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The nomination of Mick Mulvaney – deficit hawk, three-term Republican congressman from South Carolina and founding member of the House “Freedom Caucus” – to the cabinet-level directorship of the Office of Management and Budget is not good news for the financial system.
Mulvaney has said (and perhaps even believes) that one of the “greatest dangers” we face as Americans is the annual budget deficit and the $20 trillion national debt. This notion is an effective political weapon, but it’s dangerously untrue. If it were true, the country would have failed long ago.
Debunking this canard should be a priority for anybody who cares about retirement security. As long as we believe in the debt bogeyman, we can’t productively solve the Social Security and Medicare funding problems, defend tax expenditure for retirement savings or even create a non-deflationary annual federal budget. Everything will look unaffordable.
Hamilton, the Broadway star
If you don’t believe me, believe Alexander Hamilton. In 1790, the new nation was awash in government IOUs. It barely had little cash or coinage for daily commerce. Hamilton, the impetuous future Broadway subject, resolved the crisis with a simple argument. He reminded his fellow founders that debts are also assets, and that the most secure assets are those that yield a guaranteed income stream from a sovereign government with the power to tax.
At the time, according to Hamilton’s “First Report on the Public Credit,” the U.S. debt in 1790 stood at $54.1 million and change. In that document, the first Treasury Secretary laid out his plan – over the protests of deficit hawks – to restore the debt’s face value, secure the new nation’s credit rating, and put new money into circulation through interest payments on the debt, with revenue from taxes on imports.
The plan worked. With its par value established, U.S. debt became – and still is – the basis of the nation’s money supply. “In countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money,” Hamilton wrote. “Transfers of stock or public debt are there equivalent to payments in specie; or, in other words, stock, in the principal transactions of business, passes current as specie.”
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