The National Debt is a hot topic around the martini glasses in the Congressional restaurants. Just what is debt? Debt is defined as an obligation owed to another. In most cases, this obligation is considered in financial terms, or as most of would understand it, the money we owe to the bank on our home mortgage or our car loan. However, debt can also be considered in terms of a moral obligation.

Debt is based upon the ability of the debtor, the one who borrows the money, to pay a lender back with both principal and interest, using future earnings. In other words, the moral obligation involved in debt is the promise of the borrower to make her best effort to earn enough money, through future endeavors, to pay back the debt in full to the lender. Only by accomplishing this task, does the moral standing of the borrower remain intact.

Ever since the end of World War I, the dollar has been the currency upon which all other currencies are compared and based. It is also the currency upon which most of the world debt is based. There has been very good reason for this. The United States became the world power after the First War, and certainly enhanced that position after the Second. Thus, its prestige and power, along with the hard asset of Gold and silver, was used by the U.S. as collateral for borrowing from both individuals and other nations.

The U.S. borrows by means of selling treasury paper. This paper is both short term and long term, and prior to 1933, was backed by all of the above collateral. When F.D.R. removed Gold from backing our currency, and replaced the collateral with the “full faith and credit” of the United States Treasury and the nation itself, we still had the power and prestige to pull this off. After all, how many of your parents or grandparents had much in the way of Gold?

Of those wealthy families, and you know their names, who did have large Gold holdings, F.D.R’s requirements were certainly not followed, mainly because these families did not reach their financial status by following rules and regulations as did the common citizen. Thus, the vast majority of their Gold was shipped to Europe, where it sat for decades in Swiss banks. Now of course, it is legal to own U.S. and foreign Gold coin and bullion, because this nation no longer views Gold as Fiat Currency. It is viewed as a collectible or a hedge against inflation. Even as this occurs, our dollar’s backing remains the full faith and credit of the U.S.

As the concept of “Gold as money” disappeared from our national thinking, this nation has involved itself in decades of Congressionally approved borrowing, which Congress has the power to do under Article I, Section 8[2] of the Constitution, which states that Congress has the power to borrow on the credit of the United States. Therein lies the fallacy of our current debt.

What is the credit of the United States? It simply boils down to the faith, of the individual and foreign state lender, that the United States will honor its moral obligation when the time is called for by the treasury paper, that it will be able to fund its debt obligations with U.S. dollars at that time, and that its ability to create value in those dollars will be the result of a vibrant economy “in the future.”

We need not go into the myriad of reasons that Congress has borrowed billions over the last several decades. We already know that a great portion of that money was wasted on entitlement programs which were of no benefit to the national economy or to our security. What is important is whether or not enough of that money was spent on the national infrastructure and in industry so that we shall have the ability to generate repayment in the future, through that “vibrant economy,” with dollars that have any value.

Remember, commodities and natural resources are finite, but a nation’s printing presses are not. The U.S. can create dollars by simply entering an accounting notation on the national ledger, run the printing presses 24 hours a day and raise taxes. The dollars may well be there when it comes time to pay off our debts, but will those dollars have any backing by the “full faith and credit” of a solvent nation?

That is the very question now being asked by China, Japan and all of the other nations who hold our treasury notes. The answer these lenders are coming up with is NO!!!. The U.S. does not appear to be able to solve its fiscal problems through commercial and industrial producing channels. Rather, the U.S. is creating dollars out of blank paper and ink, and there is no collateral, like Gold, Silver or a vibrant industrial and service economy, to back this currency. This is the reason that there is the suggestion that the “worlds” currency be shifted from the dollar to another, more stable currency. At this time, I do not have any idea just whose currency is any more stable than ours, as we are all in deep debt, but our lenders are not going to stand for any more of this smoke and mirrors borrowing by our treasury.

We, as a nation, may have the power to borrow, but our Constitution also directs the Congress, in Article I, Section 8[5], to coin Money, and regulate the “value” thereof. Congress has violated this mandate. We have not regulated the value of our money. Today’s dollar is worth a 1950’s dime, if that much. Given that type of inflationary trend, why would anyone want to hold our dollars. Perhaps that is why our Treasury auction yesterday went unfunded. Who wants to hold dollars? Perhaps that is why the purchasing of personal Gold and Silver holdings is at an all time high. Our U.S. Mint even had to decline orders for newly minted Gold coins because it ran out of Gold blanks. Someone out there must know something of which our own government is unaware.

The Obama administration has to face this as it tries to wriggle out of this fiscal mess that Congress has allowed to occur, with its lack of oversight, its lack of banking and lending regulations, and its continued inflationary spending of someone else’s money. Belt tightening is the answer. The problem is that Obama and Congress refuse to ask the correct question.

JLK