You Are Washington’s Collateral
by Gary North
Whenever any would-be borrower approaches a lender for a loan, he must be prepared to offer collateral, just in case he cannot repay the loan. If he defaults, the lender wants to be able to gain possession of the collateral, and obtain it quickly.
Every government that uses bond sales to maintain its level of expenditures must offer collateral. This collateral is its ability to extract sufficient revenue from those people under its jurisdiction so that it can make interest payments on the bonds.
In the South of 1850, a planter could buy slaves on credit. He pledged the future productivity of his slaves as collateral for the loan. He made sure that he extracted sufficient wealth from the slaves to pay off his loans. He lived well. They didn’t.
Why did he borrow? In order to buy more slaves. He used leverage. He built his plantation with borrowed money and the heirs of kidnapped victims. It was good business.
The typical voter thinks of himself as a free man. After all, he has the right to vote. He does not think of himself as a slave. While trade union organizers – a truly hopeless career these days – still use the phrase “wage slave,” it never made any sense, either legally or economically. A worker can legally walk away from his employer. A slave cannot.
Washington has borrowed more heavily than any planter ever dared to or could do. Why so much debt? To get more leverage today. What is being leveraged? Promises. Voters trade votes for government promises. This system requires an ever-increasing supply of slaves in order to pay the interest on the debt. Problem: the rate of population growth is slowing. There will not be enough slaves to pay off the debt.