Could it be any or all of these characters? 

In reality, most of us are to blame to some extent,  because we all sipped from the ever-expanding cup of credit at some time.  Whether it was a mortgage, student loan or a credit card or 20, most all Americans enjoyed the benefits of the credit bubble that has arguably been inflating since the banksters got together on Jekyll Island way back in 1910.  The purpose of that meeting was to figure out how to tame Mr. Market after the most recent panic in 1907.  JP Morgan was the driver, as he had almost singlehandedly directed financial traffic during that panic.

Funny how JPMorgan is still directing traffic to this day…with good old J. Pierpont being replaced by dashing Jamie D.  Silly banksters always think they can tame Mr. Market but Mr. Market cannot be tamed (a discussion as to why is coming in the future).  But banksters are nothing if not persistent.

Anyway, the creature born in 1910 and ultimately released from Jekyll Island in 1913 became known as the Federal Reserve, which continues to terrorize many to this day.   You can read an interesting account here:

http://www.jekyllislandhistory.com/federalreserve.shtml

But should we hold the Fed primarily responsible for our current debt dilemma?

Maybe….but they had help.

In 1933, FDR (which could also stand for First Dictator of the Republic…if that title had not already gone to Honest Abe Lincoln for his numerous restrictions on civil liberty and other atrocities) confiscated all privately held gold in the USA, thereby eliminating the only real competition to the paper dollar.  Remember, the government is often not fair or just and in this case it was neither.  Good old FDR bought the citizens’ gold for $20.67 an ounce (the going rate at the time) and once he had all he could get his hands on, revalued it up to $35 per ounce…a nice little racket indeed…which anyone else would go to jail for.

So by eliminating the only real historical currency that could compete with paper, FDR should get a lot of the credit for creating the debt bubble.   But we have to turn to the Grand Old Party and tricky Dick Nixon to uncover the ultimate culprit.   FDR may have confiscated the gold and ripped off the paying public by hijacking the price but at least he left the gold standard intact.  Under the old rules, technically and practically, each US dollar was redeemable for gold at $35 per ounce.  In the 60s, fearing that the US dollar’s strength might be waning, countries like France and Spain wanted to be paid in gold, not paper…which they were.

But this was depleting the treasury…and no emperor or president worth his salt likes to see his treasury emptied.  So Tricky Dick closed the gold window on August 14, 1971…presumably while the French and Spanish and everyone else in the Northern Hemisphere were on holidays.   From that day on, the dollar was backed by….you guessed it…”the full faith and credit of the USA”.

Given that we now owe ginormous amounts of money to everyone around the globe, that backing is looking a bit tenuous.  Ultimately we will have lost faith and have no credit.

Anyway, once Tricky Dick had done his work and finished nailing the gold window shut, the proverbial horse was out of the barn and galloping to the next county.

At the time (as of June 30, 1971) the national debt was $398 billion against a GDP of $1.127 trillion, which is a reasonably manageable debt to GDP ratio of 35%.  Since then, our GDP has grown 14 times to around 15 trillion but our debt has grown 40 times.  How in God’s name did that happen?

Well, once Tricky Dick had taken the dollar off any ascertainable standard like gold, all bets were off.  The Fed could literally print money without any physical thing backing (or restraining) it.  Once printed, that other beast known as the Fractional Reserve Banking system could be unleashed to create almost unlimited amounts of funny money.

Of course, the full faith and credit of the USA has no limits and so neither did the politicians.  Elected officials excel in good news and shrink in the face of bad.  Printing money is the easiest of options and so that is the option they select.  Far better to print now and get elected than face an angry electoral backlash and Heaven forbid, have to go back to work in the real world…assuming there is a job to be had.

 

 

 

 

 

 

 

So who do we blame for the debt? 

Well the Fed provided a system for unlimited funny money but it was physically restricted by the gold backing.

FDR helped pave the way by eliminating the only real alternative currency.

Tricky Dick Nixon removed the last remaining control providing the opportunity for politicians to spend, baby, spend.

So every politician is surely culpable…some more so than others.  But all of us are too.  They are our politicians after all.  We elected them.  And we all enjoyed some direct or indirect benefit from the great credit bubble.   And the banksters are clearly guilty…but you’ll never convict them.  They already lack any and all conviction.

So…is there anyone not to blame.  Sure…but ironically it’s the unborn future generations of Americans, who, while blameless, will have to suffer the consequences.   It will be their financial equivalent of original sin….unless, of course, we get our house in order in the meantime.  We can, but it will take a whole new breed of political leadership and a conviction by all that excess debt is a dangerous thing.

But try telling that to Gentle Ben (Benanke), Tiny Tim (Geinther) or Super Mario (Draghi).  Although not elected officials, they all want to keep their jobs too.

Sad to say, but national bankruptcy may be our only salvation.  Let’s hope we find fiscal religion before that happens.