As if to promise a Christmas present, Congress has just finished approving the finances of the federal government for the next few months. Santa Claus would have done a better job. During early 2016, Congress will pay the government's bills by borrowing money from individual and institutional lenders. Those folks will lend the feds all the money the feds need because the law requires the feds to pay them back.
The "pay them back" ideology is a very curious one. It is true that the full faith and credit of the federal government guarantees the payment of the government's debts. Without that lawfully binding guarantee, who would lend money to an institution that carries a debt of $18.8 trillion? So the investors who have lent money to the feds know that their debts will be repaid in a timely manner.
Because the federal government spends $1.5 trillion more annually than it collects in taxes and other revenue and because its payments of interest alone on the money it has borrowed will soon be about $1 trillion a year, it can only repay its debts by borrowing more money.
Since 1911, the federal government has not repaid a debt from tax revenue. It has always borrowed more money to pay its lenders. This is known to economists as rolling over the debt.
President Woodrow Wilson — who gave us a racially segregated military and federal civilian workforce, brought us into the horrific and useless World War I, arrested Americans for singing German beer hall songs in public, campaigned for the federal income tax by promising it would never exceed 3 percent of income, helped to create the cash-printing Federal Reserve, laid the groundwork for Prohibition, and kept Jim Crow going — borrowed $30 billion to pay for World War I. That money was borrowed from investors and from the Federal Reserve, which in those days literally printed the cash that it lent.
The $30 billion that Wilson borrowed was repaid by the feds with borrowed dollars. And the folks who lent the feds those dollars were in turn repaid with borrowed dollars. That inflationary cycle has been repeated countless times since all this borrowing from Peter to pay Paul became the financing method of choice for the feds.
As a result of this, the federal government still owes the $30 billion that Wilson borrowed, but it owes it — obviously — to different lenders from those who originally financed the Great War. It has paid more than $15 billion in interest payments on that $30 billion.
Who could run a household or a business the way the feds have run the government in the past 100 years?
As we approach a presidential election year, the federal financing-by-borrowing scheme is seen as a standard operating procedure by all the Democratic candidates and by all the Republicans, as well, except for Sen. Rand Paul. He and he alone among the major candidates would have the feds live within their means and stop the vicious circle that Wilson began.
He understands that government has limits. Those limits are written down in the Constitution. He recognizes, as his competitors do not, that the government simply cannot morally or constitutionally right any wrong, regulate any behavior, borrow any amount, or tax any event as long as it can politically get away with it. When it does, we end up with war and debt.
Whenever you hear a presidential candidate proclaiming that the first job of the president is to keep America safe, challenge that absurdity. Invite that candidate to read the Constitution, which lays out the jobs of the president — the principal of which is to keep us free and safe. If a president keeps us safe but unfree, he is simply not doing his job. Only Sen. Paul has made that argument.