"Debt is the Slavery of the Free" - The moral sayings of Publius Syrus, a Roman slave: from the Latin
"Prodigal: A person who spends, or has spent, his or her money or substance with wasteful extravagance; spendthrift." - Dictionary.com
Like the Prodigal Son, America squanders the wealth that our predecessors bequeathed to us. Our country has turned from the path of the righteous and has sought pleasure from riotous living at a dear cost to ourselves and to future generations. We elect leaders that reflect our own narcissism who promise change but lead us further astray. True change, repentance, requires keeping the old covenants and living within our means. Unlike the Prodigal Son, if we do eventually repent, our creditors will not welcome us with robes and slippers. Creditors demand cold hard currency with interest that they extract by imposing draconian controls on deadbeat debtors.
Marshalsea Prison is a series devoted to the economic decline and fall of the United States of America. This is the first post in this series.
The Lost Son
Often the greatest art conveys great truths in beautifully simplistic ways. While considered trite today by critics who consider titillation and debauchery to be clever, it was this formula that resulted in Hollywood's golden age. It was also the reinforcement of such age old lessons from our forefathers in popular culture that kept our baser instincts in check. Case in point, the Prodigal Son scene from Heidi (Compare this to the drivel being fed our young minds today):
Here the Prodigal Son, Heidi, played by Shirley Temple (actually orphan daughter of the son) is welcomed back by the Grandfather, played by Jean Hersholt.
Jean Hersholt had a long and fascinating career in Hollywood starting from its earliest days. An emigre from Denmark, he started out in bit parts and eventually working his way into starring roles in some of the biggest movies of the silent era.
This included writing and starring in the 1924 classic, Greed, directed by Erich von Stroheim. The film originally came in at a whopping 10 hours but was later butchered down to less than two by the studio. Despite the massive editing that led to missing characters and continuity, the film held a commanding power that still causes it to be considered the 69th best picture of all time (http://www.theyshootpictures.com/gf1000_top100films51-75.htm).
JohnQuincy's opinion, his versatility ranks him up with the great character actors of all time including Lon Chaney. For a great pictorial overview of his long career, please click on the below link:
Jean Hersholt's Album Of Hollywood Stars
Beyond his film career, Jean was a great humanitarian. He is best known for co-founding the Motion Picture Relief Fund. Today his efforts are memorialized by the Academy of Motion Pictures Arts and Sciences with the Jean Hersholt Humanitarian Award.
Similar to Jean Hersholt, sometimes it still takes an emigre to spell out great truths to the American people. Case in point, Verinque de Rugy's recent appearance on Bloomberg TV's Reality Check where she expertly demolishes three deficit myths
NOTE: Veronique's analysis is largely based on the Congressional Budget Office's Long Term Budget Outlook dated June 2010. It is not often that one finds someone who can summarize ninety pages of government economic analysis so well.
C.V. from George Mason University:
Veronique de Rugy is a senior research fellow at the Mercatus Center. She was previously a resident fellow at the American Enterprise Institute, a policy analyst at the Cato Institute, and a research fellow at the Atlas Economic Research Foundation. Her research interests include the federal budget, homeland security, taxation, tax competition, and financial privacy issues.
She writes a column for Reason magazine and is a regular contributor to The American, AEI's online magazine. She also blogs at The Corner at National Review Online and at Big Government.
Ms. de Rugy earned a MA in economics from the University of Paris IX-Dauphine and a PhD in economics from the University of Paris-Sorbonne. She previously directed academic programs for the Institute for Humane Studies-Europe in France.
No Blood from a Turnip
Myth 1: The Debt and deficit can be tackled by raising taxes.
Fact: America is facing a spending problem, not a revenue problem.
In this section of the video, Veronique is relying on figure supplied by the Congressional Budget Office's Long Term Budget Outlook dated June 2010:
Below are the current forecast for revenues versus spending referred to:
The video mentioned but does not have time to go into great detail on the fact that we are already tapped out in terms of taxation as we are already nearing historical highs in terms of taxes as a percent of GDP. Below are recent Brooking Institute Tax Policy Center Historical Source of Revenue as Share of GDP figures from the White House Office of Management and Budget:
JohnQuincy has prepared a graph to allow you to quickly scan these numbers. NOTE: the 2011 - 2016 numbers are estimates:
No Free Lunch
Myth 2: There is no correlation between interest rates and deficits
Fact: Investors anticipate higher interest rates since repayment of the debt is in question.
In this section Veronique is basing her facts on the US Department of Treasury, Resource Center, Treasury Yield Curve statistics as reported in the Congressional Budget Office's Long Term Budget Outlook dated June 2010:
Using the US Department Treasury, Resource Center tool JohnQuincy has prepared a graph of the Treasury Yield curve (and you can too) for the current period (in GREEN) against 04/03/2000 (in BLUE) when we were actually running a slight budget surplus:
The interesting thing to note about the current yield curve is that, even at its highest, it is still below normal. This is where one has to be careful with numbers that are flashed on the TV screen. They can be deceiving especially when they are not presented with any baseline for comparisons.
While Veronique probably does not have time during her short TV segment to get into the details, it should be noted that the current yield curve is extremely low due to two main reasons:
1) The bursting of the real estate budget has caused asset prices for many items to plummet resulting in low inflation at least as recorded by the US Government.
2) The dismal economy has depressed demand for private credit.
Myth 3: Debt and Deficits May be a Problem but We have the Option to Wait.
Fact: The Debt and Deficits are Currently Draining Our Economy
Crowding Out of Capital and Related Economic Effects
Increased government borrowing tends to crowd out private investment in productive capital, leading to a smaller capital stock and lower output in the long run than would otherwise be the case. Deficits tend to have that effect on private investment because the portion of people’s savings used to buy government bonds is not available to pay for such investment.
An exception is that government borrowing to finance public investment, such as improvements in infrastructure, need not reduce future output if the public investment is as productive as private investment. However, the long-term rise in debt projected by CBO is driven by increases in government transfer payments (such as spending on entitlement programs) rather than increases in government investment
Addendum 1 - Preaching to the Choir
prydain - The Rev. Victor Novak: “The Prodigal Son” (part 3)
Addendum 2 - Prodigal Son Blues
The son of Rev. John Wilkins performing his father's classic song: "Prodigal Son"