Unsinking the Titanic: Repairing the Hole that is America’s Debt Dilemma

Unsinking the Titanic: Repairing the Hole that is America’s Debt Dilemma

originally posted on Republican Review of America
by Providence Crowder an FDF Member

 The Problem

There is a war of ideologies being waged on the American political scene.  Those on the left and right sides of the political spectrum are simply unable to come to a viable compromise concerning prominent socioeconomic issues of today.  In the meantime, while the politicians in Washington fight, the director of the Congressional Budget Office—Douglas W. Elmendorf—warned in his 2011 Long-Term Budget Outlook that the United States is headed towards the biggest economic downfall since World War II.  He testified:

Policymakers will need to increase revenues substantially as a percentage of the Gross Domestic Product (GDP), decrease spending significantly from projected levels, or adopt some combination of those two approaches to keep deficits and debts from climbing to unsustainable levels.

The CBO reports that for 2011, the federal government faced a 1.3 trillion dollar budget shortfall—the third largest to date—continuing its trend since 1969 of spending more than it takes in.  Only in the years 2009 and 2010 were the deficits greater—those years produced the largest budget deficits in modern history.  Elmendorf recommended early action and more sacrifices “for the benefit of younger workers and future generations.”  Simply put, the U.S. economy is in BIG trouble!

America, the most prosperous nation in the world, is currently the biggest debt owner in the world.  This colossal debt is reprehensible and represents instability and insolvency to our lenders.  Our looming liabilities threaten to eliminate the U.S. dollar as the world’s reserve currency, and the loss of this status would be catastrophic.  It would bring an instant devaluing of our investments, drastically drive up the cost of goods and services—hyperinflation—and create a radical change in American life as we know it.  All Americans would experience a significantly lower quality of life.  The idea of the American dollar collapsing should cause all Americans to take pause.  This is NOT the “hope and change” American’s bargained for.

This Is What One Trillion Dollars Look Like

Jay Richards[1] explained that “Money has value only if trading partners believe it has value.  This is why currency quickly becomes stove fuel when people stop trusting it.”[2]  Our colossal debt is not the result of insufficient tax revenues because we are taxed at a level sufficient enough to pay for the necessary functions of government.  America’s problem is excessive and wasteful spending.  Any average American who has lived beyond his or her means could warn the federal government of the end result of its imprudence—reduce spending or risk losing everything.  At a whopping $13,561,623,030,891 of debt—according to the 2010 U.S. Treasury report—multiple years of deficit spending by the federal government has left our children to bear the burden of our irresponsibility and profligacy.  The interest alone on our nearly $14 trillion dollar debt make our meager attempts at debt solvency unrealistic.

The Cause

Many on the left, namely Democrats, choose to blame President George W. Bush for the economies troubles.  On the right, Republicans give President Obama the brunt of the blame.  Yet the administrations of both of these presidents, with their big spending and bailouts, and massive expansions of government have exacerbated the debt problem.  We also owe a huge debt of thanks to Democrat President, Bill Clinton, for our more recent recession and debt fiasco.  Back in 1995, the regulatory revisions made to the 1977 “Community Reinvestment Act” under the Clinton administration greatly weakened the housing market.  Initially the law was enacted to ensure that banks were fairly addressing the lending and banking needs of those people in low and moderate-income neighborhoods that they accepted deposits from.  Yet the Clinton administration’s 1995 revisions forced banks to lend hundreds of billions of dollars to people with little or no credit, and even people with bad credit—lending to these high risk borrowers under the guise of “the convenience and needs of the communities.”[3]

In other words, “if banks wanted to continue to indulge from the hand of government-created money and insurance (Federal Deposit Insurance Corporation), then they had to prove to government agencies that they were lending these indulgences to even the un-creditworthy in their community.”  The revisions to the Community Investment Act became a powerful mandate that reshaped lending practices.  This act was a recipe for economic disaster that the banks initially opposed because they didn’t want to be “forced” into bad lending.  Regardless, congress passed the initiative, alluring banks into lending big money to people with little or no credit.  To his credit, in 2003 President Bush attempted greater oversight of the two major government-sponsored lenders of the subprime, or risky loans—Fannie Mae and Freddie Mac—yet Democratic opposition shut his measure down, accusing Bush and the Republicans of all things, racism.  Shocking!  We know the end of this sad story—the 2007 subprime mortgage crisis led to the collapsing of a housing bubble that brought the banking and real estate industry to their knees.

To add insult to injury, the Federal Reserve Board’s response to the mortgage crisis was grossly irresponsible and unethical.  Wayne Grudem noted that “The Federal Reserve decided to pump reserves into the financial system by purchasing $1.2 trillion in assets, including $750 billion in mortgage-backed securities from companies like Fannie Mae and Freddie Mac . . . leading to increased inflation and thereby robbing everyone in society of the value of their dollars and their contract.”[4]  Simply put, the government rewarded reckless and irresponsible behavior by loaning hundreds of billions of dollars of taxpayer money to bailout the big banks and the mortgage agencies, with more than half of  the money going to Fannie Mae and Freddie Mac. 

Economist Thomas DiLorenzo described that the current financial debacles are simply the “chickens coming home to roost after more than 30 years of progressive government interference and artificially deformed markets.”[5]  The current crisis is not a sudden or surprising occurrence, but the eventual result of salvation politics.[6]

 

No one is innocent in this scandal of magnificent proportions, not even the voters.  The recent political protest movement, Occupy Wall Street (OWL), self-righteously protest the “Wall Street” bankers and the “1%” of the rich.  Yet these crooks are the ones who knowingly elect politicians who extort money from others to subsidize irresponsibility and greed—they vote for big government.  OWL’s voted for crony capitalists who afforded political favors and preferential treatment for their friends at Fannie Mae and Freddie Mac.  Many of them voted for our current president, Obama.  He handed over a trillion dollars in taxpayer funds to bailout Fannie and Freddie, and the auto-industry and banks they now protest!  Fight the source not the symptom.

These OWL’s are the same who continue to vote for increased government spending on federally funded entitlements—the biggest debt busters of all.  Currently, the federal government is scrambling to fund its existing entitlements in Medicare, Medicaid, Social Security, retirement pensions, and welfare.  The funding of future entitlements is an even greater concern.  If the Federal Reserve continues the practice of pumping dollars into the system to keep up with government expenditures, Wayne Grudem asserts that “we can soon expect to see record high interest rates and/or inflation, coupled with the collapse of many entitlements.”[7]According to the White House Office of Management and Budget, entitlement spending as a percentage of GDP has now doubled that of U.S. spending on national defense.  An increase in entitlement spending and a decrease in spending on national defense, a core constitutional function of government, indicates clearly—our government’s priorities are misguided.[8]

Ethical Implications

Spending of this sort is immoral; it is sure to hurt the poor and others who are dependent upon the government for their livelihood.  America’s reckless entitlement spending has baited many American’s into dependency and has promised future payments that won’t be worth the paper they are printed on.  Even the social security program—the biggest entitlement program to date—is set to have major problems, and soon!  Started under President Franklin D. Roosevelt’s 1930’s New Deal, the idea behind social security was admirable.  The pay-as-you-go structure of the system worked well as long as there were more people paying into the system than receiving benefits, and it has been a lifeline to many retired and disabled Americans.  The program was designed to be self-sustaining, and it was in 1935 when it was first implemented.

However, the program did not take into account factors such as population spikes, rising life expectancy, skyrocketing healthcare costs, and a smaller working-aged population in comparison to a much larger elderly population.  With the retirement of millions of baby boomers[9] on the horizon, the ratio of workers to retirees will soon shift.  Additionally, many of the young and disabled recipients of social security/disability insurance and benefits have never paid into the system, adding to the imbalanced debt to income ratio.  According to the 2011 annual report by the program’s Board of Trustees, within the next 10 years, the interest and income received from payroll taxes will no longer be sufficient to cover expenditures to Social Security beneficiaries.[10]

Even though working citizens are required by law to pay Social Security and Medicare taxes from their wages, they have no promise or guarantee from the government that in their elderly years, they will receive benefits.  Social Security reform should be at the top of every elected officials list.  Reform is needed to end the government’s policy of taxing the income of working citizens on the premise that they may or may not receive future payments.  It’s like the government is playing the scratch-off lottery tickets with other peoples earned income—and like the lottery, not everyone’s a winner. The federal government should, at a minimum, allow citizens the option of opting out of the current high risk government system with proof that they are allocating a comparable retirement savings elsewhere.

Contrary to popular belief, America is not too big to fail.  However, on her current path, she is a sinking ship.  Thankfully, it’s not too late for America.  If only she would repent of her sinful monetary squandering and return to God, because only God himself can unsink the Titanic.  If the American government does not curb its appetite for spending and end its experimentations and flirtations with socialism, she will become as all the great empires before her, a celebrated chronicle of a fallen nation.  Our current president, Barack Obama, has expressed a desire to “spread the wealth around” in what I suppose is an effort to minimize the gaps between the rich and the poor, alleviating the effects of poverty.  He has pushed for increased government control over schools, banks, housing, and healthcare—to name a few.  He apparently has not heard of the disastrous results of the first socialism experiment of early European settlers in America—the Pilgrims.  Widespread poverty and starvation resulted and nearby Indians had to bail them out!

Enough with the mechanics; America’s problem is more than political, it’s moral.   America is facing a very real ethical dilemma.   I say this because not all of our spending is the result of greed and politics.  Some is the result of good intentions but bad methodology.  Well-intended people have supported policies that have had egregious, unintended consequences for American industry as a whole.  Much of our federal government entitlement and social program spending were efforts to help those in need—the poor, the indigent, the socially rejected and economically depraved.  For example, President FDR’s New Deal government programs were meant to end the Great Depression, but instead deepened and lengthened it.  Lyndon Johnson’s “War on Poverty,” started in the mid-1960’s cost trillions of dollars to date and has not worked.  It has essentially turned America into a welfare state.[11]  

As a compassionate people who care about the poor, sick, and elderly, America cannot afford not to pursue entitlement reform.  Excessive entitlement spending is intricately related to other issues that adversely affect the poor, such as an unfair tax code, skyrocketing healthcare costs, and rising costs of goods and services due to inflation.  Talks of reducing entitlements sound cruel to some Americans.  Some believe that if the federal government cuts entitlement spending, the poor, disabled, single parents, women, and minority groups in this nation will suffer.  But to date, the welfare state has caused economic and social problems even worse than those it was meant to eradicate.  The unintended consequences of increased government control through massive entitlement programs are: “the breakdown of the family and illegitimacy, especially among poor and urban minorities, and white Appalachians—and creating cycles of dependency that transfer from one generation to the next.”[12]

Besides that, welfare system abuses have exploded the number of voluntarily unemployed because welfare is generally a disincentive to work.  It has caused anger and class warfare, and a poverty trap that is difficult to escape.  It has caused despair, hopelessness, and envy.   Long-term dependency upon welfare is degrading and has adversely affected poor black and white communities all around the country.  In black American homes, illegitimate children, poverty, and illiteracy rates are greater today than they were in the 1920’s when racism was rampant and blacks faced harsh discrimination and vast societal disparities.[13]   The harsh reality is, though federal spending has skyrocketed over the past few decades as a result of entitlement spending, we have zilch to show for our looming debt except generations of dependent citizens of a welfare state.  We need serious reforms to the welfare system and policies that would promote a strong job market to draw those on welfare into the workforce.

Suggestions, Solutions, Reflections

If we as a nation truly want to do right by our poor, we must urge our politicians to get out of salvation politics and leave the “saving” of the poor and needy of society to the faith-based communities.  A safety net of government services can be a good thing, but it profits no one if we put so much on it that it rips under the bureaucratic pressure of big government.   If our federal government truly respected American citizens, then they would stop robbing us and selling us back our own goods at a higher price!  They would end the practice of deficit spending for programs and entitlements that do more harm than help and pass a balanced budget amendment requiring the federal government to exercise responsibility and restraint concerning its outrageous spending.  All Americans are expected to live within their means; therefore, so should the government we elect.

Seemingly, our current President, Barack Obama, has a vision for America different than the vision of the founders of the great American experiment.  They envisioned a nation of free peoples whom—unlike all the nations before her— would govern themselves and share in ruling.  American colonists became disenfranchised and disillusioned by monarchial British rule; therefore, personal liberty and limited government were central themes to the founding documents, the Declaration of Independence and the U.S. Constitution.  Many nations have since emulated the American model and have tried to duplicate America’s ingenuity and success.

Yet President Obama envisions big government and limited liberty because he has no confidence that Americans are capable enough to make responsible choices with their money and with their lives.  He believes in a ruling class, the government.  He promotes class distinctions by demonizing the rich and demoralizing the poor.  His ideology is reminiscent of German revolutionary and socialist Karl Marx.  Cuban revolutionary Fidel Castro is quoted as stating this of Marxism;

Marxism taught me what society was.  I was like a blindfolded man in a forest, who doesn’t even know where the north or south is.  If you don’t eventually come to truly understand the history of the class struggle, or at least have a clear idea that society is divided between the rich and the poor, and that some people subjugate and exploit other people, you’re lost in a forest, not knowing anything.[14]

But the grand communist experiment was just a secularized attempt to establish God’s Kingdom on earth, but without the God of heaven.  Richards notes that:

Marx’s story has the main elements of the Christian story: primeval paradise, fall, redemption, eternal paradise.  It’s just stripped of reverences to God, sin, Jesus, and the afterlife.”[15]  Christ established his Church, and we are expected to be salt and light—reflecting God’s kingdom though sin and death are among us.  Yet our good works will never bring about God’s kingdom.[16]  It’s a delusion to believe that we can build a utopia if we try hard enough.[17]  This vision doesn’t take in account human sinfulness and God’s mercy.  Jesus Christ will establish his Kingdom and if we try, we will not only fail, but “do more harm than good.[18]

I believe Marx, Castro, and Obama genuinely want a world in which the ordering of society is more fair and just.  But when we speak of building a just society, we must ask ourselves, “just compared with what?  It does no good to tear down a society that is ‘unjust’ compared with the Kingdom of God if that society is more just than any of the ones that will replace it.”[19]  Compared to God’s Kingdom, every society gets failing grades.[20] Therefore, to hate capitalism and prefer socialism or communism is not more just.  Socialism has proven to bring greater poverty and injustice among the people and “never has there been a greater gap between ideas and outcomes than in communism.”[21]  Jay Richards notes that socialists, “talk a good talk, denouncing inequality and defending the poor, and despite the nasty outcome of their experiments, they can still get a pass from those who sympathize with their ideals.”[22]

The current administration, under the lead of President Obama, should end its love affair with socialism and end his policies of taxing and spending.  The more that the government does for its people, the more dependent the people become and less likely they are to provide for themselves.  Without the safety net of big government, out-of-wedlock pregnancies look less attractive, hard work becomes necessary to eat, saving for hard times becomes a priority, community becomes important again to care for the least in society, and the government can focus on governing and protecting our freedoms.  America is still a great nation, and with the right leadership, the ideas upon which she was founded upon will again be respected.


 [1] Jay W. Richards is an author and theologian.  He has a PhD in philosophy and a Master of Ministry.  He has written dozens of books and articles on the topics of economics, theology, and science.  He has published in academic journals all over the country and he is an editor and contributor to numerous apologetic and theological research publications.

[2] Jay W. Richards, Money, Greed, and God: Why Capitalism is the Solution and Not the Problem (New York, NY: HarperCollins, 2009), 94.

[3] Joel McDurmon, God versus Socialism: A Biblical Critique of the New Social Gospel (Powder Springs, GA: The American Vision, Inc., 2009), 43.

[4] Wayne Grudem, Politics According to the Bible: A Comprehensive Resource for Understanding Modern Political Issues in Light of Scripture (Grand Rapids, MI:  Zondervan, 2010), 273-74.

[5] McDurmon, 43.

[6] Ibid.

[7] Grudem, 274.

[8] 2011 Chart Book, “Federal Spending Chart 7.”  Retrieved from http://blog.heritage.org/2011/08/21/chart-of-the-week-defense-spending-has-declined-while-entitlement-spending-has-increased/ on January 10, 2012.

[9] A baby boomer is a person who was born during the demographic Post-World War II baby boom and who grew up during the period between 1946 and 1964.  Retrieved from http://en.wikipedia.org/wiki/Baby_boomer

[10] John Wihbey, “2011 Annual Report by the Social Security Board of Trustees,” Retrieved from http://journalistsresource.org/studies/government/politics/social-security-report-2011/.

[11] McDurmon, 47.

[12] Richards 51.

[13] Ibid., 47.

[14] Castro, Fidel; Ramonet, Ignacio (interviewer) (2009). My Life: A Spoken Autobiography. New York: Scribner.

[15] Richards, 30.

[16] Richards, 30.

[17] Richards, 31.

[18] Richards, 30.

[19] Ibid., 31.

[20] Ibid.

[21] Ibid.

[22] Ibid., 25.

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