Our majority culture, for now, believes that the path to greatness lies in being a net consumer, borrower and importer, i.e in letting others toil and save so we may revel and borrow. For decades we borrowed from ourselves, but then we decided it would be so much easier to borrow from foreigners. Overconsumption has lead to excessive indebtedness for tens of millions of our fellow citizens, for most of our large financial institutions, for many of our large retailing , automotive, media and entertainment enterprises and for our local, state and national governments. Excess is relative to the income producing/asset disposal capacity of individuals, enterprises and governments.
Excessive debt must be repaid or repudiated , willingly or involuntarily. Denial and evasion can work for years for individuals , enterprises and municipalities and decades for state and Federal governments but eventually, the consequences become manifest. There is a last day.
Repayment means we (as individuals, as polities, as a Nation) must work more and better, consume less, save and investment more. It means a cultural reset where self denial, frugality, humility and patient fortitude define the majority culture. Once these traits were very American and then, starting perhaps 60 years ago, they were gradually and then suddenly, not. Some cultures, especially American culture, do reset themselves under great national stress: a new culture for a new reality. This periodic resetting has been a huge strategic asset for the US over the past 200 odd years. Other cultures fail to reset themselves and disappear.
For example, in the energy business, the current majority culture believes that other Nations (often our adversaries) should invest and produce energy, sell it to us and then lend us the money to pay for it. This, despite the fact, that no other nation has the diversity, quantity and quality of fossil and renewable energy resources, energy infrastructure and energy knowledge that the US does. The US is the only significant nation that deliberately chooses to be a very large net energy importer when there is no resource, technological, engineering, human and financial capital constraint to being, at least, net neutral and even a major net exporter.
The majority culture chooses to outsource energy supply and pay hundreds of billions of dollars a year for the consequences because it believes, rather strangely, that using large amounts of energy is fine but producing it is not. Energy is good when used, but evil when produced, says the current culture. A possible cultural reset would result in a majority culture that concludes that energy is a vital source of national competitive advantage and therefore prosperity and geostrategic power and become a large and growing net exporter of energy( via natural gas, coal, electricity), energy competence and energy services within 15 years. We could, by 2025, double US natural gas, coal and nuclear energy production if the culture so desired. With the current culture, this is impossible. With a cultural reset it is quite attainable. Culture is destiny. The author of this short essay does not pretend to know how cultural resetting occurs or whether a reset is happening or, any time soon, will happen in our culture.Repudiation of debt for individuals, enterprises , municipalities and state governments means someone else is beggared. Individuals and enterprises can restructure, obtain forbearance and recover or be ruined. Municipalities can be bailed out by their home state or if they are big enough by the Nation (i.e by fellow citizens); states can be bailed out by the Federal Government (as is the current expectation of several states, including California: it's always someone else’s work and money that is the solution for state and local government delinquents).
The Federal Government need not overtly repudiate when it can conveniently and - not just with the tacit acceptance, but open acclaim of much of the majority culture - do it covertly and efficiently. The government will engineer high inflation so it can service and refinance its debt with debased dollars, which means that holders of government debt will have an appreciable portion of their capital simply purloined by inflation. Partial and systemic repudiation of US Government debt is too tempting and easy to be ignored. Of course, with high inflation will persist high unemployment, a devalued dollar and high interest rates.
The bottom 50% of the population will thus be ruthlessly taxed via a steady and cruel degradation of their quality of life and, worse, of their ability to attain the skills and opportunities to better their lot. The top 10% will cope quite handily and, as a whole, may even prosper because of their asset mix, ( real property, hard assets, inflation indexed financial instruments) their financial management capabilities and their personal pricing power. Many small businesses will also be hurt, but many large businesses will find inflation a welcome friend as long as labor, energy, material and legacy costs rise less than prices for their goods and services.
Of course, holders of legacy corporate debt will be pillaged. The middle 40% will also see a compression in their quality of life, their personal and property safety as individual and organized economic crime rises and deep erosion in the value of their liquid assets. The majority culture will , through inflation, end up taxing and harming itself (and obviously the minority culture as well), while thinking that it is the “rich”, the “other”, the” foreigner” who is being squeezed. Covert, dishonest, repudiation of government debt via inflation is surely not the way we will remain a great nation. Yet, that is the path the majority culture, for now anyway, has chosen - via the stimulus that Congress and the Administration (as both representatives and exponents of the majority culture) have championed as national policy.
As long as the majority culture believes consuming , borrowing and repudiating are better than producing, saving and repaying then so will Congress and the Administration. Following and pandering is a lot less work, more fun and politically much safer than leading and explaining. The stimulus takes us out of Egypt and straight into Babylon without tarrying in the Promised Land.We the people have an undeniable, inalienable, self liquidating, right to deliver ourselves into captivity. We have no right however to reverse the outcome. That right will have to be earned all over again by a different majority culture and maybe a different generation.