WHEN PENGUINS FLEW AND WATER BURNED This is the true memoir of one US Air Force navigator’s journey from the schoolhouses of Air Training Command to the nuclear alerts of the Cold War to combat in a 35-year-old anachronism called the B-52. It is a first-hand account of life during the last days of Strategic Air Command, the early days of Air Combat Command and the ensuing military drawdown of the 1990s. From peacetime training exercises across the globe to combat operations in Desert Storm, Jim Clonts takes the reader inside the cockpit where life and death are seconds apart. Often comical, sometimes heart-pounding, other times tragic, WHEN PENGUINS FLEW AND WATER BURNED takes you into the world of military aviation, a crucible where warriors learn the true nature of character, conscience and mortality.

Friends of Liberty VOL 5
by Jim Clonts, 2009

05/03/2009

Currently our national debt is about $10 trillion. Given the projected spending on corporate bailouts, stimulus packages, Medicare, Medicaid, Social Security and a down payment on national healthcare, our national debt is expected to balloon to $17 trillion by the end of 2014.

People always hear that we are saddling our grandkids with debt. I hate this statement. It's suppose to stir us into action by playing on our emotions for our offspring, but instead it makes paying our debts seem like something we won't really have to do. It's way off in the future, after all, and not going to impact us anytime soon. I can only hope my grandkids will be in a country capable of paying this debt. In truth, I don't think it will be their problem.

When the Government spends money it doesn't have, it has three sources from which it can draw. It can raise taxes. It can borrow money, selling Treasury bonds to private investors and other countries. As a last resort it can print money. All three of these have problems.

It is has been proven time and time again that if you raise taxes on anything---the activity you tax is reduced. I challenge anyone to find an exception to this rule. Of course, raising taxes also pulls investment capital from the hands of potential business owners and entrepreneurs, retarding economic growth. You can tax profits at 100% and still get nothing, if there are no profits. How much tax will GM or Chrysler pay this year?

We can sell our debt to people as long as we have people willing to buy it. China has been buying most of it and they will continue only a long as they view the United States as a good investment. China, as well as several other countries, have recently indicated they may stop buying our debt.

Finally, we can print money. The Federal Reserve's job is to manage our money supply, to ensure the currency in circulation matches the actual wealth of the country. Printing money, however, is just an accounting trick. If we print a trillion dollars, we will devalue the rest of the dollars in circulation accordingly. This is called inflation.

You are probably saying, "Haven't we had deficits for the last forty years?" Yes, we have. Running a deficit is not a bad thing, so long as the GDP expands proportionally. This means as our debt goes up, so too does our ability to pay it back, the interest on the debt as a percentage of the GDP stays the same.

What is different about today?

Today we are running up staggering debt. The debt incurred in 2009 will be the equivalent of four years of Bush or Clinton debt. At the same time, our GDP is shrinking, over 6% in the first quarter. The fear is that we are on the backside of the curve, the engine of capitalism being dismantled at a time when it must perform as never before.

If China determines our "engine of wealth" cannot maintain its previous rate of expansion, they will divest in the United States, just like selling the stock of a poorly performing company. What happens when China and others stop buying debt? We will have to print money, but that will be a feeble attempt at maintaining an illusion of prosperity. As we get too much currency chasing too few goods, inflation will run rampant. The dollar will collapse and we can forget about anyone buying our debt ever again. Even worse, what happens if China doesn't simply stop buying our debt, but instead cashes out? What happens when they hand us a trillion dollars of matured treasury bonds and say, "We'll take it in tens and twenties."?

I?ll say it more clearly. I don't think this will be my grandchildren's problem. I think the bill is coming due much sooner.

JC

Questions of the Week:

1. Am I missing something in my analysis above?

2.What will happen to our society if the dollar collapses?

Quote of the Week:

All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation.

John Adams

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