ5gw
Basicly any kind of growth is unsustainable, but with dollars being lent into existence and the US money system requiring growth to work, the western money systems are faulty. No amount of patches/bailouts etc. can fix it. So, no surprise, most of the "rich" western countries are heavily in debt.

The ruling elite are saying, "Let them eat cake." They and their corporate overlord buddies seem pretty sure of themselves that any revolution will be under their control anyway, due to their presumed mastery of the art and science of mass manipulation; it is a fact, after all, that they have gotten good at it.

They are careening, to their own disaster. The question is, will they take the rest of us with them?

What is so sad is that a small handful of wealthy, powerful people are holding everyone back and destroying our planet in the process. I am amazed that we are still stuck driving the combustible engine automobiles. I'm sure that many brilliant people have come up with other forms of propulsion for our cars and they were crushed in the process. And why doesn't this huge country have high speed rail? Wouldn't it be nice to hop on a train and go anywhere in the US instead of driving or flying. Boy would that cut down on pollution!!! After President Kennedy was killed a cruel, right wing mind set took over our country and we haven't been the same since. The policies have pretty much destroyed the middle class. This bunch even wants to get rid of public television and the National Endowment of the Arts and Sciences. You certainly don't want to expose the masses to culture, alternative ideas or art!!! Keep 'em stupid, desperate wallowing in their misery. That's how to control people!!!

Well said Whitley.

Whitley, are you saying that part of our population needs to go live on another planet so we can reduce the population?

Steel it's a hint from the master of the key.

Our economic, social, and spiritual paradigms are all non-sustainable. The human population is beyond the carrying capacity of the earth and the real issue is whether we can manage society back down to a sustainable level or whether nature will do it for his by more painful means such as disease, environmental collapse, pestilence, war, etc. Oil has allowed us to artificially increase the carrying capacity of the planet and now we are out on a limb. Oil is like a one time inheritance, and once it's spent, the party is over and we will be forced to go back to population levels before the industrial revolution. The U.S. has been able to live at an artificially high standard of living in part because of oil and by taxing the rest of the world through the use of the dollar as the international reserve currency. When and if the world abandons the dollar as the primary reserve currency, is the day the value of the dollar will plummet along with the standard of living in the U.S.

Deleted.

Theres been PLENTY of alternative energy and propulsion ideas for decades. Obviously these technologies are being suppressed! I've seen first hand, cars that run on water, electric cars that got 100 miles to a charge that were created in the 80's, but were muscled out of production by our good friends in the Oil industry! No offense whit, I know your dad was an oil-man, but I despise these people... and they go hand in hand with many of the other GIANTS that are destroying our planet and keeping us in slavery. Big oil, Nuclear Power, Big Pharma, The military industrial complex, and my least favorite, The Meat & Dairy industries.
They're all the biggest polluters and they make the largest profits! They spend billions lobbying in Washington every year to keep everything just like it is! Express elevator to HELL, Goin DOWN! Won't be long before the earth shakes us off like a pack of fleas! We're in deep doo doo and it starting to really STINK around here. We are submerging ourselves in our own SHIT! After 30 years of researching and observing the UFO phenom, I have no doubt in my heart and mind that humanity has advanced propulsion that would iradicate the rocket/combustion era and it's power mongers forever, and thats exactly WHY it does NOT happen.

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