Liberal PBS Runs an Article on Government Default
Tea Party Economist
by Gary North: Downton
Abbey: Soap Opera for Property Rights
U.S. government default?
The right question:
Can the U.S. government avoid defaulting? The answer is clear: no.
It will default.
It is $222 trillion in the hole. Thats the present value of
its future obligations.
Of course its
going to default.
be bad? Not for taxpayers. Would it be bad for the Powers That Be
who run this country? Yes. Devastating.
Would it be
bad for federal bureaucrats? Yes. They would lose their jobs.
Would it be
bad for people who are dependent on the federal welfare state? For
a while, yes. But they will recover. Necessity is the mother of
The mainstream media have ignored this statistically inevitable
problem. The problem threatens the Establishment as no other. So,
the media pretend it does not exist. But the blackout may at long
last be cracking. We read this on PBS.
Roberts: In last nights State of the Union Address, President
Barack Obama asked Congress to promise that the United States
would never default on its debt. Lets agree,
Obama said, to keep the peoples government open, pay
our bills on time, and always uphold the full faith and credit
of the United States of America.
incredible that the leader of an economic superpower should feel
obliged to say anything about the need to honor the countrys
debts. But theres no doubt that default would cause enormous
damage to Americas reputation abroad. We already have the
evidence, provided by one of the most humiliating moments in Americas
He gives a
history of state defaults in the 1830s and 1840s.
He says they
were a disaster. They werent, which is why we never hear of
them. The defaults merely ruined the reputations of state politicians
and their boondoggles. There were lots of boondoggles.
wanted in on the action. Voters were pleading for new infrastructure
canals, railroads and turnpikes as well as more
access to loans to speculate in real estate. Legislators believed
they could meet those demands easily. States could establish government-owned
banks that borrowed at 3 percent in London and lent at 6 percent
at home. Or they could repay infrastructure loans from the tolls
and fees that were sure to come from new roads, railways and canals.
like a riskless proposition, and states borrowed massively. Within
three years, from 1836 to 1838, U.S. states incurred obligations
equal to the combined national debt of Russia, Prussia, and the
It caused ripples.
The Great Boondoggler Daniel Webster had been on the payroll of
the Second Bank of the United States ever since 1819. He was its
main lawyer. It paid him a fortune. Because Congress failed to renew
its charter in 1832, it lost its monopoly as Americas central
bank in 1836. Webster then became a well-paid promoter of state
bonds. He had assured British investors that these investments were
investors had been assured by statesmen such as Daniel Webster
that state bonds were a safe bet. No state, Webster said in London
in 1839, would risk dishonor and disgrace by defaulting.
So were American
of defaults compelled Americans to rethink this sunny view of
democratic rule. The crisis seemed to show its darker side. Democratically
elected legislatures could be swayed by popular passions or compromised
by logrolling and corruption. Some kind of check seemed necessary.
We have not that perfect confidence in ourselves,
said one legislator in the late 1840s. And we take our cool
and calm moments to protect ourselves against the sudden and dangerous
impulses of passion and prejudice.
So, did Americas
economy stop growing? No. Did investors learn their lesson? No.
Did the Civil War vastly increase the governments debt? Yes.
the federal government default? Yes. Will investors learn their
lesson? Not for long. But for a time, yes.
Here is the
lesson: Do not trust a politician who says America cannot, must
not, and will not default.
Here is the
rule: Never believe a rumor until it is officially denied
by the government.
Obama has officially
Reading on www.pbs.org
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 31-volume series, An
Economic Commentary on the Bible.
2013 Gary North
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