Globalist Analysis

U.S. Debt Ceiling and Default? Blame the Germans!

Why not use the historical roots of the debt ceiling to shift the blame?

Takeaways


  • That Americans and global financial markets are again staring at the abyss of default is all the Germans’ fault.
  • Instead of blaming each other, the parties in Congress could condemn 2013 Germany for its acts 98 years ago.
  • In 1917, the U.S. Congress loosened the nation’s debt issuance purse strings and created the debt ceiling.
  • Every single time Wilson went to the markets to issue more debt, he had to ask Congress for approval.

The United States is again in the political grips of what seems like the budgetary equivalent of another self-destructive death march to Bataan. High time to engage in the nation’s favorite political sport – assigning the blame.

It would be far too easy and obvious to blame the Republicans in the U.S. House of Representatives, as tempting as that is, given their extreme political intransigence.

You see, the fact that Americans and global financial markets are once again staring at the abyss of default ultimately is all the Germans’ fault. You heard that right. The reason why the situation of breaching the debt ceiling even arises is due to the warring machinations of the Germans.

To see how this plays out, let’s start with the important observation that setting a debt ceiling is highly uncommon globally. Why then did the United States resort to it?

Generations back, the Germans made them do it. Here is why.

World War I was, as you may recall from the history books, largely a European war, pitting Germany, Austria-Hungary and Turkey against Britain, France, Russia and Italy. When the war began in 1914, U.S. President Woodrow Wilson, representing the will of the vast majority of the people of the United States, promised neutrality.

However, the German navy, with its submarines, managed to cut Britain off from supplies. This effective blockade led to the sinking of two U.S. steamers off the British coast in February 1917. President Wilson broke off diplomatic relations with Germany and, after receiving Congressional authorization, declared war on the Kaiser on April 6, 1917.

Now, as we know all too well, wars cost money. U.S. involvement in World War I was no different. And as far as most wars are concerned, they are not budgeted. President Wilson had to borrow money to fund U.S. troops in their fight against Germany, but this was politically and administratively troublesome.

Why? Because every single time Wilson went to the markets to issue more debt, he had to ask Congress for approval.

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A Congressional stroke of genius

So, Congress had a stroke of genius. So that the President would not have to return each time to beg for more, why not do the patriotic thing and give him the ability to borrow a fair number of times? So that things would not get out of hand, the proposal to set a debt ceiling was enacted.

And so, with the approval of the Second Liberty Bond Act in October 1917, a patriotic-minded U.S. Congress loosened the nation’s debt issuance purse strings and basically created what we refer to today as the debt ceiling.

But Germany’s guilt for the U.S. predicament of today does not end there. The Second Liberty Bond Act also contained the so-called gold clause. Its effect was that these war bonds had to be redeemed in gold. And yet, U.S. gold reserves were far too small to make good on that promise.

Thus, some decades later, the U.S. Congress upon the request of President Franklin D. Roosevelt revoked the clause in 1933 retroactively. Coincidentally, many (including four of nine Supreme Court Justices in 1935) consider that action as the first U.S. debt default. Again, thanks to the Germans!

So here is our golden escape clause for today’s U.S. Congress: Instead of the two major parties doing the usual thing, i.e., blaming each other, why not engage in an unusual maneuver?

Instead of endlessly debating whether the United States should honor its financial commitments or not, the distinguished Members of Congress could resort to approving a joint resolution of both Houses. That resolution would condemn the Germany of 2013 for its undeniable responsibility nearly a century ago in triggering the existence of the debt ceiling in the first place.

That way, the Congress, in solemn bipartisan fashion, could wipe its hands of any responsibility for today’s conundrum and place the blame where it properly belongs, with the Germans.

Case closed.

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About Uwe Bott

Uwe Bott is the Chief Economist of The Globalist Research Center.

  • gmu1418

    Is ja klar … Mir sin ma wieder Schuld. Schöne Grüße aus’ em Heimatland.
    Wie macht man sich unbliebt…..
    Anyway, a poor attempt at “humour”… and why the f… didn’t they change it in the 70+ years? Our fault as well???

  • ubott

    It’s called Satire.

  • Guderian

    Stop it, you know you have no humor cause you’re German.

  • gmu1418

    in your case having the moniker “u-boat” … that would be “Satire”
    Aber nehmen wir’s mal mit Humor… Schöne Grüsse aus’m Rheinland.

  • gmu1418

    Ha, you obviously never read the infamous “Lexikon des Deutschen Humors”… 30 pages full of mind boggling revelations…
    P.S.: Von Manstein was the better General

  • gmu1418

    Addendum: I will report immediately to “Die Welt” that it’ s satire, they (and their readers) believe it’s serious…..

  • Norman Williamson

    Brilliant!

  • cmh2013

    LOL I just read it. It gave me really a good laugh.
    Uwe Bott’s conclusions are great. Yes, it is our fault! Bad Germans! :D

  • cmh2013

    Ja, es ist Satire! :D Schöne Grüße zurück!

    (He is a little bit doubtful, still is not completely convinced about this satire thingy. Hmmmm…But he tries hard to take it with humor. :D )

  • cmh2013

    You won’t believe it, but the German daily newspater “Die Welt” also took it for true. And – hey! – I immediately recognized that it is satire, though I am German, too. :D But I had to read the English article.

    It’s not true that Germans are without humor. I remember, I saw one or two of them laughing recently. :) But they still are a bit alarmed nowadays, because we seem to get accused for almost everything happening in the world.

    Just don’t take it too serious. ;-)

  • lexi110174

    Germany was forced to start world war I! The economy was too strong. France and England suffered! The same we have today as quality always pays off!

    Dear America, instead of wasting money in wars, put it into infrastructure, development and science! Why America and Japan will default within the next 10 years, the US housing market has recovered and Gold is still the best investment even the price is manipulated, you can read here:

    http://travelling-bali.com/confusing-financial-markets-trades-economical-laws-going-wrong/

    Enjoy and start thinking! Good luck!