Sunday, October 20, 2013

Sic semper republicae

Our Constitution took effect on March 4, 1789; the first ten amendments (the Bill of Rights) followed in 1791.

It has taken only 224 years to stand the Constitution on its head.

The 1789 version of the Constitution called for three co-equal branches of government: executive, legislative, and judiciary. Each had a role to play in the government's functions, and there were an abundance of checks and balances to keep any one of them from dominating the others.

The 2013 version of the Constitution has the government now dominated by its executive branch. Like Rome's Senate during the Empire period, the legislative branch stands idly by, assembling now and then to add a rubber stamp of approval to whatever the President decides to do, or not to do -- to spend, or not to spend (such as on the National Parks, during a so-called shutdown). The judiciary defers to the legislature's follies, and lets the executive branch mostly do as it pleases.

What has driven this transformation? I will tell you, in just two words: paper money.

Our paper money is, as I explained in this earlier series of posts, not money, properly speaking. It is debt  -- once (long ago) a promise of redemption in silver, but now (take out a dollar bill and read what it says) just a promise to be redeemed by more paper: a "Federal Reserve Note," which you can exchange only for an identical one. What kind of promise is that? One paper dollar backs another, which backs another . . . it is, to paraphrase the old joke, "paper all the way down."

We are now, as of the first weekend since the government resumed full operations, $17+ trillion in debt, and counting. The first day of operations took care of all the backlog that built up during the months leading to the shutdown, and with the help of some Congressional earmarks, piled $328 billion on top of the $16.7 trillion that was already there. (In just one day, the Obama administration borrowed more than half as much as it had in the entire previous fiscal year.)

Take the rough numbers: $17 trillion equals $17 x 1012. There are around 300 million men, women and children in the United States, or 3 x 10people. Divide the latter number into the former: the result is (with rounding, because we are dealing in rough numbers) $6 x 104 -- that is sixty thousand dollars per person, for every last one of us, that we owe in debt.

But it's just paper money, right? And we can print as much of it as we need to keep going, right? It's not as though we had to have $17+ trillion in gold and silver standing behind it, right? -- because that would be more gold and silver than has ever been mined since the beginning of the world, including all that has been lost to dross and wastage over the years. (1,411,475 metric tons of silver @ $1 million per metric ton = $1.411 trillion; 166,500 metric tons of gold @ $59 million per metric ton = $9.8 trillion; $1.4 trillion plus $9.8 trillion = $11.2 trillion for all the gold and silver ever mined, while we owe $17+ trillion right now, and counting.)

Wrong. While we may be privileged to print paper money for the time being, the paper behind it is good only for so long as someone else will take it in exchange for goods or services. Washington D.C. seems to think that we can never run out of money, and look how right they have proved with regard to everything else -- starting with the cost of Obamacare.

So we lurch from debt ceiling to debt ceiling, ever raising it, and never, ever lowering it. But now, with the latest legislation, Congress abdicated its Constitutional responsibility (Art. I, sec. 8) "to pay the Debts ... of the United States."

Instead of imposing a new ceiling on debt, Congress authorized the Treasury to borrow whatever amount is necessary to keep the government operating through next February 7, using a formula that is based on current spending. This lets the President alone determine the debt ceiling, in effect, by what his administration spends between now and February. Congress can try to pass a bill to restrict spending in that period, but the President can veto it, and both Houses would need a two-thirds majority to block any such raise by overriding his veto. (When was the last time that two-thirds of both Houses ever agreed on anything?)

After February 7, the ceiling will kick in again at whatever limit has been reached by then, and Congress will once again need to authorize any future increase. The expectation is that Congress will cave, however, and permanently allow the President to increase the spending level thereafter as he deems fit, subject to its theoretical power to override any veto by a two-thirds vote in both Houses. And once that happens, Congress will have relinquished its last and best control over the purse strings.

Just one hundred years ago, in 1913, Congress abdicated its constitutionally-granted power to coin money (Art. I, sec. 8 again) to the Federal Reserve Bank. Since that time, the Fed has printed so much paper money that the value of the dollar in 1913 has steadily shrunk: even using the official (and rather dubitable) inflation rates, it would require $23.62 to be able to buy what you could purchase for just $1 in 1913.

Never in the history of the world has the paper money phenomenon turned out differently. It always results in a devaluation, and never the other way around. The trick of the Federal Reserve has been to stretch out this devaluation over a century, so that the people from one generation to the next barely notice it.

Another characteristic of the paper-money phenomenon, however, is the tendency for the rate of devaluation to increase as the currency nears the point of total collapse. And with our national debt having tripled in just the last twelve years, what do you think has been happening to the rate of devaluation? You guessed it -- and what is worse, the increase in the rate is intentional.

I know what the politicians are thinking -- they hope not to be around when the entire paper machine collapses. (Just as Ben Bernanke plans not to be around when his successor has to start taking away the punchbowl.) But what are we thinking, who send such people to Washington to act for us?

The country has not operated on a budget ever since Obama's second year in office. Question: how is it possible to bring deficit spending under control without a budget? Operating the government by "continuing resolution" is a recipe for continuing to operate at the same deficit as before (depending on tax revenues) -- except that now the President gets to raise the ceiling for cumulative deficits any time he wants to, so there is no downside to spending more and more.

In California, voters finally got fed up with the legislature's budget shenanigans. They passed a Constitutional amendment that suspends legislative salaries for every day that a (balanced - hah!) budget is not enacted. But getting such an amendment passed at the national level would be impossible, because (unlike California, with its power of initiative) it would take the legislators' cooperation to refer an amendment out to the States for passage. (The other method of amendment -- having two-thirds of the State legislatures propose a convention -- is even more impractical.)

Are we, then, locked in on the current course of destruction? Not entirely -- there still will be elections every two years, and if the voters applied themselves, all those who voted to continue business in Washington as usual could be turned out. Given the media's unflagging support for the spenders, however, it will take a lot more grass-roots effort than at any time ever before.

The Greeks had our number long, long ago: they had already observed that governments of the people, by the people and for the people end in ruin once they discover the ability to vote themselves other people's money. A strong figure on a white horse rides into the resulting chaos and disorder and promises to restore "good government" if handed sufficient power, and a tyranny then replaces the people's government.

Ah, well -- Rome's republic lasted for 465 years. But that was then, and this is now, with the effects of every transaction greatly accelerated. Ours will be lucky to see its 250th.


  1. Our road to hell is paved with good intentions of deficits. A government can’t step in to fix everything in the lives of a free people. It may hope to protect them from an invasion but not from a calorie. However appreciable its intentions, it can’t be like God; it doesn’t have unlimited supplies and resources, excluding its own self-righteousness. The scale of interest, today, in Man’s towering aspirations brings us back to even earlier in history ... Babel.

  2. "And lead us not into Temptation,...."
    There is nothing quite as expensive as "free" medical, AFDC, food stamps, farm subsidies, Solyndra subsidies, central government loan guarantees, WIC, school lunch - breakfast - afternoon snack and summer feeding program, Section 8....SSI, unemployment compensation....99 weeks? Disability on one's word of honour...? Madison's fears have been delivered by the stork, and the baby is the comprehensive welfare program.
    The Nazarene would have hoped better of us. It was not for us to leave to Caesar to provide for those with naught. The Nazarene wanted us to provide for the poor...he wanted us to prosper in our fields and vineyards and flocks so as to provide for ourselves and for those who had fallen off or were forced off the path of self-provision.

    We see no chance for a cure. While our leader calculates that each of the 300,000,000 souls aboard this creaking ship moving through the field of icebergs,.owes about 60,000 USD right now as his/her share of the national is even worse. My granddaughters, still in single digits in terms of age, actually owe almost 130,000 right now. Why? Because they will be producers of one kind or another. In that we are now one producer for each granddaughters will have to provide at a minimum for one other parasite, and assume his/her debt as well.

    It is madness. I bang my head against the wall on an hourly basis but it is difficult to preach and point the way around the abyss when there are so very many who either do not care or do not believe that calamity awaits the profligate.

    There rests some forlorn but persistent hope that the Obama Socialised Medicine Initiative will wind up rolling-out with such a flop that the people will see it for the Edsel that it is and rise up as they did in 2010 and 1994....We simply must. Barring that, it is my serious task, already undertaken to prepare my way down at our little place and also to work for the removal of Texas from the American Union. Cruz said it best in San Antonio yesterday. "It is so good to have left Washington, D.C. and to be back in America again." This he spoke to a huge banquet room in a San Antonio Hotel after having received an 8 minute standing ovation from a standing room only crowd of about 500 invitees and banquet attendees.

    Off to sleep. You are a good man Mr. Mike Anderson. I shall dream of fighting the good fight and awaken to conduct the good fight on Monday. I shall re-direct the OROGs from my site to this to read the comments and ovservations of our host, and to appreciate the truth and wisdom in his words. Buenas Noches.
    El Gringo Viejo

  3. A man who builds his house with paper as its foundation will have children who are cold and wet when the rainy day comes.

  4. As usual, better said in fewer words by the Underground Pewster.
    We have directed our meagre flock to this blog for an economics lesson that is quick, profound, and understandable.
    El Gringo Viejo

  5. Mr. Haley,

    If, as you forcefully state, "Congress abdicated its Constitutional responsibility (Art. I, sec. 8) 'to pay the Debts ... of the United States.' " in their recent legislation, then isn't that something that is ripe for a legal appeal to the Supreme Court? Surely the constitutional responsibility of Congress is a duty they must not be permitted to abdicate? Or am I being naive?

  6. Topper, you are exactly right -- the legislation which Congress and the President passed in order to end the shutdown is unconstitutional. However, because it is in effect only until February 7, 2014, it most likely will be allowed to go without challenge. A lawsuit to challenge it would scarcely be under way before the law would expire, and make the issue moot.

    Nevertheless, if Sen. Schumer succeeds in passing permanent legislation to the same effect, then I would expect a challenge to its constitutionality to be filed by conservatives in the House and Senate.