Massive Articles / Business and Finance
How to Solve the Deficit and Debt Problems in One Easy Lesson
In 1980, our total national debt, accumulated by ALL "tax and spend" Democrats
and ALL "borrow and squander" Republicans in 200 years, stood at something like
$ 0.7 Trillion. Today, only a dozen years later, total debt stands at more than
$ 4 Trillion and it is increasing at the rate of another $ Trillion every three
years or so. Even if President Clinton achieves what he is trying to do, the
debt will climb to $ 5 to 6 Trillion before the deficit is eliminated. And
there is another Trillion, hidden in our shift from biggest creditor to biggest
debtor. And there may be yet another Trillion, if the rumored commercial bank
and insurance scandals materialize. What a nightmare!
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finance, but let's try anyway. Suppose that your salary is $ 60,000 and you
live in a $ 200,000 house, on which you owe $ 10,500. One fine day, you
find that your pay has been cut to $ 50,000. So, to cheer yourself up, you
double what you have been spending on your favorite hobby, to $ 1,000 per
month, and you start making monthly trips to the bank to increase your mortgage
by $ 1,000 --- to keep the bill collectors at bay. After some years, your
salary is only $ 48,000, but you now owe $ 60,000 and you are still going to
the bank every month to borrow another $ 1,000. You haven't been able to
maintain your house properly, so it is now worth only $ 120,000. Your banker is
getting nervous and thinking of foreclosing. What are your options? Wouldn't it
be absurd to speak of ``solving" this problem by trying to stop borrowing
$1,000 more every month, within 4 or 5 years? Realistically, your only options
are to declare bankruptcy or sell the house.
What happened to all the Trillions, that Reagan and Bush borrowed and
squandered? This money still exists in the form of T-Notes. Guys like you and
me now owe it and those who have the T-Notes now own it. Thus, the practical
result of Reagan-Bush economic policy was to effect the by-far greatest
transfer of wealth in history. This is what Reagan set out to do, according to
his first Budget Director Robert Stockman, but he also hoped that the resulting
debt would end social programs forever. Nice fellow. Great Good Fortune was
supposed to "trickle down" to you and me, but it didn't.
The experiment failed, so why don't we just undo it? The deficit is just the
amount by which taxes were reduced in 1981 and 1986, so that can be fixed by
just restoring 1980 tax schedule. The debt can also be fixed, by just
transferring the $ 3 or 4 Trillion, from those who received it back to those
from whom it was taken (stolen??). All we have to do is cancel the T-Notes.
"You can't do that," everybody will scream, "T-Notes are a contractual
obligation that cannot be abrogated". Well, our Social Security Pensions are
also a contractual obligation that cannot be abrogated. But that hasn't stopped
politicians from calling them "entitlements" and "putting them on the table".
And these same politicians speak of "fairly shared sacrifice". Cancelling the
T-Notes IS fairly shared sacrifice: T-Notes also figure in the pension funds of
ordinary people.