History

Deadbeat Nation

The long history of Americans failing to pay their debts.

|

I haven't read Scott Reynolds Nelson's recent history A Nation of Deadbeats, but this interview by Tim Murphy makes it sound pretty interesting. Murphy's takeaway from the book is that "American history consists of a never-ending string of defaults at the individual, municipal, and state levels." Here's an excerpt from the conversation:

It takes a nation of deadbeats to hold us back.

Nelson:…Part of what the book is about is all the bad debt—consumer debt, and private debt, some state debt, municipal debt, and stuff like that. It's just packaged garbage that collapses and leads to these financial downturns. We've had an amazingly kind of corrupt and ingenious sell-side [financial system]. And it's sold lots and lots of debt, under our name, that has turned out to be bad debt.

Murphy: And this all starts off in 1789—

Nelson: —with the Constitution itself. I talk about Alexander Hamilton creating this first Bank of the United States, and crafting it with William Duer. Insiders make a huge amount of money, but the person who becomes our first millionaire is actually William Duer, who is assistant secretary of the Treasury. Selling problematic debt and making a huge amount of money and then kind of laughing when others take it on is kind of the story in the United States.

Murphy: "Deadbeat" has pretty negative connotations. What's the problem?

Nelson: It contributed to the rise of slavery in the Deep South. There was tremendous borrowing in the 1820s and 1830s; slaves got sold down the river in booms, because lots and lots of European capital was flowing into the US to lend planters money to build cotton plantations. It's the exploitation of Indians—we couldn't have expanded to California, really, without all of this lending. So was it a good thing or bad thing for the nation? As a whole, it's kind of good thing. But for our global conscience, not especially good, I suppose.

Also discussed: debt's role in the rise of Mormonism. Read the whole thing here.

NEXT: Virginia Death Row Inmate Picks the Electric Chair

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. There is a reason why people have always hated bankers and speculators. And some of that is healthy. Those guys run a lot of crooked schemes. And a lot of that is unavoidable. But what is avoidable is bailing their sorry asses out when their bets go bad. That is what we used to not do and we were better off for it.

    1. What John said. Especially the last two sentences!

  2. It’s called the credit cycle. It’s fundamental to growth.

    Yes, defaults are fundamental to growth.

    And the people who are best positioned to suffer the defaults are the people who willingly took on the risk.

    As opposed to the taxpayer.

    I’m just sayin’.

  3. If I was a Chinese autocrat, this information would concern me.

    1. Butnot as concerning as seeing their export machine shut down, exacerbating civil unrest.

      Quite the conundrum.

      1. And that is exactly why fears of a dominant China are so overblown.

        If the US goes down it is a guarantee we take Europe with us, with no Europe and US China has no export market. No export market means no jobs. No jobs means hundreds of millions of unemployed young unmarried men (for whom there are not enough women). This very quickly leads to Civil unrest on at least the scale they have had in Egypt if not accelerating to full scale civil war.

        No the rulers of China know that for the forseeable future their only option is to do everything they can to prop up the US economy for as long as possible becasue their nice cushy positions only last as long as the debt fueled US gravy train does.

        1. Yup. 16 trillion dollars. That is called owning the bank.

          1. To paraphrase William F Buckley:

            “If you owe China $1 trillion dollars, you have a problem. If you owe China $16 trillion dollars, China has a problem.”

        2. Considering their crony-fueled mal-investment, that’s only one of the reasons China’s in trouble.

          When they go down, they will go down hard.

          1. Read Chinese history. When they go down, they always go down hard.

            1. “May you live in interesting times.”

    2. The Fed is still buying $45 billion in treasuries per month.

      “On Monday, the Fed bought $1.47 billion in Treasuries with
      maturities ranging from February 2036 to November 2042, part of
      its $45 billion monthly purchases of government securities aimed
      to lower unemployment.”

      http://www.reuters.com/article…..P420130114

      If you were a Chinese autocrat, you might be taking your cues from the Fed and doing everything you can to protect the value of all that debt you’re already sitting on.

      I don’t know how much longer the Fed plans to keep that up, but I think they’re on autopilot right now. Reality’s gonna catch up with them, someday.

      1. The Fed is still buying $45 billion in treasuries per month.

        So that’s pretty much overt monetization of $540BB/year of US government debt.

        Add to that their purchases of collateralized mortgage bonds from various banks (around $40BB/month), and you have nearly $1TT/ year of debt being monetized by the Fed.

        Naturally, those CMOs are pretty junky, and the Fed is paying full price, so this is a stealth bailout, but the expansion of the money supply is going on all the same.

        1. And it has to stop eventually.

          And when it does, the markets will react.

          It’s gonna happen.

          1. It doesn’t have to stop for markets to react. Consumer credit is drying up; except for student loans which – surprise – the government so far won’t allow to vanish in a bankruptcy.

  4. Any evidence that shows this is a distinctly American phenomenon and why? I tend to doubt that our debt management is, generally, any different than anywhere else.

    1. It is not. Britain did the same thing. Hell Scotland lost its independence after the whole country went broke investing in a failed colonial scheme in Central America.

    2. It’s human nature. What might be distinctly American is the degree of independence that banks have had from the state. But the schemes are pretty much the same.

  5. I kind of feel like a sucker – was planning to pay off my debt the end of this week.

    I think I’m doin it wrong…

    1. I paid off my car last year. I am doing the responsible thing and keeping it and living without a car payment for a few years. But part of me thinks I am a sucker. Just go lease something really nice and not worry about it.

      1. I finished paying off my student loans about a year and a half ago without any extensions or late payments. I mean I suppose I still have my principles, but I’m definitely a principled sucker.

        1. They are going to forgive those damned things you watch. All of us who paid them are going to be told “see you sucker”.

  6. I recorded this guy’s presentation after catching an interesting bit while channel surfing. Haven’t watched the whole thing yet.

  7. Seriously, it looks to me like he’s just observing the credit cycle from the outside.

    “When new borrowers cannot be found to purchase at inflated prices, a price collapse can occur in the market segment inflated by excess debt, along with a dramatic reduction in liquidity in that market.[1] This can then cause insolvency, bankruptcy, and foreclosure for those borrowers who came in late to that market. If widespread, this can then damage the solvency and profitability of the private banking system itself, resulting in a dramatic reduction in new lending as lenders attempt to protect their balance sheets from further losses. This in turn results in a contraction in the growth of the money supply, often referred to as a “credit squeeze” or a “drying up of liquidity”.

    http://en.wikipedia.org/wiki/Credit_cycle

    People, businesses, and governments defaulting on their loans–and not being able to refinance their outstanding debt–that’s what the credit cycle is all about.

    Eureka! He seems to have discovered the credit cycle.

    1. I like the Motor Cycle better.

  8. The whole point of the Federal Reserve fiat currency system is to default on (the stated goal of) 2% of debt every year.

  9. Remember though, people are fundamentally nice!

  10. very nice publish, i definitely love this website, keep on it. chat

Please to post comments

Comments are closed.