Debt and Vulnerability

"I can break you, mate. I can buy you six times over. I can dump the stock just to burn your ass."
--Sir Lawrence Wildman (Wall Street)

Former Treasury secretary Hank Paulson claims that Russia sought to collaborate with China to dump large quantities of mortgage backed securities (MBS) on the market to exacerbate the credit market debacle in 2008. The presumed goal was to kick the US financial system when it was down, or perhaps even to kill it.

Whether such plans were actually discussed is not the point of this post. The spectre of large holders of US debt dumping their positions for non-economic reasons was being discussed by people in my network long before the credit crisis began.

Nor is the point to implicate China or Russia here. They merely bought the paper.

The point is to implicate us. We sold the paper.

A wise sage once told me, "Debt reduces freedom." When you borrow from someone else, you enter into a contract of servitude. In exchange for using lender resources today, you agree to work for the lender to pay back those resources, plus interest, in the future. Because you must provide for someone else's interests rather than your own, you are less free.

Jefferson and other founders understood the virtues of saving and the dangers of debt--particularly public debt. Public debt is now north of $17.5 trillion.

The more we borrow, the less we control our destiny. The greater our debt, the more vulnerable we are to the whims of debtholders--whatever their motive.