Debt is the fatal disease of Republics, the first thing and the mightiest to undermine governments and corrupt the people. – Wendell Phillips
Up until the 19th Century in Western Europe there was something called debtors prison. This was a place citizens were sent who could not pay their debts, typical workhouses. Sentences were given until the debtor paid its debts, and obviously being in prison made it nearly impossible to repay the debt owed. The debtor was sent straight to prison, often without due process. Simply put, a debtor in prison was likely there for life or longer (or until a rich relative came to the rescue or if a creditor forgave the debt – a rare occasion). Further, debts were often handed down to the heirs for repayment, or they might suffer the same consequences!
The British idea of debtor’s prison was adopted by the US when the country formed in the 18th century and was on the books as law until it was abolished at the Federal level in the early 1830’s. The requirement was left in the hands of the states and not the Federal Government – yet, while some states actually enforce a modification of a debtor’s prison, the 14th amendment allows citizens due process of law. Today’s answer to debtor’s prison is forgiveness, or bankruptcy.
Can you imagine if such laws were on the books today? Nearly 15% or more of the population would be put into debtor’s prison, or roughly 48 million people. Where on earth would they be held?
I bring this topic up today as the World is awash in debt and it continues to grow at an alarming rate. Further, there seems to be little control over the growth rate and at some point there will be a reckoning, but hopefully it won’t be the train wreck so many are expecting. World governments have sapped the wealth of future generations in order to put a Band-Aid on a gusher of blood, because it has been easy to do. In Proverbs 22:7, ‘The Rich rule over the poor, and the borrower is servant to the lender’
I have just finished reading an excellent book written by Atif Mian titled, ‘House of Debt’. This book was a sobering reminder of how many Americans drowned themselves in debt just before the financial crisis hit in 2008/09. Extreme debt was a crushing blow to many who overstepped their bounds, and the result was financial calamity that was potentially on par with the devastating Great Depression of the early 20th century.
Burgeoning debt and out of control spending has always led to a financial crisis of some great magnitude. Whether the currency is devalued or a debt consolidation happens, nothing good comes from borrowing.
Fortunately in 2009 the Federal Reserve Bank, led by Ben Bernanke would have none of that. So while we avoided another dark period of financial disaster, the Fed ramped up and bought all the debt it could find and took care of one side of the problem – keeping rates low so borrowing could commence. Unfortunately, that only happened to a great extent in the housing sector, and that sector has flourished. Today, the Fed holds 4 trillion dollars of debt and while it’s not accumulating more, finds itself in a tough spot trying to unload the debt without doing much harm or increasing interest rates substantially.
But the world is in a very precarious place as it relates to debt outstanding. A virtual ‘debt bomb’ is ready to explode, and once lit it’ll be quite difficult to avoid the shrapnel, given the size and propensity of the explosion. The reach is everywhere, considering just about every country on earth has amassed enormous debt and is affected. Check out the video below by Grant Williams.
Crazy – A Story of Debt, by Grant Williams
The ideal situation (and most responsible) of course would be for the treasury to buy back the treasury debt, but as we can see from the debt clock below, they are not even collecting enough US tax revenue to pay back the debt held by the Federal Reserve. Politicians would have to ‘just say no’ to spending, and we know that won’t happen again in any lifetime.
Issuing debt has become the faux answer to big global problems. Yet, we have never in history seen an issuance of debt become the problem solver. We can see from the world debt clock below the obligations continue to pile up, and there is no stopping it. The ratios are enormous, and they are just getting larger by the minute. How and when will this ever be repaid? Have we heard any of those politicians around the world talk about a debt repayment plan yet?
How do we stunt this rising problem? Simply put, the economies of the world have to grow their way out of it (expand GDP, jobs and tax collections then pay off the debt like responsible citizens do!). A mighty task now that the debt genie is out of the bottle, but something that time, intelligence, strategy and discipline could solve(I realize finding a politician with those attributes is like finding a needle in a haystack). The problem here is like a recovering alcoholic who enters a bar, there are just too many temptations to fail vs taking the difficult road of just saying NO MORE.
The champion would be someone who stood up and said ENOUGH! Stop the debt and let’s grow the economy and pay it back. Sounds simple but the problem is far too complex (politics) for this article (maybe another day). Unfortunately, the champion would take a position that is very unpopular in governments and not considered by the public because the problem has mushroomed out of control, a problem that continues to be a can kicked down the road. I hope someday it happens, but that day may be far away from now and not before any ticking time bomb explodes.
