Economics, Historically, History, Politics

Founding Fathers, Debt, and Bubbles

Barack Obama and the main stream media at some point in this election will attempt again to change the discussion from the perils of the public debt to one of income inequality (which we earlier refuted to be a bogus argument).  The public debt is the greatest danger we face today.  It stands at a record high of $15.7 trillion and we continue to run a deficit of $1.3 trillion per year.

Our Founding Fathers understood well the dangers a high public debt  posed to our freedoms.  Thomas Jefferson warned,

I place economy among the first and most important virtues, and public debt as the greatest of dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt. If we run into such debts, we must be taxed in our meat and drink, in our necessities and in our comforts, in our labor and in our amusements. If we can prevent the government from wasting the labor of the people, under the pretense of caring for them, they will be happy.

Allowing people to earn the fruits of their labor is the greatest incentive for getting people to be productive members of society.  George Washington was very wise in his counsel for free markets:

A people… who are possessed of the spirit of commerce, who see and who will pursue their advantages may achieve almost anything.

Washington cautioned against government being too involved in the markets as we so often see today.  Government caused the housing crisis by subsidizing housing for those who could not afford it.  Fannie Mae and Freddie Mac were instructed in 1996 that 40% of loans had to go to low income borrowers.  Economic Professor Antony Davies sheds some light on the former housing crisis and the pending student loan crisis.

These bubbles forming and bursting are easily predictable.  They are often predicated on government facilitating a market place being overrun with debased currency (cheap money).  This leads to speculation on a grand scale which helps create the environment for a bubble to quickly form and then burst.  The Dutch tulip bubble bursting in 1637  was one early example of such an event.

Our Founding Fathers were better students of history than we appear to be today.  Knowing well the history of government being too involved in the markets, Washington cautioned:

Harmony, liberal intercourse with all Nations, are recommended by policy, humanity and interest. But even our Commercial policy should hold an equal and impartial hand: neither seeking nor granting exclusive favours or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of Commerce, but forcing nothing; establishing with Powers so disposed; in order to give trade a stable course.

Beyond being too involved in the market place, our Founding Fathers warned against government going into debt to fund basic operations.  Alexander Hamilton did find it important for us to incur some debts with foreign nations to fund capital projects and help build our credit internationally.  But, to fund large portions of a wide swath of discretionary spending by borrowing undermines the security of the country.

Thomas Jefferson knew that government could easily fall into the habit of incurring debt upon debt:

A departure from principle becomes a precedent for a second; that second for a third; and so on, till the bulk of society is reduced to mere automatons of misery, to have no sensibilities left but for sinning and suffering… And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression

Government authorities start searching for more streams of revenue to feed their spending addiction and to keep up with the amounting debt.  It is how we end up with a wide assortment of taxes, such as income taxes, sales taxes, property taxes, and death taxes.  Thomas Paine looked at the history of previous civilizations  and much older current civilized countries when warning:

If, from the more wretched parts of the old world, we look at those which are in an advanced stage of improvement, we still find the greedy hand of government thrusting itself into every corner and crevice of industry, and grasping the spoil of the multitude. Invention is continually exercised, to furnish new pretenses for revenues and taxation. It watches prosperity as its prey and permits none to escape without tribute.

During George Washington’s farewell address in 1796, he warned us a final time:

No pecuniary consideration is more urgent, than the regular redemption and discharge of the public debt: on none can delay be more injurious, or an economy of time more valuable.

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Discussion

8 thoughts on “Founding Fathers, Debt, and Bubbles

  1. Reblogged this on The Busy Post and commented:
    If we have 4 more years of Obama debt……

    Posted by The Busy Post | June 15, 2012, 8:24 pm
  2. I read your blog and take issue with it starting with the very first sentence. I don’t see it as a huge leap in difference between discussing the “perils of the public debt” or “income inequality.” That’s because the path to income inequality, that is, allowing banks and lending institutions to deregulate so they can create and flood the markets with fraudulent paper; allowing businesses to ship jobs to China & India just so they can dodge paying a fair wage and their fair share of taxes; and subsidizing the world’s most profitable corporations, in addition to giving them tax breaks, write offs and loopholes, all lead to what you refer to as perils of the public debt. Barack Obama knows that income inequality is a by-product of the above stated policies. However, when the president is responsible for fixing these problems, on what basis do you make the claim that he wants to “change the discussion,” particularly since the discussion is being set by the party (GOP) that is notorious for its “wedge issue” debates and has sworn to make Obama a “one-term president?”

    Posted by Larry Carter | June 20, 2012, 2:15 pm
  3. Actually the path to inequality was set when our Founding Fathers created a country where people were free to pursue happiness and partake in free markets. Inequality of outcomes is not a bad thing. It creates the incentive necessary for our country to achieve the greatness that it has.

    You and I probably agree on many things, including the corruption between corporations and government. The government caused the housing crisis just as they are creating the student loan bubble about to burst. Big business reaps the rewards while avoiding the risk. Big corporations don’t mind regulations (including tax regulations) so much because they are large enough to negotiate exemptions and loopholes while those same regulations drown out potential upstart competition from entering the market place. Most establishment politicians are guilty of this. I want all businesses to be treated the same. Same taxes, no loopholes. If we have a fair and low tax rate here, more businesses will choose to do business here.

    When I say Obama will want to change the subject is because I am predicting the future. I believe he will attack Romney on his being so wealthy and attempt to point out income disparity to create class warfare. If I’m wrong, then I’ll admit I was wrong. Time will tell.

    Posted by G | June 20, 2012, 8:21 pm
    • I don’t think anyone can blame the Founding Fathers for the inequality that led to millions of Americans at one end of the economic scale losing their homes, jobs, and denied health coverage, etc., while those at the other end amass untold billions in dollars as they profit off the misfortune of their co-patriots. And even if justification for such policies can be found in the Constitution, doesn’t make it a legitimate approach to take.

      Inequality has always been apart of this nation’s landscape, in many different forms. But today, the kind I’m addressing is when government officials align themselves with a particular class of people, i.e., banks, big business and major corporations. Such an alliance is known as “fascism,” which this nation lost thousands of lives defeating during WWII. GW’s deregulation of banks, insurance, credit, health, in fact with few exception, the entire private industry, allowed them to rip-off the American public, and create this inequality we currently have. (Also why should college students have to pay a huge fee to banks for loans when the money is coming from the US government?)

      As far as Obama attacking Romney, it is Mitt who has nothing to offer but attack ads. Obama would like this election’s debate to be about the difference in their policies and allow the American people the opportunity to decide. But Romney knows he doesn’t stand a chance in such a debate. He has no policy or plan of action to sell the nation. That’s why the GOP’s strategy is to disenfranchise as many democratic voters as possible and spend billions on attack ads in hopes to steal the election. For the private industry to spend several billion on this election is nothing compared to the amount of taxpayers dollars that industry receives via various GOP policy subsidies.

      Is this the approach the Founding Fathers had in mind? I don’t think so!

      Posted by Larry Carter | June 21, 2012, 2:43 pm
      • I’m not blaming the Founding Fathers, I am giving them credit for a wonderful free market system. I blame current politicians for the corruption of it.

        You and I are in agreement that businesses and government align in corrupt endeavors, but I recognize politicians on both sides of the aisle are complicit, but you only see the Republicans.

        Politicians caused the housing crisis by strong-arming banks to lend to people who could not afford it. But then they guaranteed the loans the banks were making so the banks carried little to no risk. I don’t blame the player, I blame the game.

        The student loan crisis to come is the same scenario. Student loans are guaranteed by government to encourage more students to attend college, but many of them have no business going to college. It loads them with debt and drives up the tuition costs.

        I’m not a big Romney supporter, I just recognize that Obama is one of the most corrupt politicians in modern times.

        Posted by G | June 21, 2012, 8:10 pm
      • Congratulations! I know the feeling. I was erxebuant when I finished my plan a few years ago. I paid off several credit cards and that burden lifted made me feel so free!Keep going, be encouraged

        Posted by Cecilia | January 26, 2013, 11:47 pm
  4. Aside from the fact that you should have neotgiated a settlement and got it in writing before paying anything, collection agencies only update to the credit bureaus once a month or even every other month. They may not even report the payments till the whole balance is paid in full.You might try to renegotiate that settlement. Lump sum offers get the best deals. If the debt is over 3 years old, you should be able to settle for 25%. And don’t give collectors direct access to your bank account I assume they are auto debiting or check by phone and that’s the processing fee.

    Posted by Alejandra | January 26, 2013, 9:59 pm
    • My two little boys were absued by their father, we have been fighting in family court for several years now . He has recently been indicted with criminal charges , this is our second time in the criminal courts over this. It has been a nightmare Would love to talk to someone !

      Posted by Peng | November 19, 2013, 11:27 am

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