Letter writer Everett Dembosky has lectured paeans to Keynesian theory, which has poisoned governments for the past 70 years, because it has enabled politicians to buy votes by borrowing other people’s money without limit. Every government employing this theory is in debt up to its ears.
No matter, says Dembosky. We never have to pay the money we borrow because the borrower has to buy something from us to get it back — today! He says our children and grandchildren will not have to repay debts incurred today because we can neither send goods and services (defined as wealth) forward nor back. Utter nonsense!
When another country or individual advances its wealth to us (e.g. China), they expect to be repaid. As soon as China realizes that they are not going to get their wealth back, they refuse to give us any more. They have, and they are.
Currently 70 percent of the new debt is being purchased by the Fed. How do they pay? In freshly printed IOUs (dollars), which have no intrinsic value. They are valuable when we can trust the printer, and when they are scarce. They have increasingly less value the more of them there are. This is called inflation.
It means that if we put a dollar in the bank today that would buy 5 pounds of potatoes, when we take it out in five years it will buy only 3 pounds of potatoes. Government has stolen 2 pounds of our kids’ potatoes to repay the Chinese (or buy more Solyndras). This is the only way in which macro and micro economics differ. The printing press allows government to steal from anybody with our dollars.
It is not necessary that the Chinese buy our products. Instead they buy our factories, our resources and our land. This means our children will be working for the Chinese, and they will own us.
They also buy intrinsic investments, like oil and gold, and sock them away, making the cost of these greater, a cost that our children will have to pay.
Dembosky is correct that the Chinese cannot bankrupt us. We just pay in increasingly worthless dollars redeemed by our kids when they have to buy potatoes. Those are the prices our kids and grandchildren will pay — if they are not in the bread lines begging from the Chinese.