Published on the Washington Times, by Mark W. Hendrickson, July 6, 2008.
Thrift once was considered a virtue in America. In Asia, thrift remains a way of life – for example, it is estimated the average Chinese family´s thrift rate is 30 to 40 percent – which helps explain the rapid growth rates there.
A century ago, the sociologist Max Weber credited the so-called “Protestant work ethic,” combining thrift with hard work as the engine of America´s economic pre-eminence. How times have changed! While many Americans are thrifty, many are not. The political divide of blue-state and red-state Americans is replicated in an economic division between red-ink and black-ink personal finances.
The gross totals of debt in the United States are, well, gross. Private debt owed by Americans is nearly $14 trillion – about the size of our gross domestic product. Corporate debt exceeds $6 trillion. Uncle Sam´s official debt is $9.4 trillion. If one includes unfunded liabilities for Social Security, Medicare, and who-knows-what, then you can add several more multiples of GDP to our total national indebtedness …
… Of these three, I see no possibility of Uncle Sam ever having the political will to repay debts the honorable way; nor do I anticipate outright repudiation, which would plunge the world into depression, maybe even war. That leaves the entrenched decades-long trend of dollar depreciation as likeliest course. The government will continue to overspend, the Fed will continue to inflate, and dollar-holders will continue to repay debts in depreciating dollars until creditors no longer accept those shrinking dollars.
Debt and its Siamese twin – dollar depreciation – likely will continue in the United States until the whole financial system and monetary regime arrive at some cataclysmic denouement.
Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision & Values at Grove City College in Pennsylvania. (full text).