For many years PCG's leaders have been claiming with much alarm that the US economy will soon collapse. One thing they like to fear monger is that the US federal debt is rising to (they say) to unparalleled heights.
Let us see what Joel Hilliker has to say.
Black is better than red. You’d rather have someone owe you $100 than owe someone $100. Better to have $10,000 in the bank than to be $10,000 in the hole. Financial security brings peace—debt brings grief. That’s just common sense.That might just have something to do with the fact that the US federal government can print money but people cannot privately do so.
Except, apparently, when applied nationally.
Total federal debt now surpasses $15 trillion, and that doesn’t count the more than $50 trillion the government owes in unfunded retirement promises. The debt exceeds America’s GDP. And on January 26, the Senate agreed to allow President Obama to raise the debt ceiling $1.2 trillion higher...So Hilliker is complaining that the federal debt is $15 trillion.
Just do the math: The federal government collected $2.2 trillion last year—a huge heap of money that is nowhere near the $3.7 trillion it spent.Stop right there. Can this household legally print money which is recognized by the government of the land and foreign governments as legal currency? Clearly not. Therefore this analogy is totally false.
Imagine a household...
But let us see where Hilliker is taking the unsuspecting reader, who in all likelihood is unaware of just how inaccurate this analogy is.
Imagine a household that makes $4,000 a month sitting down to make a budget, and patting itself on the back for planning to spend $6,500. We’re not talking about impulse buying. We’re talking about planning to go $2,500 deeper into debt every month—$30,000 a year.
Comparing income to spending, that reckless family would actually be doing somewhat better than America.
Every year, the federal government takes an average of about $7,000 in taxes per American—and then spends nearly $12,000 per American. That is how it goes a heart-stopping $4 billion deeper into debt every single day.It must be stated once again that comparing the US federal debt with the spending of a household is a completely incorrect analogy.
In the last few decades, debt spending and borrowing have increased dramatically, and the U.S. has become a net debtor, borrowing billions of dollars per year from the rest of the world. Nearly one third of the money the government overspends, it borrows from foreign countries. Today America is the most indebted nation on Earth.But if "Nearly one third of the money the government overspends [is burrowed] from foreign countries" wouldn't that mean, according to Hilliker's own words, that over two-thirds of the federal debt is actually owed to fellow Americans?
What are they going to do? Are they going to call in all the debts at the same time and bankrupt America? Somehow the federal debt sounds far less scary knowing that over two-thirds of it is owed to fellow Americans, assuming that Hilliker is correct.
Another thing that really needs to be mentioned about the federal debt is that, once you account for inflation and the concurrent growth of the economy, the US actually owed more money, per capita, back in the 1940s because of World War II. Here is a chart that shows this to be the case.
|US federal debt compared with GDP 1940-2014|
Now if one regularly reads PCG's writings it could be fairly easy to miss that there are economists out there who currently are not worried about the federal debt. Hilliker obliquely refers to them but dismisses them as people who do not have a clue about what is "really" happening. Hilliker even refuses to acknowledge that they are economists but simply dismiss them as "[p]undits".
Pundits can kid themselves with fancy formulas and say this is no big deal; some even argue America should borrow more.What that sentence reveals is that Hilliker does not appear to understand these "fancy formulas" he dismiss without ever trying to discuss specifically. Maybe Hilliker should try to understand what these "fancy formulas" actually are before simply dismissing them as nonsense.
We shall learn more about these "[p]undits" and "fancy formulas" (which he does not even bother to describe) later on.
Take a good look at all the money being sucked out of America’s coffers by interest payments on that debt. In fiscal year 2011, the government paid $454 billion in interest. Last December alone, maintenance on the debt cost $98.6 billion.How is this hurting the nation specifically? One would think Hilliker would mention something specific to support his case. Does he?
Look at how such enormous payouts hurt the nation.
Hilliker immediately continues with these words.
Last year, America’s top military officer, Adm. Michael Mullen, called America’s national debt “the biggest threat to our national security.” Why? He was just looking at the defense budget. U.S. military policy is being dictated less and less by strategic imperatives and more and more by budget constraints.Why is Hilliker quoting this high ranking Admiral? Shouldn't Hilliker be quoting an economist? Shouldn't Hilliker quote a person who analyzes matters of this sort full-time as a profession?
Maybe Hilliker should have quoted Paul Krugman, an economist who won the Nobel Prize for Economics. As may be seen in the following link, A Country Is Not A Kitchen Table: Why Austerity Is Bad Economics, he said:
We are not a household; we are an economy. And an economy is a very different thing from an individual family because (in an economy) we are each others customers. Your spending is my income. And my spending is your income. And if we both try to get ourselves in better shape by spending less, all that happens is we end up reducing all our incomes.And just imagine, Hilliker dismisses an argument like this by just calling it a "fancy formula".
Another economist Hilliker could have quoted is James Galbraith. Back in 2010 he wrote an article entitled "In Defense of Deficits", which contained precisely the opposite message from what Hilliker would have us believe. This article was discussed in a previous post at the time. (Emphases added.)
The misinformation [and fear that the US state will become bankrupt] is rooted in what many consider to be plain common sense. It may seem like homely wisdom, especially, to say that "just like the family, the government can't live beyond its means." But it's not. In these matters the public and private sectors differ on a very basic point. Your family needs income in order to pay its debts. Your government does not.Galbraith also has some words about Social Security.
Private borrowers can and do default. They go bankrupt (a protection civilized societies afford them instead of debtors' prisons). ...
With government, the risk of nonpayment does not exist. Government spends money (and pays interest) simply by typing numbers into a computer. Unlike private debtors, government does not need to have cash on hand. ... If you choose to pay taxes in cash, the government will give you a receipt--and shred the bills. Since it [the US government] is the source of money, government can't run out.
It's true that government can spend imprudently. Too much spending, net of taxes, may lead to inflation, often via currency depreciation--though with the world in recession, that's not an immediate risk. Wasteful spending--on unnecessary military adventures, say--burns real resources. But no government can ever be forced to default on debts in a currency it controls. Public defaults happen only when governments don't control the currency in which they owe debts--as Argentina owed dollars or as Greece now (it hasn't defaulted yet) owes euros. But for true sovereigns, bankruptcy is an irrelevant concept. When Obama says, even offhand, that the United States is "out of money," he's talking nonsense--dangerous nonsense. One wonders if he believes it.
Nor is public debt a burden on future generations. It does not have to be repaid, and in practice it will never be repaid. Personal debts are generally settled during the lifetime of the debtor or at death, because one person cannot easily encumber another. But public debt does not ever have to be repaid. Governments do not die--except in war or revolution, and when that happens, their debts are generally moot anyway.
What is true of government as a whole is also true of particular programs. Social Security and Medicare are government programs; they cannot go bankrupt, and they cannot fail to meet their obligations unless Congress decides--say on the recommendation of the Simpson-Bowles Commission--to cut the benefits they provide. The exercise of linking future benefits and projected payroll tax revenues is an accounting farce, done for political reasons. That farce was started by FDR as a way of protecting Social Security from cuts. But it has become a way of creating needless anxiety about these programs and of precluding sensible reforms, like expanding Medicare to those 55 and older, or even to the whole population.These must be some of those "fancy formulas" Hilliker dismissed with but a sentence without confronting what they actually said.
We now return to Hilliker's article.
Hilliker then insinuates that this foreign debt is allowing China to "defy" America.
And think about how that foreign debt can influence policy—even change the balance of global power. America’s largest creditor is China. How much of Beijing’s growing confidence and militarism within Asia, how much of its willingness to defy the U.S. in the international arena, owes to the fact that America owes it well over a trillion dollars?Wait a minute! Hilliker just said at the start of this article that the federal debt was $15 trillion. Now he says that China is owed "well over a trillion dollars". This means that, according to Hilliker himself, that only about 7% of the federal debt is owed to China. Is it really reasonable to assume that being owed just 7% of the federal debt could really grant so much power to China?
And it deserves repeating again that over two-thirds of the federal debt is owed to fellow Americans according to Hilliker. The following article also support the fact that the federal debt is mostly owed to fellow Americans: Guess Who’s America’s Largest Creditor (Hint: It’s NOT China)
Strange how when the federal debt is viewed in this way it seems so less threatening.
Is it not strange how Hilliker seems to be unaware of the implications of what he is obliquely admitting?
Perhaps the fact that Hilliker used such weak arguments can perhaps be explained somewhat by noting how at the end of this article Hilliker states that his real proof that the federal debt will destroy America is because he has a specific interpretation of the Bible and he will simply continue to say his interpretation is true.
Fundamentally, though, this isn’t a case of bad economics. This is a curse—a curse imposed by God for the nation’s disobedience to Him.
It’s not very fashionable to believe in curses in our modern world. But if you believe the Bible, it’s not at all difficult to see the contrast in Deuteronomy 28 between verses 12 and 44, and to recognize which of those prophecies—issued by the Almighty God—applies to America today. It’s already hurting the nation, but the situation is precarious, and it’s about to get far worse.So for Hilliker it is simply magic. His citing of Admiral Mullen and bringing up China having about %7 of the federal debt is just for decoration. His main argument is that his interpretation of the Bible tells him the federal debt will lead to America's fall.
But his interpretation is largely based on British Israelism. But British Israelism happens to be false. So this interpretation is non-biblical nonsense.
And so we see that Hilliker was quite badly informed in writing this article.
In the following issue three letters discussing Hilliker's terribly flawed article are reprinted.
Here's the first letter.
It seems that the majority of U.S. politicians think they have a bottomless money source at their disposal (“An Awesome Secret About America’s National Debt,” April). We hear a lot about how they will save the economy by tackling this serious problem, especially around election time, but all they seem to do is continually add to it. The whole system is based on Satan’s way of get, i.e. politicians want to get elected, so they continually make promises the country can’t afford to deliver, and the voters want to get the promises the politicians are making. We are most definitely heading for ruin ....Here's the second letter.
Americans seems to have their heads sunk in the sand and can’t see where they are going. It’s sad that no one seems to notice, much less care. Maybe it’s because deep down they don’t know what to do and it’s better just to ignore the financial tsunami headed our way and hope it will all pass soon and things will be better in the morning, but this time that won’t happen.And here's the third letter. Incidentally this person gets printed in the letters section fairly often.
The universal problem of debt boils down to just one thing: greed. A common disease around the world is the “I have more than you” syndrome. People would go to insane lengths of borrowing just to buy things that they do not really need—all because they want to show off to their friends and neighbors. Humility is associated with stupidity in this sinful world. Entire nations have this attitude. Some impoverished nations are burning billions of dollars developing nuclear weapons just to show off. The Bible has warned that in the end times the weak will say they are strong. This toxic attitude contributes greatly to the debt problem globally.Here are some comments left with the article at PCG's website.
Wow! Talk about the earth shaking under your feet or the curses of Deuteronomy 28 truly comming [sic] to pass in the lives of the people of this great country. As I was reading the words of this passage in the Bible I could see the curses in my own life there in plain view, word for word, curse for curse. My oh my, may the Eternal help me to see and choose life and blessings and not curses and death. The more I follow the Lords lead the more he blesses me. But don’t be fooled God is not mocked he will not at all acquit the wicked. That includes you and me. Unless we repent, truly repent and turn toward the God of our fathers and choose life, we will see nothing but more and more curses.Here's another one.
As much as the American people would like, there isn’t a man or a woman—no, not even a nation full of men and women whom we might vote into office this November, who can save this Nation from this very hard downfall and civil turmoil.How unfortunate it is that those who believe PCG's writings are unaware of the severe flaws of Hilliker's article.