Posted on 11/18/2007 1:05:36 PM PST by Loud Mime
No pecuniary consideration is more urgent, than the regular redemption and discharge of the public debt: on none can delay be more injurious, or an economy of time more valuable.
George Washington (Message to the House of Representatives, 3 December 1793)
A national debt, if it is not excessive, will be to us a national blessing.
Alexander Hamilton
The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.
Marcus Tullius Cicero
To lay taxes to provide for the general welfare of the United States, that is to say, 'to lay taxes for the purpose of providing for the general welfare.' For the laying of taxes is the power, and the general welfare the purpose for which the power is to be exercised. They are not to lay taxes ad libitum for any purpose they please; but only to pay the debts or provide for the welfare of the Union.
Thomas Jefferson
Others:
I found this quote put matters in perspective:
There are 10^11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.
Richard Feynman
Ping
E mail to every Senator!!!!
(-grin-)
The thing about large numbers is nobody understands the difference.
One million seconds is 11.5 days.
One billion seconds is 31+ years.
One trillion seconds is 31,000+ years.
Some history is in order.
In the aftermath of the Treaty of Paris in 1783, tensions with Britain eased, and the country got around to governing itself under the Articles of Confederation without war clouds hanging overhead. But the war debt caused major problems. A few states took these debts seriously, but a few took the attitude, What are the French and Dutch bankers going to do to us? Send over their armies? These states engaged in partial or total repudiation of their debts.
At the same time, the Continental Dollar, supposedly backed by one Spanish Milled Dollar each, was collapsing in value because there was no backing except for a nebulous promise to pay. In 1785, Robert Morris Bank of North America in Philadelphia failed, leaving only two banks in the entire country, one in Philadelphia and one in New York. These banks didnt care about the farmer or the shopkeeper, but only the owner of the textile mill in Massachusetts or the import-export business in Manhattan. Ordinary Americans held their wealth in their mattresses and under their floorboards. Without a genuine coin of the realm, people relied on coins of gold and silver minted in Spain, England and France, along with base metal coins minted by the states (before the Constitution stopped the practice). Coins of foreign mintage had been clipped so many times that merchants often weighed the coins to see just how much gold and silver was really there.
But it was on the frontier, in those days western Pennsylvania and New York, that things were really bad. Money didnt circulate on the frontier, so people used barter. Farmers preserved the value of their fields and orchards by brewing beer products or distilling whiskies and brandies from grains and fruit. A barrel of beer or cask of whiskey or brandy had a known value at a general store or trading post when traded for a barrel of flour, a bolt of gingham or hemp cloth, machine tools or a side of bacon (for those who didnt raise their own hogs).
While farmers and shopkeepers could survive without a coin of the realm, the owners of the two banks and larger businesses could not. How can a capitalist perform the Dutch and English art of accounting if there is no coin of the realm? How can he construct a balance sheet or income and expense statement if there is no standard by which to measure value? And where did the almost worthless Continental Dollar fit in, especially because it was technically legal tender, i.e. forced tender?
The states that wanted to treat their war debts honorably had a problem. The basic unit of governance in America was the county. The county collected the property tax, and a voter had to show his tax receipt at election time to the county clerk in order to be allowed to vote. The county built the roads and maintained the county poorhouse for indigents. States collected taxes for their own issues, but repaying war debts would require a major hike in state taxes, and a war had just been fought over that issue.
There is an old saying in the word of taxation: Dont tax him, dont tax me, tax the guy behind the tree. The states that wanted to retire their war debts found a way of taxing the guy behind the tree: they decided to tax the residents of other states. After all, residents of other states could not vote in state elections. Of course, the old taxation-representation issue that had led to war should have stopped them before it got this far.
So the states charged tariffs on goods crossing state lines. The Connecticut farmer who loaded his wagon and took his produce to New York to sell now found himself confronted at the state line by a New York customs agent who slapped taxes on his produce. Pretty soon, other states took up the idea, and a full scale trade war erupted.
While the French and Dutch bankers couldnt send their armies to collect, they could turn to their Spanish allies to deny the US access to the Mississippi River for navigation and commerce. Thus, the European powers hovered like vultures, waiting for the American experiment to fail.
And then the issue of the legality of the Continental Dollar came to a head when creditors began refusing to accept it in payment, in spite of the words legal tender. And that led to Shays Rebellion, which led to the Constitutional Convention in 1787.
This was what Hamilton faced as Washingtons Secretary of the Treasury. What Hamilton wanted was financial ballast. A ship without ballast is gyroscopically unstable and tosses and turns on the sea. Hamilton believed that a properly managed national debt would act as ballast and be a blessing. Hamilton didnt figure this out on his own, but copied Sir Robert Walpoles reasoning in establishing the Bank of England several generations earlier.
The key was properly managed. Hamilton saw a national debt as a way of encouraging a basic conservatism in American finance. By rolling up the state debts into the national debt, Hamilton effectively monetized all those Continental Dollars whose value had dropped almost to zero. On a weekly basis, Hamiltons clerk at Treasury went down to the New York Stock Exchange and either bought or sold treasury bills, thus managing the money supply. (This is similar to what the Federal Reserve does today on a daily basis.) Was each dollar backed by the proper amount of gold or silver as mandated by the Constitution? No. And that is one of our lesser known financial secrets: the US Dollar started out as a fiat currency in violation of the Constitutions Gold and Silver Clause. (The Gold and Silver Clause has been honored more in the breech than in the observance.)
It should be noted that speculators sold derivatives on the New York Stock Exchange as early as 1792 as people hedged the Treasurys next move in controlling the money supply. This led to our first government scandal when an unscrupulous former employee of the Treasury used his wife in a badger game where the goal was to blackmail Hamilton into divulging the Treasurys moves ahead of time. When Hamilton was contacted by the blackmailers, he fell on his sword, admitted the affair and ended his political career rather than compromise Americas finances.
Hamilton intended the US Mint to fix the gold and silver problem. The US Mint was established in Philadelphia, and Congress established gold and silver coins of different denominations as a standard. People who owned coins of foreign mintage or bars of gold and silver could take these precious metals to the Mint, which would smelt them and mint coins of the realm, which would in turn be handed back to the owner to be put in circulation.
It should be noted that America did not have a domestic supply of gold until the 1820's when gold was found in North Carolina and Georgia and branches of the US Mint were established in Charlotte and Dahlonega respectively. Unfortunately, the gold was located on Cherokee land, and this ended up leading to the Trail of Years episode.
Hamiltons consolidated debt was paid off by James Monroes first term, but the new debt accrued during the War of 1812 didnt come close to being paid off until the end of Andrew Jacksons first term. And that led to a problem.
Under Nicholas Biddle, the Bank of the United States had put aside its function of being a neutral arbiter of capital allocation and started playing favorites. Biddle saw this as a prudent form of industrial planning, making him the father of Japans MITI and Jimmy Carters plan for favoring sunrise" industries over sunset industries. The Banks foreclosure policies created ill will and almost wrecked Henry Clays political career when he acted as attorney for the Bank in foreclosure proceedings in Kentucky.
When Andrew Jackson ran for his second term, his campaign slogan was, Jackson and no Bank. Jackson referred to the Bank as the Monster and made its abolition the cornerstone of his second term. Nicholas Biddle inadvertently helped Jackson when he fought the president in Congress by allocating capital to congressmen who were the Banks friends and punishing its enemies via foreclosure. It was a fatal mistake.
With the end of the Bank, the national debt was gone and so was the financial ballast. And the sharp practitioners of Wall Street were ready for a world under a gold exchange standard.
In the world of finance, there is Smart Money, Stupid Money, and Widows and Orphans Money. Smart Money can read a balance sheet and income and expense statement and park its money in an asset class as it first begins to appreciate and form a bubble, something inevitable under the business cycle. Smart Moneys participation defines Phase 1 of a bull market. Smart Money comes early to the party and knows enough to leave early, rarely getting caught when the bubble bursts. Stupid Money follows the Smart Money but always several months late, thus defining Phase 2 of a bull market. Stupid Money is late to the party and late leaving which is why it gets burned. Widows and Orphans Money is more interested in capital preservation than income, so it functions best when invested in good, safe government bonds, Americas financial ballast. When the Widows and Orphans abandon their safe investments and join the mania, establishing Phase 3 of a bull market, the price of the asset goes parabolic, and no asset can survive a parabolic rise. Then comes the crash, and the Widows and Orphans take the worst bath of all.
With the end of good, safe government bonds, an asset bubble began to form on Wall Street in common stocks. The Smart Money had already staked its claim, and the Stupid Money followed. I often entertain people at FReeper Meets by doing my W. C. Fields impersonation while pretending to be a Wall Street broker in full carnival barker mode. Ladies and gentlemen, come one, come all. You want textile stocks? We have textile stocks. You want railroad stocks? Why, the railroads will be the biggest thing until a man from Tennessee named Gore invents the Internet. Go away, little boy, you bother me.
The asset bubble created the illusion of prosperity, and Andrew Jackson never understood what he had done. With the luck of the Scots-Irish, Jackson left the presidency to Martin van Buren before the Panic of 1837 erupted. That panic led to the worst depression America was to experience until the Great Depression of the 1930's. People lost their savings, their homes and their farms, and people froze to death in the cities. The road back was slow, arduous and was interrupted by other financial calamities, such as the Panic of 1857, when a ship full of gold coins minted in San Francisco was lost at sea in a hurricane off the coast of South Carolina. That hole in the money supply launched a panic from which the Cotton South recovered more rapidly than the industrialized North. In 1860, that fact led to a miscalculation by the southern states, but thats a subject for another thread.
Since 1913, with the establishment of the Federal Reserve, America has spent most of a century in a state of war or cold war in order to preserve order on the planet. Since 1933, America has added the further financial burden of a full socialist welfare state. The country has not yet come to grips with the concept of financial finiteness, thanks to the infinite flexibility of its fiat currency and its status as the world's reserve currency. But a century of chickens is coming home to roost.
Thank you for this information; I keep posts like yours.
I LOVE your A=A tagline...whatsamatter, don’t you like living, breathing axioms?
That is coming to a screeching halt!
Them thar chickens are on the express flight to that Roosting area!
I’m a big believer in standard snail-mail.
There’s less of it now. They still pay attention to it.
Good point.
We need to see much more of this sort of posting!
Thanks!
Bears repeating!
Often!
A favorite of mine:
“I hold it the duty of the executive to insist upon frugality in the expenditure, and a sparing economy is itself a great national source.” ~ Andrew Johnson
~~Andrew Jackson, letter, April 26, 1824
Like a dropsical man calling out for water, water, our deluded citizens are clamoring for more banks, more banks. The American mind is now in that state of fever which the world has so often seen in the history of other nations. We are under the bank bubble, as England was under the South Sea bubble, France under the Mississippi bubble, and as every nation is liable to be, under whatever bubble, design or delusion may puff up in moments when off their guard.
~~Thomas Jefferson to Charles Yancey, 1816
It was impossible the Bank and paper mania should not produce great and extensive ruin. The President is fortunate to get off just as the bubble is bursting, leaving others to hold the bag. Yet, as his departure will mark the moment when the difficulties begin to work, you will see, that they will be ascribed to the new administration, and that he will have his usual good fortune of reaping credit from the good acts of others, and leaving to them that of his errors.
~~Thomas Jefferson to James Madison, Jan. 1797
Stop borrowing now. It gives us all yearly pay cuts.
Hamilton's vision required bankers, stock markets and a commercial and speculative class of people. Jefferson's vision did not and viewed them as the enemy. From Jefferson's perspective, it was all about the sacredness of land and the wealth it generated.
As a Jeffersonian, Jackson did not believe in the Hamiltonian vision. (As a matter of fact, Jackson viewed Aaron Burr as a hero precisely because he had killed Hamilton.) Because the Democratic Party of that era was an agrarian party, it viewed the bankers with outright hostility and viewed paper money and debt as lying under the same cloud.
Jackson's quote comes from 1824, when he was discreetly standing for president as part of the 4-way splintering of Jefferson's Republican Party. Jackson and Crawford (from Georgia) were competing for the agrarian segment of the electorate, while J. Q. Adams and Clay were competing for the industrial segment. The suspicion -- and fury -- that emanated from the agrarians came from the fact that Nicholas Biddle was playing favorites and concentrating wealth and influence in the hands of bankers, jobbers and speculators. In other words, Jackson had identified a source of corruption, and Hamilton would have approved of that corruption because it provided the grease that lubricated both the commercial and political systems.
Jackson ended his presidency speaking out against the corporations, taking a position opposite of Webster and Clay. A generation later, Lincoln, Clay's acolyte, settled that argument with a war.
I just reread this from my archived notes.
Thanks again!!
LM
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