Deficits Do Matter

Some people have wondered what Dr. Sennholz would say about the situation today if he were still alive. Well…back in 1987, Dr. Sennholz wrote a book entitled Debts and Deficits. Chapter 5 was entitled "Deficits Do Matter." On page 75, he updated his projections from 1972 and told us what he thought. Part of the table with his projections for the "Federal Budget and Debt" (in millions of dollars) follows:

  Receipts Expenditures Deficit Debt–Yr. End
1973 (est.) 224,984 249,796 -24,812 473,300
1973 (actual) 232,225 246,526 -14,301 468,400
1983 (projected) 700,000 825,000 -125,000 1,400,000
1983 (actual) 600,562 808,327 -207,764 1,381,900
1993 (projected) 3,000,000 4,000,000 -1,000,000 4,000,000
2003 (projected) in new currency 300,000 300,000 0 1,000,000


The last three words of the table say it all—in new currency!

He went on to say, "Historically, the large increases in federal debt occurred during war emergencies, when governments felt free to engage in deficit financing. Under the influence of "the new economics" and "the entitlement ideology," the U.S. government as well as governments the world over now resort to deficit financing on a regular basis. Some consume all the savings coming to market and even deplete the capital stock accumulated in the past."

As it turns out, the federal debt on September 30, 1993 (fiscal year end) was $4,411,488,883,139.38 and the federal debt on September 30, 2003 was $6,783,231,062,743.62. Today, it's roughly $13.6 trillion (not counting the off-budget items like Social Security, Medicare and bail-outs for half the world). Dr. Sennholz's 1993 projection wasn't too far off, but his timing for the new currency was off by about 10 years. Who would have guessed that China would lend the U.S. government so much money or that the world's faith in the U.S. (dollar) would last as long as it has? Still, this table makes it clear that Dr. Sennholz was expecting the destruction of the U.S. dollar, the consumption of savings, and the capital markets, and the issuance of a new currency. It was just a question of timing.

So what happens after the U.S. dollar is destroyed? In Age of Inflation, Dr. Sennholz said that "after many years of inflation the economy is so badly disarranged that a return to normalcy would be marred by painful withdrawal symptoms....any attempt at monetary stabilization would not only reveal the shocking extent of disarrangement and maladjustment, but also would need to prepare for and cope with the depression."

Unfortunately, no one in power wants to hear what he had to say lo those many years ago. Come to think of it, they didn't want to hear about it back then, why would they want to hear about it today? They just want to spend money!

Robert F. Sennholz

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