On the last day of the constitutional convention in September 1787, a lady asked Benjamin Franklin “Well, doctor, what do we have a republic or a monarchy?”
“A republic” Franklin replied, “if you can keep it.”
Those are words that come to mind when I watch members of both houses of Congress go about their business in a way that makes you wonder if they have the best interests of this republic in mind.
This was the case during the recent annual debt limit crises. A deal was announced shortly thereafter between President Kevin McCarthy and President Joe Biden, members of the conservative Republican Party “Freedom Caucus” they took to the House floor or the Capitol rotunda area where the news networks have their cameras and reporters stationed to unequivocally denounce their disdain for the plan or chide Janet Yellen for apparently making up the dates when the nation would address. without money
The debt deal was actually a victory for the speaker, who finally convinced Biden to negotiate while he had enough of his own caucus members to secure passage of the debt package. He did all this in a Washington where the Democrats control both the presidency and the Senate and the Republicans hold the House with only a majority of nine votes.
After all this madness in Washington I came away thinking that this would be a good time to learn more about the national debt and its impact on our nation, the world, how do we manage to accumulate so much debt and does it threaten our future? I also wondered what would happen if a major holder of our debt, such as China, called in its debt.
I want to start by pointing out that, except for a period in 1831 during Andrew Jackson’s presidency, when all interest-bearing debt was paid off, the United States has always had a national debt. In fact, the US started out with a debt of $75,463,476.52 incurred fighting the Revolution.
So a national debt is a constant in our history as a nation and it’s not always a bad thing because it allowed us to fight and largely subsidize our allies to win World War II. Borrowing and adding to debt has fueled our recovery from economic downturns and also seen the nation through the COVID-19 pandemic.
One thing I didn’t realize was that while US government debt is perhaps the most widely held class of security in the world, 21.8% of the public debt, or $6.87 trillion, is owned from other departments of the federal government itself. These include Medicare; specialized trust funds, such as highway and bank deposit insurance, civil service and military retirement programs. But the greater part of these “intra-governmental participation” belongs to Social Security.
Japan is the largest international holder of US debt at $1.1 trillion, followed by China, which holds $980.8 billion in US Treasury bills. Many Americans wonder why China holds so much of our debt. Is China up to some cheeky trick?
In fact, economists tell us there are two main reasons why China is buying so much of our debt. First and foremost, China wants its currency, the yuan, to be pegged to the dollar. The yuan pegged to the dollar makes Chinese goods cheaper on world markets.
The dollar peg adds stability to the yuan, as the dollar is still considered one of the safest currencies in the world. So the second reason the Chinese want Treasuries is that they are essentially convertible into dollars.
So, even though it is common for many politicians and others, they say it “China has us,” this is really not true. If China demanded all of its US holdings tomorrow, the US dollar would depreciate, while the yuan would appreciate, making Chinese goods more expensive on world markets, severely hurting its trade with the US and making life difficult for China’s growing middle class.
Finally, how we view the national debt has changed over the years. During the years of the “great depression” and then many followers of the economist John Maynard Keynes agreed with his theory that in times of economic crisis the government should borrow and spend money to encourage production and encourage job creation and not worry -se for our national debt.
It was only later in the 20th century and now in the 21st, with the national debt growing at a high rate, that it has become a political issue with the party in power usually saying that the debt is not a problem while the party out of power claims that increasing debt will be a millstone around the necks of our children and their children. I guess that’s politics.
Thomas Kirkpatrick Sr. is a resident of Silver Creek. Send comments to editorial@observertoday.com
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