Back in 1959, there was a movement to balance the budget and strengthen the dollar, explains Martin Weiss, who discusses the lessons that can be applied to today's economy.
Martin, the bond bubble apparently is bursting, or has burst. Has there ever been a time in history when the government has actually stepped in and done anything to prevent a disaster like this?
Oh, absolutely. In fact, we played a role in that.
Oh, good.
In 1959, no one gave a damn about the budget deficit, and yet it was growing at a rapid pace, and so President Eisenhower surprised everyone—including us. In his State of the Union Address in 1959, he talked about the excesses of military spending, how it would damage future unemployment, it could create future inflation...and he surprised Congress by proposing a balanced budget.
Amazing.
Well, there was only one reaction to that that was public. Lyndon Johnson, who was sitting in the front row at the time, gave a big yawn.
We were a little disappointed by that reaction, because we felt that that would stimulate some steps. My dad and I—Dad taking the lead; I was just a teenager at the time—decided to form a committee. We called it the Sound Dollar Committee.
OK, and that was in 1959.
1959. We tried to get Herbert Hoover and Bernard Baruch, who was a friend of Dad’s, to be the co-chairmen, one Republican and one Democrat for balance. We figured Baruch wouldn’t be a problem, maybe we’d have a hard time getting former President Hoover.
Hoover said fine. Baruch said no way. He said the timing was wrong. He said, “I’ve tried to advise presidents in the past to stop the spending, to stop the borrowing, and they won’t listen to me. And Eisenhower’s not going to listen to me, either—nobody is going to listen to me.”
Did you give up?
No, but we couldn’t take Hoover because it would upset the balance, so we got Leonard Spacek, who later became the successor to Arthur Andersen at Arthur Andersen, and we got General Lester Groves, who was in charge of building the Pentagon, and was also in charge of the Manhattan Project.
The bomb.
The atom bomb...exactly. We started with one big full-page ad in The Wall Street Journal, and that set off the sparks.
So, just basically encouraging people to learn about it and to complain about it?
Yes, to complain to Congress to balance the budget, fight inflation, and defend the dollar. And it spread like wildfire. Other newspapers, Reader’s Digest, Chicago Tribune, and so forth, decided to put out their own ads with their own money. Businessweek then commented that suddenly attitudes changed in Washington, and they couldn’t explain why.
OK, and they actually did something about it.
One senator after another changed their vote, changed their mind—including Senator Proxmire—and voted for the balanced budget.
So, bring that back to modern-day times. Are you going to do it again?
The problem was, before we get there, is that that caused a mini-recession. The mini-recession then was blamed on the balanced budget. And from that point forward, there’s been only one major bipartisan, fully supported item that’s been going on since—spending and borrowing.
So you fast forward to today, and it’s a totally different situation. The budget in nominal terms is 100 times larger. In percentage of GDP terms, it’s six or seven times larger. Then, Social Security was in surplus; today it’s in a deficit. Then, Medicare had, what do you think the situation was with Medicare; what their deficit was then?
Probably zero.
Because there was no Medicare yet.
Right. That didn’t start yet.
Today, if you include Medicare, Social Security, and other pension benefits—based on the government’s own figures, according to former GAO head Walker—the unfunded liabilities of the US government is $70 trillion.
That’s a lot.
And that’s the low estimate. The issue is, what political force is going to drive Washington to take the same kind of action, or at least move in that direction, as they did in 1959? The answer is there is none.
But there is a market force which could drive them to do that, and those are the bond vigilantes, the people who own bonds in the US and overseas, who are getting so disgusted with the situation that they’re starting to sell.
Yes. Right.
If they continue selling...
It’ll force them to do something.
That’ll drive interest rates up and will make it very difficult for the government to, in the future, roll over its maturing debt. And that will force them to eventually, finally do something.
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