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By Jerry Bowyer : BIO| 16 Nov 2020
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A reporter once asked President Reagan if he had anything to say in defense of his deficits. "No" answered Reagan, "they're big enough to defend themselves." Liberals howled, and conservatives chuckled, but no one questioned the premise of the question: that deficits are inherently a bad thing. The argument has always about whether the bad thing called deficits are too large and whether they will ever be paid off, not whether they can actually be good for our country. For the record the answers are: no, they're not too big (see attached chart); no, they will never be paid off, and yes, they can be a good thing.


When strong nations go to war, they borrow money. Weak nations, not so much. That's because strong nations usually win, and winning nations usually repay their creditors. Rich and successful people don't have any problem getting someone to loan them money. The same holds for wealthy and successful nations. That's why, historically, the interest rate of a nation's bonds is a pretty good inverse indicator of investor confidence in the war effort. The more trouble investors see on the horizon, the more compensation they demand for the added risk.

The Rothschild banking clan kept an extensive network of couriers throughout Europe for just this reason. The Rothschilds were generally the first people informed about the turning points in battles, even ahead of heads of state. This gave them a tremendous edge in forecasting the bond markets upon which they built one of the world's greatest fortunes.

This is the way the world works, some might say, but is it right? What about the children? Is it really fair for them to shoulder the burden of our wars? Heck yeah, it's fair. Number one, they won't be children when they start to share the burden of the national debt. Number two, they benefit.

America has never paid off its original national debt. In 1800, we owed about $75 million. By the 1830s it got down to as low as $33,000. After the civil war, the debt exploded again. Ditto for WWI, WWII and WWIII (the cold war). My generation is now paying for the cold war. Do I mind? When I was a child 20,000 nuclear-tipped missiles were aimed at my country, and now they're not. I think that's a pretty good deal.

Since the national debt has never been paid off, some of that principal represents the borrowing that was used to fight the War for Independence. Some of my taxes, and the taxes of every generation of Americans, goes towards servicing that initial loan. Did Hamilton do us wrong by devising the financial structure of the deal? Does Adams owe us an apology for selling the bonds? Not likely. Every generation since 1776 has benefited from that first war.

There is a basic principle of financial accounting called 'matching.' It teaches that there should be some attempt to match, in time, the benefits of revenues with the costs incurred in pursuit of those revenues. It's why businesses depreciate long-term assets over a period of years. It's why local governments have capital budgets, funded with bonds, which they use to pay for infrastructure like roads and bridges.

Defense is a sort of infrastructure, too. It provides benefits for future generations, just like roads and bridges do. Is it some kind of rip-off that my kid's future tax bills will include interest payments from the war against Jihadists? Not if we win.

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