Disclaimer: Now I realize
that people really feel that anytime you relate something to Nazi Germany, you
have a weak argument. When you think
about someone like Glen Beck, who seems to have Nazi tourettes, I understand
the concern. This is not about Nazi Germany;
it is not a comparison of the present administration to Nazi Germany. It is a discussion of the results of
excessive debt on a society.
I fear I must give a little
history lesson so this is not taken out of context. It is okay, since I tend to be long winded
anyways. In 1918 Germany lost World War
One and in 1919 the Treaty of Versailles was signed. A significant part of the treaty was that
Germany had to pay reparations to the Allied Powers. In short Germany had to pay the entire cost
of the war to the winners. This placed a
very large burden upon the German people.
As long as times were good in the world, the burden was bearable. Times were however not good and despite
having the most modern democracy on the planet Germany needed the help of the
USA to be able to prevent it from becoming a third world country (at least in
concept, that term did not exist until after WW2). Prior to the help of the USA runaway
inflation existed and the middle class lost their entire savings just to feed
themselves. It was in this environment
that the Nazi party was born. It started
as a handful of people that would just bitch about the government at their
local beer hall. My point is, when the
economy is bad radical groups are born and they can thrive depending on the
amount of time that such an environment exists.
The German people are
dedicated to their country and take pride in their national heritage (sound familiar?). So when the traditional parties were unable
to provide relief for the masses, the people turned to different radical groups
(Nazis and Communists being the main two) for relief. When people are hungry, they are willing to
give up their freedom to have bread on the table! In 1923 (if I remember correctly) Hitler
tried to start a revolution in Germany with his Beer Hall Putsch. It failed and
he went to prison. It was during this
time that he wrote Mein Kampf. It was
also during this time that the USA got involved in Germany’s economy and helped
to prop it up. After Hitler got out of
prison he became patient and was determined to conquer Germany through the
ballot box. 1923 to 1929 was the time of
plenty (thanks to loose credit), the Nazis had ups and downs, but never gained
enough numbers to be a serious threat.
Then in 1929 the economy collapsed and Hitler became more and more powerful
as the economy want further and further down the drain. By the time 1934 came around Hitler was able
to proclaim himself of Fuhrer (leader) of Germany.
End History Lesson...
So what does the rise of
Hitler have to do with the German debt?
Those reparation payments placed a burden on Germany, one the people and
government were not able to handle. Taxes
went to pay France, Belgium and the UK for the costs and damage of the Great
War. There was nothing left to support
the infrastructure that gave the German people that lifestyle they had grown
accustomed to. When the economy was bad the
government cannibalized the German monetary unit (the Mark). Now that is a little simple, since Germany
was on the gold standard, but when they shipped all the gold to France to pay
the reparations there was none left to support the Mark. That is what caused the runaway inflation,
making imports expensive. This also
helped make Germany an attractive investment for US investors in the 20s, since
that meant costs were cheap. Germany was
truly like China was years ago. Germany
was a place to get high returns, since it could manufacture items cheaply and
flood markets because of this.
Germany was able to bounce
back during the early/mid 20s, because the economy in the rest of the world was
good. The Weimar Republic was able to
survive and even prosper, but internally it suffered from gridlock. No single party was ever strong enough to run
the country without the support of one or many of the fringe parties. Because of this the radicals were never able
to be crushed by the government. How could
you crush them when you never knew if you might need them...
It was the reparation
payments that Germany had to make that placed such a heavy burden upon the
German government and thus the German people.
People can talk about how Hitler also played the shame card over the
loss during World War One. It is true he
did do that, but during good economic times the audience for such an argument
would be much smaller than during bad times.
The audience that Hitler had was larger because of the economy and other
issues only helped to cement his control upon the people.
Germany suffered massive
problems when the debt was 80% of the GDP and democracy collapsed when debt was
250% of the GDP. Reparations during this
time accounted for over half of the government budget. Think about it, over half of the tax income
of the government went outside the borders and supported foreign governments
and some wonder how someone like Hitler was able to come to power?
So how in the hell do I
compare this to the USA’s debt?
First let me remind you that
the USA’s credit rating has dropped twice during the Obama years. The lower your credit rating the more
interest you have to pay to finance your debt.
So it costs you more money just to carry your debt, even before you pay
it back! Do you realize that right now
50% of the US budget is financed not by tax revenues but is deficit? The total taxes paid by all Americans, to all
governments (Fed, State and local) is almost 33% of our GDP! The US deficit is almost equal to the income
of all State governments combined! So if
you double your state income tax, your state sales tax and state corporate
taxes, then you can balance the budget.
The only problem with that idea is that it will kill the economy. Corporations will run overseas and people
will buy fewer goods, so tax income will drop.
This will force governments to raise taxes even further. I say governments because states and local
governments will not be able to make enough cuts to cover expenses, so they
will also raise taxes. Even if things stabilize,
how strong will the economy be if you are paying combined taxes totaling 2/3 of
your income?
One must remember that the
credit rating will continue to drop and this will add to the cost of borrowing
money, which will only add to the budget problems the government faces! Think of Greece, Ireland, Spain, Portugal,
Italy and even UK and France.
Now what will happen when an
environment like this is happening or threatens to happen? Extremist groups will become more
normal. People will cast blame on
minorities for the ills that affect society.
The most likely targets will be Muslims, African Americans, Asian
Americans, Latinos and Jews; most likely in that order. Or maybe the Occupy Wall Street types will
get their way and the ones that will be held to blame are bankers, bakers and
candle stick makers. I know, sarcasm,
but you get my point. People will not be
thinking rationally and will just want to see someone burn to take responsibility
for the position that they are in. This
is mob mentality, human psychology; it is a weakness that is in all of us! It is NOT a rational thought process. It is scapegoating.
You may think I am insane to
suggest that any dictatorship could take power in the USA. You can even point to the fact that times
were tougher during the 1930s, than they are today. That is true, for now. Franklin D Roosevelt had an advantage that
our present government does not have; his debt was not over 100% of the GDP. He had the room to spend money and run up the
debt. He only pushed the debt over 100%
after the US entered World War Two! The
fact is that the USA has never run a debt over 100% during peacetime, until
now. Now you can say that the USA is at
war, against terrorism, in Afghanistan; whatever. The fact is that World War Two the entire
country was mobilized to fight the Nazi war machine, which is not the case
today. Since we entered Afghanistan and
Iraq the costs associated with these actions were put on credit cards, without
even a plan put forth on how to pay the bill!
You may think I am insane,
but I see two groups with competing visions for the USA. One wants to create a utopia, which to me
resembles Brave New World. The other
wants to use our own war machine to secure resources. These are only the groups that are on the
radar, can you imagine the ones that are waiting in the wings? The fact is that Americans will not willingly
accept a lower lifestyle. We may even be
willing to pay the cost in blood to maintain our lifestyle. The problem is that the world cannot sustain
growth at a pace that will enable us to be able to dig ourselves out of debt.
That is unless we take something from our neighbors on this rock in space or we
have to find another place to gather resources in space. The only problem with the second half of that
theory is that NASA has suffered from budget cuts. If we do not push our future into space, we
will run out of resources on the Earth.
Back on subject: The debt
sky rockets and the economy tanks. What
do you think will happen when people have had enough? We are connected less to the land than ever
before and much more reliant upon the economic system that is in place. We cannot just drop out of society and live
off the land. There are no unclaimed areas
for us to run to and make a new life.
Fredrick Jackson Turner was a historian in the late 1800s who wrote a
paper called: The
Significance of the Frontier in American History. His basic argument was that as long as there
was free land in the USA it was able to siphon off anger that would have
otherwise been directed at the government.
When pressure got too great in the states, people would overflow into
the territories. Before 1900 there was
no more free land to be had, no way for the anger to be siphoned away from
those in power. Today we can say one thing for sure, there is no place on this
planet that you can just pack up and move to, hoping to survive anyways.
Over the past 100 years population demographics have
drifted from the south to the north, from the east to the west. Even in our time areas that were considered
safe now have the nation’s highest unemployment: Nevada 11.8%, Rhode Island
10.5%, California 10.2%, New Jersey 9.8%, North Carolina 9.6%, Michigan 9.3%, Mississippi
9.2%, South Carolina 9.1% and Georgia 9.0%.
These are just the states that are 9.0% or higher during August
2012. Notice many of the states listed
above would have been though boom areas a decade ago. This also does not include the people who are
under employed or just gave up looking for a job. Some analysts say you can easily double the
unemployment rate to include all groups.
The bureau of labor statistics said unemployment dropped to 7.8%, think
about that. That means 23 million
Americans are unemployed. If analysts are
correct that means 46 million Americans are unemployed, under employed or have
given up looking for work. That means
almost 1 in 6 Americans are just waiting to be so pissed off that they will
accept anything that will improve their present situation! That is a large force for someone to
mobilize!
Now let me put my parable back into perspective. What sort of inflation did Germany go
through? In 1921 the exchange rate was
64 Marks to the Dollar and near the end of 1923 it was 4,200,000,000,000 to the
dollar. Unemployment in 1928 (when the German people were not interested in
Hitler) was 8.4%, as Hitler gained power in 1930 it had grown to 15.3% and by
the time he became chancellor it was over 30%.
“Yet the USA did not fall apart during the Great Depression!” you remind
me. The highest the unemployment rate
has been in the USA was about 22% during the Great Depression. It was also during this time that immigration
came almost to a standstill because more people were emigrating, with one of
the most popular locals being the USSR.
Now remember what I stated above, FDR did not have as heavy of a debt
burden as the USA has today!
Please do not tell me how much more civilized we are
today and we as a people would never fall for a two bit want to be dictator. Do
you really want me to start comparing the stability of the culture that “the
greatest generation” lived in to our present time? I am not saying that they had a perfect
society, but I do think it is safe to say we are not as “civilized” as they
were.
Now my favorite argument is, “well we can just default on
the debt.” Really? The biggest holder of US debt is government
related institutions, to the amount of 6.3 trillion! China then has 1.1 trillion, other investors
and savings bonds another 1.1 trillion (mostly in the USA), Japan another 1
trillion, pension funds 850 billion, mutual funds 650 billion, state and local
governments 480 billion, UK 430 billion, insurance companies 250 billion. Do you get the point? If we default, not only will we hurt our own
economy internally, but we will also alienate many strong allies. Plus in 2012 interest on the debt is only 6%
of the overall budget, so we would not save much money. The 1.1 trillion that China holds is nothing
but a drop in the bucket, well maybe a cup or two.
The fact is that the cards have been dealt and one thing
that we cannot afford to do Is try to bluff and win this hand! If a real plan is not put forth bluffing
would be pure suicide for us as a people and the majority of the world which
relies on the strength of our economy.
It is the fact that the dollar is the world’s reserve currency which
enables us to write blank checks and get away with carrying so much debt.
Let me take a short break and explain this concept so
everyone understands. Think of someone
famous traveling through a country or state, this person stays at nice hotels,
eats out every night. When it comes time
to pay for the services rendered they write a check. On that check they draw something cute or put
a positive comment on it about the service they received. Now so you will
understand, the bank will not return the cleared check to you after deposit
it. So you do not deposit this check,
instead you frame it, put it on your wall to show everyone that this person was
here and what they thought of your business.
It is a blank check, since the amount on the check does not matter, it
is never cashed! As long as this can be
kept up they will not have to pay for anything.
Eventually however this famous person will run out of places to stop at,
they will return to places they have already visited and those checks will
start to be cashed. Even if they
continue to find new locations to go to, the significance of their notes on the
check will start to decline and the business will want the money over the
bragging rights of the visit. Basically
this cannot be continued indefinitely without expecting people to start cashing
these checks.
So what happens when another economy is strong enough to
compete with the US Dollar? Nations will
drop the dollar like a hot potato! Then
all of a sudden the inflation that Germany went through becomes plausible. This will increase the cost of imports,
making many of the cheap products we have learned to rely on suddenly luxury
goods. Why do you think China is trying
to strengthen its internal economy? It
knows if the dollar collapses the economy of China will suffer, but if they are
not reliant on the US economy they can watch us self destruct. Then we would become the source of cheap
products for China. Why do you think
they continue to carry the US debt? Why
do you think they keep their own currency undervalued? They
know they are still addicted to the US economy and cannot afford to wean
themselves off of it. If we ever lose
this position of power, they will be able to strike us where it hurts, in the
wallet.
So what are we going to do? What is going to happen? I can only hope that my darkest fears are
just that, my darkest fears. I know what
I will personally do if I am facing a potential dictatorship. I will quote two famous Latin American
revolutionaries, “I would rather die on my feet than live a lifetime on my
knees.” I am just not too good at taking
orders from the kind of society we live in today, a totalitarian government
will just make me go postal!
My apologies for drifting,
we must realize the issues we face are very complex. Any effort to explain what we are going
through is easily destroyed if you do not accept the fact that there are many
more factors that must be taken into account.
I accept the complexity of the issues we deal with. I do not claim to understand them
completely. I only know that I
understand them enough that it scares the shit out of me. The most important thing to know and
understand, where the point of no return is; at what point will the debt reach
a breaking point that we cannot dig ourselves out of? That I do not believe anyone truly knows the
answer to. I would like to think the American
people are strong, intelligent and innovative enough to pull themselves out of
anything, but I know that is not true.
There is a point where the momentum of the debt will continue to carry
on and we will not be able to stop it.
It is at this point that my fears of a right, left or some new kind of
dictatorship could pop up in the USA.
Already we see the Democrats attacking the Constitution, trying to turn
us into subjects from citizens. The GOP
is not much better since they do not want to face the fact that society changes
and they are stuck in first gear. Do not
even get me started on Libertarians and other third parties.
As I/we face the future, I
can only think of the ancient Chinese proverb/curse, “May you live in
interesting times.” You know what,
despite all the challenges we are going through as a people and the risk of
falling short... I would not change this for the world, or all the tea in China
:P
Thank you, I hope I did not
bore anyone too much. I did not realize
exactly what I was biting off to chew until I started to bury myself in
it.
