Aug 10, 2011

Time to Pay the Piper

David DolanBy David Dolan

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President Obama reassured us Americans that we are still Triple-A folk just hours after the Chinese, our biggest lenders, told us our money is nearly worthless due to our massive government debt. Beijing said the dollar should soon be replaced by another world reserve currency – you can guess what they probably have in mind.

USA 'still AAA ' despite downgrade, Obama saysHow did the greatest nation on earth end up in this dire situation? It started way back with President Franklin Roosevelt's New Deal, which, while helping to end the Great Depression, also introduced a socialist entitlement mindset into our national psyche. This was followed by World War II, the last war the United States had no choice but to fight. It naturally cost us and our allies a lot of dough to win that fierce worldwide conflict, but it was ultimately worth the high cost.

Next came the Korean War. Sixty years later, it's still not over. In the meantime, one of the Communist powers we were confronting there, China, has become our main source of loans to keep our government running. If that isn't ironic, I don't know what is. During that decade, President Dwight Eisenhower, a former army general who obviously was not some dovish politician possessing little knowledge of war, warned the nation of a "military-industrial complex" that was not necessarily working in the country's best interests.

The grandfatherly Republican leader could not have described the Vietnam War in any better terms. The goals were fuzzy, the previous French experience ignored, as once again we rushed off to a distant, divided East Asian country to save the world from the Communist peril. The commitment to, and escalation of, that costly, protracted and divisive conflict was carried out by two Democratic presidents, John Kennedy and Lyndon Johnson, even if it was later prolonged by Republican Richard Nixon. And who were we actually fighting? Why, our old friends, the Chinese, who now hold a good portion of our national debt even though the Communist Party still runs the huge country some four decades later.

Meanwhile we just had to go to the moon and beyond because the Russians might get there first and presumably use it to bomb Detroit, or maybe Houston. That grand venture and its follow-ups brought great pride to our nation and some significant scientific and other benefits for sure, but also a massive price tag that exacerbated our national debt.

President Johnson took Roosevelt's New Entitlement Deal and expanded it substantially, under the moniker The Great Society. Getting expensive handouts from Democrats, usually funded by borrowing money, would become institutionalized from that point on. To be fair, one of his party successors, Bill Clinton, did at least balance the annual budget a couple times. Not by accident, this came after the Republicans swept the 1994 congressional elections with their "Contract With America," which included a pledge to halt rapidly escalating federal spending. Whatever happened to that?

A decade before, Ronald Reagan significantly increased defense appropriations. Still, at least he could claim by the end of his two terms that one of our menacing Communist opponents was more or less defeated as a result. So that spending seemed to pay off.

Reagan's successor, George H.W. Bush, failed to utilize an excellent opportunity to take out one of the many Arab dictators who grace the Middle East. This was a real shame since the 1991 Gulf War sank us further in debt, yet nothing like his son's future action against Saddam Hussein would cost us. I opposed the U.S. move into Iraq even before it began, warning that to take out Saddam's Sunni regime would only eventually strengthen America's (and Israel's) deadliest opponent in the neighborhood, Shiite Muslim Iran, while adding greatly to our alarming national debt. Our massive spending to fight the war and rebuild the country (which is increasingly under Iran's nefarious sway, as I warned) would cost America far more than the originally projected $80 billion, with the latest figures showing it to be closer to $750 billion, plus untold billions more to care for our brave wounded soldiers, etc.

When things went south in 2008 due to the recklessness of our major financial institutions and lack of sufficient oversight from the White House and Congress, the decision was taken to save the day by printing up masses of fresh greenbacks to throw at the problem. When going further into debt did not work (surprise!), the next president, Obama, did the same thing on an even grander scale, but not before ramming through yet another huge entitlement program that we simply could not afford, as many economists warned.

I've long thought that an increasingly decadent United States – seemingly enjoying a non-stop party while largely ignoring the deep debt hole its leaders were digging – would not remain solvent in the end, with all the calamitous consequences for America and the world that implies. The day of reckoning seems to be drawing very near, despite the fact that we have an excellent, educated work force, leading high-tech industries, much of the world's top corporations, etc. Look for the ugly violence gripping London and other U.K. cities to come to America as joblessness spikes up once again, leaving despairing inner-city young people with nothing better to do.

I expect the dollar will be dumped in the end by our main foreign funders, China, Japan, Germany and Saudi Arabia (doesn't that look like America's enemy list from not so long ago?), but not in favor of the Chinese yuan, as the providential leaders in Beijing probably hope for. No, it will have to be the euro, despite the current severe financial problems in several of the European Union's major partner states. In the end, the currency still has a solid core in Germany, and an outside backer in relatively solvent EU member country Great Britain. More than that, there is no realistic alternative currency to choose from.

The successive American governments and Congresses have not stayed even close to our actual national means for many decades, and the time to pay the piper has apparently arrived.

Related Links

Financial markets wipe out Tuesday’s gain as Dow drops 520 points - The Hill
Super Debt Committee Takes Shape As Republicans Appoint Their Six - FOX News
Obama huddles with Bernanke - USA Today
North, South Korea Trade Artillery Salvos - Bloomberg
Fed low-rate promise seen as opening salvo for QE3 - MSNBC