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Tuesday, September 20, 2011

History of The National Debt

As mentioned in my blog post from a few weeks ago, I recently finished reading Hamilton's Blessing: The Extraordinary Life and Times of Our National Debt.  It's a pretty quick read which gives a good foundation for understanding how our current "debt crisis" came into being.  I would recommend it to  anyone interested in the issue.

Of course, we should all be interested in the national debt and deficit, since it affects all of us. In fact, this will likely be the most prominent issue of the upcoming presidential election. Having said that, one self-imposed, overriding rule for this blog is to stay clear of discussing politics, which, in truth, makes this topic a bit difficult. For it has been a string of political decisions that has gotten us into the current mess to begin, and s
urely, it will require political courage and compromise to get us out. Just to name a few of those aforementioned political decisions...
  • Moving the social security surplus "on budget"
  • Increasing the use of earmarks in spending bills
  • The seemingly endless complexity of the federal tax system
  • Deciding to go to war in Iraq--whether you support this decision or not
Here are a few notable quotes I've picked out from Hamilton's Blessing:
"Even a country as rich and productive as the United States can spend itself into bankruptcy as Spain did in the seventeenth century. Only fundamental changes in how the government raises money, how and where it spends it, and how it accounts for it can prevent a future fiscal disaster."
"Alexander Hamilton conceived of the national debt as a strategic instrument of national policy to be used to protect and advance the interests of the nation.  In the last several decades, however, it has not been used for that purpose.  Rather, it has become nothing more than an escape valve for political pressure."
"The now-forty-year-long string of significant annual budget deficits, incurred mostly in good times and largely for the purpose of ensuring the reelection of members of Congress (of all parties and political philosophies) constitutes overwhelming evidence that the system is irretrievably broken."
So let's all hope that, as a collective nation, we can have an honest and productive discussion about how to repair the fiscal mess that we have put ourselves into. In the meantime, we concern ourselves with the way in which the most likely solutions to the deficit will affect our clients' financial and investment plans--in particular, their impact on taxes, social security & medicare, and perhaps even our approach to investing. I hope to touch further on these topics next time.