Right wing commentators and many of their frum followers often fret over the national debt. The US does a great deal of borrowing to finance an enormous Federal budget deficit. The debt is over $20 billion (!!!), much of it borrowed from unfriendly countries like China and Russia. While it seems like the world’s largest economy is headed for a debt-fueled collapse, a deeper look shows that these fears are overblown.
Comparing Salmon and Jelly Fish
A family’s finances and the Federal Government’s are as similar as a Paskesz jelly fish is to a salmon—alike in name only. Unless the USA completely ceases to function as a country, technically, it can’t run out of money as an individual or business can.
Because the USA only borrows in US dollars which it can print at will, the government can literally pay off its debt at any time by generating trillions of extra dollars. Printing that much additional currency suddenly would lead to hyperinflation, as each dollar would lose much of its purchasing power, but if done over time, it would likely lead to a malaise, not a catastrophic bankruptcy. But even by the standards of family finance, the Federal Government’s debt is not nearly as bad as right-wing pundits and gold-brokerage companies would have you believe.
Billionaire Budgeting Example
Those who obsess over Washington’s excessive borrowing misunderstand just how much wealth is backing up the debt obligations of the USA. By way of example, consider the finances of a super-rich family like the Bezoses of Amazon. The vast majority of Jeff Bezos’s $100 billion+ in wealth is tied up in his ownership of 17% of Amazon’s stock; his salary is a mere $86,000.
So how does the billionaire pay his household’s bills? If the Bezoses spend $100 million annually on expenses, Jeff could sell an equivalent amount of his stock shares every year, but this would cost him a lot in taxes and also some control and potential growth of the company. Instead, he can borrow $100 million every year at a low rate against the value of his Amazon shares; there is minimal risk to the bank since the sum borrowed annually is just one-thousandth of his net worth. While that kind of debt is unimaginable to 99.99999% of the population, in the context of billionaire finance, it makes perfect sense.
As the Debt Grows, the Wealth Grows
Over time, Bezos’s debt would grow and grow, but probably, so would his Amazon (and other investment) wealth. If he dies after 50 years of this setup, owing the bank $21 billion ($100 million x 50 plus 5% interest compounded for 50 years), his family could simply sell shares at that point (tax-advantaged with a step-up in basis) and pay off the debt.
What would seem to be a ridiculous debt accumulation is actually sound wealth planning, and $21 billion in debt isn’t very scary when weighed against a pot worth hundreds of billions (i.e Bezos’s current $100 billion grown over 50 years). And if that calculation is valid for a mere billionaire, what about for a multi-multitrillionaire—the US Government?
USA Is the Planet’s Richest Entity
The US Government owes about $20 trillion, but the Federal Government has untold wealth and growth backing its borrowing, and its deficit and debt are no more threatening than the Bezoses’ $100 million in annual borrowings. The bonds of the US Government are backed by all the resources and income potential of the wealthiest group of individuals in history…the taxpayers of the USA! Through the powers of taxation (itself backed by the full might of the justice department and the military), the Federal Government has access to the hundreds of trillions of dollars in assets owned by its citizens.
This fortune includes all residential and commercial real estate and everyone’s holdings in stocks, bonds, and private businesses plus all the future earnings of its highly capable workforce. In fact, if the US simply raised it’s relatively very low taxes to the rates charged by England or Canada or cut spending by a similar amount, the entire Federal debt could be paid off in a decade or two without trouble.
Deficit Is About Politics, Not Finances
So, if there is so much available wealth, why do politicians keep borrowing instead of balancing the budget by raising taxes or cutting expenses? The short answer is that Americans hate paying taxes as much as we did in the days of the Boston Tea Party, but we’ve since developed Europe’s taste for extensive social spending. America also has the world’s largest military budget by far.
Since it’s a lot easier and politically convenient for public servants to borrow more money than raise taxes or cut spending, they run a deficit and the debt keeps rising. As long as Americans love government services and programs but not paying for them, we will run deficits. But, thanks to the country’s vast stores of wealth, covering the debt required to fund this political game is no problem for the foreseeable future. Therefore, dumping assets to buy gold is unnecessary, and probably foolhardy as well.
Just By the Way: Bombing America’s Bonds
Right-wing pundits sow fear among the masses by saying that China and Russia may collapse the US economy by dumping their trillions of dollars’ worth of US government bonds (the bonds sold to finance America’s debts). Taking that path to hurt the US would be as silly as China bombing its own tanks, hoping the shrapnel will kill American soldiers.
Dumping too much of any asset collapses its prices as fast as esrogim’s on Erev Sukkos. China and Russia paid good money to buy those bonds, and if they sold them in a hurry, they would sustain hundreds of billions in losses which they can’t afford. Besides, why should adversaries spend so much money to hurt America when they can cause it terrible damage with a few hackers on Twitter and Facebook?
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