George Washington was already on his heels in late 1777.
The British army had recently taken New York and Philadelphia, plus Washington had suffered recent defeats at the Battles of Brandywine and Germantown.
Washington knew that unless he could regroup, rearm, and retrain his beleaguered forces, the fledgling American Revolution could soon be lost. So on December 19, 1777, his army of 12,000 marched to their winter encampment site in southeastern Pennsylvania– an area known as Valley Forge.
According to George Washington himself, his men lacked clothing, shoes, food, blankets, etc. giving rise to an almost mythological level of suffering that winter.
And it’s true– conditions were incredibly harsh. There were very few supplies available, and nearly 1 out of every 5 soldiers died from disease, cold, or starvation at Valley Forge during the winter of 1777-1778.
Washington was exasperated; the situation was so bad that his army barely had any ammunition to fight… and he pleaded with the Continental Congress to provide more funds for war.
But Congress had no more money.
The brand new United States of America, which at that point hadn’t even existed for 18-months, was completely bankrupt. Tax revenue was almost nonexistent. Credit was difficult to obtain. And the national currency– the Continental Dollar– was so weak it was practically in hyperinflation.
Washington’s army was simply too broke to fight. And if the situation had remained that way, the British could have probably won the war in 1778.
(Fortunately for the United States, though, France stepped in the following spring with major military and financial support, giving George Washington the resources he needed to win.)
Nearly two and a half centuries later, the US is rapidly heading towards a similar situation: too broke to fight.
Treasury Secretary Janet Yellen announced yesterday that the federal government could become unable to pay its bills as early as June 1st– just 30 days from now– if Congress and the President don’t reach a compromise on the debt ceiling.
It’s so shameful that the United States of America– supposedly the wealthiest and most advanced democratic nation in the world– finds itself in this position every few years.
On one hand this fiasco demonstrates an appalling level of political dysfunction– the complete inability of politicians to honestly discuss complex problems, make good faith compromises, and execute sensible solutions.
But more importantly, it lays bare the US government’s perennial lack of fiscal discipline. And this is not a single party issue: the federal government has not run a budget surplus in 25 years, during which time both parties have been in control of Congress and the Presidency.
There’s always some reason, some excuse, to go deeper into debt every year. And that’s why there have been SIX debt ceiling crises or government shutdowns just since 2011. That’s basically one major fiscal emergency every two years.
And every time it gets worse. The US national debt is now $31.5 trillion, which is actually THE statutory debt limit as allowed by law. As soon as they raise the debt ceiling, the national debt will likely soar beyond $32 trillion.
Bear in mind that the size of the entire US economy is only $26.5 trillion. So the “debt-to-GDP” ratio is 120%.
Today’s debt-to-GDP ratio, in fact, is MORE than it was back in the 1940s when the United States borrowed heavily to fight World War II.
At least back then they were fighting the Nazis and had a good reason to rack up mountains of debt. But what does the nation have to show for all of its debt today? Spending trillions to pay people to stay home and NOT work. Abandoning $100 billion worth of military equipment to the Taliban. Spending billions of dollars to make highways less racist.
The level of waste is astonishing. And there’s no end in sight.
The Congressional Budget Office projects that the US will rack up an additional $20 trillion in debt over the next decade, essentially averaging a $2 trillion budget deficit every year for the next 10 years.
But America doesn’t have ten years to get its fiscal house in order.
I’ve written extensively in the past that the US government’s days of reckless spending are numbered… and running short.
Think about it– what would happen in India if the President was fiddling (or shaking hands with thin air) while their government was 30 days away from defaulting on their national debt? Most likely their bond market could collapse and the currency would plummet.
But in the Land of the Free, there are no consequences… simply because the US dollar is still the world’s reserve currency.
Every other country, government, central bank, and large corporation in the world uses US dollars for international trade– mostly because of tradition, the perception of American supremacy, and the fact that Saudi Arabia sells oil in US dollars.
But these conditions are rapidly changing. Saudi officials are mulling a deal to accept Chinese yuan for oil. And, with so many humiliating episodes of US government failure, perception of American supremacy around the world is falling.
Several countries, including Brazil, Russia, and China, have already agreed to distance themselves from the dollar, and the anti-dollar momentum continues to build.
As this trend continues and foreign countries reduce their dollar holdings, the US government will simply be unable to go into debt and spend as much money as it wants.
America will then be just like every other country– forced to live within its means. And that means steep budget cuts… including to military spending.
Bear in mind that critical national defense assets are already becoming worn out or obsolete.
The average US Air Force fighter aircraft is more than 32 years old. And due to budget constraints, pilots are unable to fly a sufficient number of training missions to ensure that they are combat ready.
The US Navy, meanwhile, is a total train wreck. The fleet is shrinking, the ships are old, and the maintenance infrastructure is even older. In short, the Navy doesn’t have the resources to keep its fleet ready for battle.
One notable example is the USS Rushmore, an amphibious warfare ship that was recently scheduled to conduct a training exercise with the 31st Marine Expeditionary Unit.
Now, the 31st Marine Expeditionary Unit is a rapid-response force that’s supposed to be able to deploy on a moment’s notice. And the training exercise was specifically planned to take place in the north Pacific as a sort of flex against China.
But unfortunately the USS Rushmore was so badly in need of repairs that the training exercise had to be canceled at the last minute. The rapid-response force was grounded. China noticed.
These obviously aren’t Valley Forge conditions. But as these trends continue to play out, America may soon find itself too broke to fight.
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