Paying Off The Mortgage

This two, or is it three or maybe more, maybe much more—trillion dollar bailout, rescue or whatever you want to call it raises some interesting points. Apparently a fair number of Americans believe we won’t be able to pay it back—that we are burdening future generations.
This isn’t a Burden—it’s a Mortgage on the future. That means a “death pledge”. You promise by your life to pay it back. If you don’t … . We may possibly have given our entire nation’s future in a death pledge without even thinking about it.
What happens when a whole nation cannot repay? This is worth thinking about. It could involve far more than higher taxes for our kids—or less Social Security for us. What does happen to a nation whose whole economy goes “under water”?
History offers some rather unpleasant possibilities. “BANKRUPTCY”, as it would apply to you and me, is most unlikely. After all, who is going to send in enough marshals or troops to force us to auction off a few carriers or some island naval bases. I can imagine China being willing to forgive a lot of debt to get its hands on Guam or Okinawa, even Hawaii. Not very likely.
DEFAULT. You just hand them back their paper and say, “Tough break, we can’t pay.” In the Nineteenth Century we did that a few times when our markets turned south. A lot of Europeans went broke holding American paper that was suddenly worthless.
In today’s world that could freeze us out of a lot of credit markets. It might, for instance, make it impossible to purchase oil based products like fuel and plastic at any price in dollars. A dollar devalued to nothing by international fiat would hurt like blazes.
HYPERINFLATION. This is a very real possibility and, in debt ridden future, a possibly attractive one. Think of Germany and Austria in the 1920s. You got paid in billion mark bills, a wheel barrow full. You race to the store while that much can still buy you some food.
It might be appealing because think how easily you can pay back a trillion or two when a loaf of bread costs nearly a billion. The downside is the desperate citizenry who thought they had saved well for their elder years—only to find that the IRAs won’t buy much more than a tube of toothpaste. Kind of wipes out the entire middle class.
As it did in Germany, it can make them so frantic and angry that they vote for someone like Hitler, as the Germans did. Which leads us to the next possibility:
WAR. In 1914, war appealed to some German economists. It can seem like it wipes the slate clean. It can seem as if all the problems in the economic arena are transferred to the military field where—who knows—our luck might be better. So some Germans thought.
The downside is that no one can quite accurately predict who all will be dragged into it, who all will “win” and what will it all call cost? A shooting war is a very dicey proposition. In most cases when a collapsing economy falls into war, the war only makes things worse—much worse.
But it’s a real possibility if an economy really tanks and it drags too many people down with it. In effect what it means is that you are repaying a cash mortgage in blood—a true death pledge.
Or there’s REVOLUTION. France is a wonderful example of that. It spent the entire Eighteenth Century going broke—spending, borrowing, waging wars, and never quite earning enough to repay it. Finally came the year of reckoning when France was no longer able to make any payment.
Despairing of the bankers and the treasury officials, the French government was forced to call into session an angry legislature (they hadn’t been allowed to meet in a century). Actually, everyone was angry. It all wound up in the horrors of the French Revolution followed by a European war that lasted for nearly twenty-five years, costing Europe a generation of males.
One of the things I’ve always told students—before you go to bed tonight, get down on your knees and thank God you’ve never experienced a revolution. You don’t ever want to. Wars have a few rules; revolutions have none. A confusion of blood with everyone fair game.
You don’t want to experience revolution—or war, or hyperinflation, default or national bankruptcy. But put your mind to it. What other likely possibilities –or possibility at all—do you see as a conclusion to this?
No one in Washington or New York—or London, Tokyo or anywhere else—is talking about the risk factor inherent in taking on this kind of potentially unrepayable debt. What plans, if any, do they have for paying off this mortgage—realistic plans that don’t involve positing a rate of growth double what we’ve seen in the past twenty of our best years?
I haven’t even seen a coupon book that tells me how much we’re all going to pay each month, have you? (Call that taxes, if you will.)
I suppose if we manage to avoid the above horrors, there is another option. SLOW, IRREVERSABLE DECLINE—as we pay so much on the mortgage that there is nothing left for upgrading or investing. That is an interesting enough possibility.
From where I sit, it looks like we’ve been given responsibility for a true death pledge. (We put ourselves in this situation, no doubt.) Sometimes there is truly the Devil to pay.