An Ode to Habit

Dear George,

Fools are fools because they never learn. That is why they make great leaders. Momentum and habit are everything because once an empire begins the downward slide into oblivion and ruin; it is the duty of the leader to stay the course. Habit is the ultimate empire killer.

Our economy has been on life support for decades, kept alive by feeding it bubble after bubble. When the housing bubble finally popped, all the naysayers predicted that we were bubbled out.

However, they didn’t count on the innate ability of fools to come up with a new bubble. And bubble they did. Now they are inflating a bubble based on US treasury debt. One writer points out that we are going to have to finance some $5 trillion in debt over the next four years. (Substituting seconds for dollars, that is the equivalent of 160,000 years.)

All is well they tell us because the world is buying up T-bills like crazy. Obama sees this as an endorsement of American capitalism.

Right!

As the same writer points out:

The driving force of this influx of capital is fear rather than confidence, however. Investors are pulling out of weaker regions like eastern Europe and southeast Asia, as well as Africa and Latin America. They are also shifting from the purchase of stocks and bonds issued by American banks and corporations, now regarded with great distrust, in favor of government-issued debt instruments.

In effect, our T-bills are sucking capital out of the system making it harder and more expensive for our corporate enterprises to get the capital they need to operate.

Another writer points out:

Unfortunately, we cannot be confident that world leaders know what they are doing in seeking to resolve the crisis. Are their measures attacking the heart of the problem, or only its periphery? Are they exacerbating the crisis, either by enacting certain misdirected measures, or by failing to enact certain required measures? Are they setting up conditions that make a dollar crisis and radically increased financial upheaval virtually inevitable, by blindly pushing ahead with a simplistic agenda of trying to spend their way out of the present crisis?

(Sorry about the lengthy quotes, Big Guy. I know they’re taxing.)

Why should we worry that our 2009 dept is 89% or our GDP? We have history on our side. Hell, in 1557, Phillip II of Spain defaulted when his debts were a paltry 50% of Spain’s GDP. The guy went on to default in 1560, 1575, and 1596. (Actually, Spain raised default to an art form, doing so a total of thirteen times between 1500 and 1900.)

And what was the reason for Phillip’s defaults? It was too many expensive wars. That’s how it is with great powers: if you’re going to play, you’ve got to pay. And pay and pay and pay.

So, we can keep on issuing those T-Bills with nary a qualm. Before long they’ll be worthless, and they won’t cost us a penny because we won’t have a penny to spend.

Your admirer,
Belacqua Jones