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This site is the inspiration of a former reporter/photographer for one of New England's largest daily newspapers and for various magazines. The intent is to direct readers to interesting political articles, and we urge you to visit the source sites. Any comments may be noted on site or directed to KarisChaf at gmail.

Thursday, October 17, 2013

A rising torrent of debt and destruction -- By Andrew P. Napolitano, The Washington Times

Illustration by Linas Garsys for The Washington Times (Illustration by Linas Garsys, The Washington Times)

From April 1917 to November 1919, when President Woodrow Wilson borrowed $30 billion to pay for World War I, he was able to do so because of the promise he made to lenders that the commitment to repay them would be backed by the full faith and credit of the United States government. At the time, the government's total debt was about $14 billion, so Wilson's painful gambit tripled it.

In reality, it was not the full faith and credit of the federal government that promised to repay; it was not the creditworthiness of the federal government at stake; it was not the federal government that paid back the money that was borrowed. That's because the government has no credit or creditworthiness or disposable wealth. Only the taxpayers have that.

This is not an academic difference. Wilson knew his creditors could not seize government buildings if he or a successor could not repay the loans in a timely manner. However, the Internal Revenue Service could seize private wealth if taxpayers didn't cough up. At the time, the federal income tax was new. In order to get it passed in Congress, Wilson promised that the tax rate on personal incomes would never exceed 3 percent of adjusted gross income, and that it would only be assessed on adjusted gross incomes north of $10,000 a year — the rough equivalent of $250,000 today.

Wilson also had a brand-new bank with its own legal printing press at his disposal: the Federal Reserve. With its power, the Federal Reserve could print and lend all the cash it wanted, flood the economy with money and cheapen the value of the dollar. When Wilson's $30 billion debt was repaid, it would be done with dollars worth far less — and thus less painful to extract from taxpayers — than those he borrowed.

This is, of course, government-induced inflation. It was relatively new in Wilson's era, but it has been practiced by the Fed and accepted by every president from Wilson to Barack Obama. It can be done without the consent of Congress because Congress already gave the Fed the unlimited power to print cash and lend it. Today this is done without ink and paper; rather, by pressing a few computer keys.

Now when the president wants to borrow more than the law allows, the Fed can provide the cash, but the president needs a change in the law so as to have the legal authority to commit as-yet-unborn taxpayers to repay the government's additional debt. While in office, President Obama has borrowed about $1.2 trillion a year with the approval of Democrats as well as Republicans in Congress. The lenders are quick to make their loans, because the feds have never failed to extract the cash from taxpayers or borrow more in their names to pay the debt service. Presidents and Congresses don't worry about paying back the principal or paying the debt service as long as they can continue to borrow more in order to do so.

As absurd as it sounds, the federal government borrows money in order to pay the debt service on money it has already borrowed and spent. Is it any wonder that today the government's debt has reached $17 trillion?

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