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Andrew Jackson loathed public borrowing and quickly eliminated the debt leftover from the War of 1812. The Republicans likewise quickly rid the United States of its Civil War debt. In fact the fervor with which these Civil War debts were retired prompted a British diplomat to write back to England: "The majority of Americans would appear disposed to endure any amount of sacrifice rather than bequeath a portion of their debt to future generations." Thus Americans in the past were willing, albeit reluctantly, to endure deficit spending for reasons of national sovereignty, but once the crisis had passed every effort was made to retire the debt as quickly as possible. http://www.referenceforbusi ness.com/encyclopedia/MorOff/National-Debt.html
The US National Debt Retirement Program
By Dr. V. Laxmanan
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Table of Contents
Page No. 19th century British diplomat writes back to England ……….…… National Debt Retirement Program by Citizens …...…………….. Some thoughts on exploding debt: historical review ……………. Summary and Conclusions……………………………...…………. Appendix 1: Survey of historical debt data 1797-2010 …...……. - Figures 1 to 8 review the historical trends in the debt data highlighting the banking crisis of 1837……………….………. Appendix 2: Consequences of debt default ………………………
3 4 7 10 11 18 20
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"The majority of Americans would appear disposed to endure any amount of sacrifice rather than bequeath a portion of their debt to future generations."
- 19th century British diplomat writing back to England, after end of the Civil War. - Reference for Business » Encyclopedia of Business, 2nd edition.
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Most Dramatic Solution to National Debt Debt Retirement Program by the Citizens
The statutory debt ceiling for the US is $14.294 trillion and was reached on May 16, 2011, see link below. Steps must be taken immediately to legally increase this ceiling (which is like the credit limit on an individual credit’s card that limits ability to incur additional debt) by August 2, 2011. http://investmentwatchblog.com/geithner-u-s-to-hit-debt-ceiling-by-may-16/ http://thehill.com/blogs/on-the-money/budget/167519-geithner-biden-groupunlikely-to-deal-with-all-the-details http://www.cnbc.com/id/29880401/The_Biggest_Holders_of_US_Governm ent_Debt By Paul Toscano Updated 18 Jan 2011 Let’s round this off to $15 trillion or, better yet, to $25 trillion, to allow for future increases in the debt in the coming years (well before a new President is elected in 2016, see discussion in appendix 1).
How much debt do we carry per person in the USA?
The current US population is about 310 million (310,300,000 in late 2010)
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http://geography.about.com/od/obtainpopulationdata/a/uspopulation.htm Table 1 gives the debt obligation per US citizen based on a future debt figure as high as $25 trillion and a population that could rise to 320 million or even 350 million well before the end of the century.
Table 1: National Debt Obligation per US citizen
Debt, $ Trillions 14.3 15.0 20.0 25.0 Population 310,300,000 310,300,000 310,300,000 310,300,000 Debt/person Debt, $ Trillions $46,084 14.3 $48,340 15.0 $64,454 20.0 $80,567 25.0 Population 320,000,000 320,000,000 320,000,000 320,000,000 Debt/person $44,688 $46,875 $62,500 $78,125
http://www.huffingtonpost.com/lawrence-g-mcdonald/a-thaw-before-thestorm-h_b_880167.html Although the absolute debt figures are indeed mind-boggling, the debt per US citizen is a more manageable figure: between $50,000 to $80,000 per person depending on the detailed assumptions made. What does the total amount of the debt represent? It is the net worth of 25,000 billionaires. One thousand billionaires, taken together, have a net worth of $1 trillion. According to the most recent survey by Forbes magazine (March 2011), the world now has about 1200 billionaires, with a net worth of $4.5 trillion. If this number triples, or quadruples, before the end of the century, their net worth would equal the projected national debt. http://www.forbes.com/wealth/billionaires Or, if every single US citizen were to pledge to give the US government an amount equal to about $80,000, or even up to $100,000, all of this debt could be theoretically paid off, almost instantly, TODAY. So, it appears that the simplest solution to the looming national debt crisis, and the future solvency of the nation is for the Congress, under the leadership of the President, to create a National Debt Retirement
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Program. We ask every single US citizen to make a pledge, to donate an amount up to $100,000 over the next 20 years, i.e., up to $5000 on the average, each year, per person, for the next 20 years. A legal certificate, perhaps, to be known as the US National Debt Retirement Certificate, similar to stock certificates issued by companies, could be issued in a number of denominations ($100, $500, $1000, $5000, $10,000 etc., or even “kiddie” amounts less than $100 to encourage the children and young adults to participate in the National Debt Retirement Program). Citizens buy these certificates and the sales revenues would be used exclusively (and strictly enforced by law never to be compromised by any political party) to retire the national debt, with monthly accounting of how the debt is being retired. Such certificates could be purchased through automatic payroll deductions and/or sold at banks, financial institutions, brokerage houses, or even in malls, supermarkets, and stores like the Walmart Superstore, Super-K stores, and so on. Such a program could also be coupled with some tax incentives. The National Debt Retirement Program envisioned here is similar to well known private fund raising attempts made by charities, church groups, temples, etc. where individuals make a pledge for a worthy cause with no expectations of any returns. Here, the worthy cause is the very future of the nation This is just the broad outline of a plan. A reasonable balance can be struck whereby less affluent Americans are required to commit to pledge no more than $1,000 per year, or even just $500 per year, while more affluent citizens commit to amounts up to $5,000 per year while the millionaires and billionaires (Warren Buffet, Bill Gates, Mark Zuckerberg, and others who have already committed their wealthy to charity) offer to commit even higher amounts to retire the national debt. Indeed, if history is any guide (see link below), in the past, Americans have been willing to endure deficit spending but once the crisis has passed every effort was made to retire the debt as quickly as possible, see discussion in appendix 1. Figures 1 to 8 here tell the story of the retirement of the US
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national debt by earlier generations of Americans in a truly “graphical” manner. http://www.referenceforbusiness.com/encyclopedia/MorOff/National-Debt.html In fact, the fervor with which Civil War era debts were retired, in the 19th century, prompted a British diplomat to write back to England: "The majority of Americans would appear disposed to endure any amount of sacrifice rather than bequeath a portion of their debt to future generations." [Reference for Business » Encyclopedia of Business, 2nd edition.]
Some thoughts on the exploding debt and a brief review of the historical trends
Starting with the revolutionary war, Americans have waged a number of wars, some of them symbolic. In his first inaugural address, President Franklin D Roosevelt famously declared a war against the Great Depression (see side bar) and wanted broad emergency powers to wage that war, as if the country had been invaded by a foreign foe. In the years following World War II (WWII), Americans have waged the War
He (FDR) aimed to declare war on the Great Depression and needed all the executive latitude possible in order to wage that war. For in addition to his famous statement "the only thing we have to fear is fear itself," he also said "I shall ask the Congress for the one remaining instrument to meet the crisis -- broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe." http://www.archives.gov/education/lessons/fdr-inaugural/
on Communism (especially after Sputnik), the War on Poverty (launched by LBJ), the War against Drugs (launched in the Reagan years, Just Say No, said the First Lady Nancy Reagan), and the War on Terrorism (launched after 9/11). We now have an ongoing war against Childhood Obesity. Now,
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perhaps, it is time to wage a new war – the War on the National Debt and take determined steps to retire it, like Americans of earlier centuries. Why have Americans of the 20th century, starting notably with the Baby boom generation, failed to do what their parents and grandparents and greatgrandparents did? As noted earlier, the Civil War debts were paid off rapidly. The debts accumulated following the two world wars, and the debt incurred in the years following the Great Depression, were also retired, to a large extent, see discussion in the Encyclopedia for Business, link below. http://www.referenceforbusiness.com/encyclopedia/Mor-Off/NationalDebt.html However, it was the emergence of the theories of the British economist John Maynard Keynes, in the mid to late 1930s, which led to fundamental shift in thinking. Keynes did not see anything wrong in government borrowing and spending money to boost the economy in times of great distress. The government was in essence borrowing from itself, its citizens and its institutions, in essence from
We The People.
Thus, Keynes advocated active interference on the part of the government, through deficit spending, to “kickstart” the economy during a recession or a depression. This Keynesian thinking took hold in America by the time of the Kennedy and Johnson administrations and deficit spending was used not only to fund wars waged with external enemies but also simply to boost the economy or fund desirable social programs (like the war on poverty, war on drugs, health care initiatives, and so on). The competing philosophy, supply side economics, gained wide acceptance in the years following the Reagan presidency. A cut in the tax rates was actually supposed to boost government revenues, based on the justifications made using the Laffer curve. The argument made is that government revenues will go to zero at both a 0% tax rate (no one is taxed) and at 100% tax rate (no one will work since government takes all the money). Hence, there is a maximum point on the graph of tax rates versus government revenues (see side bar). http://www.slate.com/id/2297513/
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Do Tax Cuts Ever Increase Government Revenue? by Annie Lowrey This means that once the tax rate exceeds a critical value, government revenues will fall. Or, stated differently, government revenues would increase by reducing the highest tax rates, i.e., by cutting taxes on the very rich, since in the progressive tax code that we now have it is the rich who are taxed at the highest rates! This tax windfall for the rich was in turn supposed to energize the economy and trickle down to the poor by unleashing private investments in all types of new and creative innovations yielding high paying jobs for the middle and the lower classes; see http://www.nber.org/chapters/c11222.pdf Unfortunately, the tax cuts were also combined with increases in military spending, especially during the junior George Bush (Bush II) presidency, leading to the soaring national debt. This has been discussed in more detail in a companion document, entitled The US National Debt and the long term (see link below) and in the historical survey presented in appendix 1. http://www.scribd.com/doc/58101386/The-US-National-Debt-and-the-longterm The historical data, going back all the way to the administration of the first President George Washington, reveal that the outstanding national debt always increases very rapidly, even doubling or tripling, during the war years. History also tells us that this surge has always been accompanied by a sustained era of declining debt. With a national debt retirement program in place, as suggested here, instead of the gloom and doom that has accompanied our political debate in recent month/years, perhaps, we could all draw inspiration from this rich history and commit ourselves to finding ways to make the economy grow and actually achieve full employment (as envisioned by a scientist-philosopher like Einstein) with each citizen contributing to the fullest to eliminate the national debt.
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Summary and Conclusions
1. Every period of war in US history, starting with the War of 1812, has been accompanied by a big surge in the growth of the debt, the present trend having been aggravated by the two wars (Iraq and Afghanistan) started during the tenure of the junior George Bush (Bush II). However, the debt growth actually started during the Reagan- senior Bush years. 2. Each period of rapid debt growth has always been followed by a sustained decline in the national debt. Will it happen again? This requires a growing healthy economy, not a stagnant, shrinking, one like we have today. Growing the tax base (as noted in the companion analysis, see link) is the answer - which means Jobs, Jobs, Jobs! http://www.scribd.com/doc/58101386/The-US-National-Debt-and-thelong-term http://cenvironment.blogspot.com/2011/06/bill-clintons-14-point-jobcreation.html President Clinton’s 14-point plan for Jobs Creation. http://www.newsweek.com/2011/06/19/it-s-still-the-economystupid.html 3. The formal creation of the US National Debt Retirement Program, as envisioned here, will have many beneficial effects by dispelling the prevailing atmosphere of gloom and doom. Steps must be taken to legally ensure that Congress will never have access to the revenues generated by sale of the debt retirement certificates for any purpose other than the retirement of the national debt. Billions of dollars in savings on the interest payments on the debt can be diverted to more productive purposes.
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Appendix 1 The US National Debt since the days of George Washington A “Graphical” history of the rising and falling national debt
http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo1.htm Figure 1: The outstanding US National Debt was $75,463,476.51, about $75.5 million, on January 1, 1791, during the term of the first President George Washington, who served from 1789-1797. This is the first date for which a national debt figure is available and represents the consolidation of all debts incurred during the revolutionary war, as championed by Alexander Hamilton, the first US Secretary of the Treasury, see link above. Although the debt was rising, attempts to pay off the debt are also evident. The debt decreased between 1793 and 1794, and again between 1796 and 1797, marking the final years of each of Washington’s two terms in office.
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Figure 2: Thomas Jefferson was a fiscal conservative and did not agree with Hamilton’s view about government debt, within limits, being a blessing. He wanted to make sure that government does NOT have the power to accumulate a debt. True to his fiscally conservative beliefs, we see here the national debt fall from about $83 million to about $57 million, i.e., significantly less than the first reported figure for the national debt (representing a little over 26% reduction in the original debt). However, it is still worth noting that the debt did go up between 1803 and 1804, during Jefferson’s first term. In other words, there was a budget deficit for at least one year!
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Figure 3: The dramatic rise and fall of the US national debt in the Pre-Civil war era. Immediately after Jefferson left office, with a record reduction in the deficit, his successor James Madison’s term (1809-1817) saw a dramatic increase in the debt to a record high by 1816, prompted mainly by the War of 1812, also called the second war of independence. http://www.ohiohistorycentral.org/entry.php?rec=565 Americans wanted to maintain neutrality in the constant wars between England and France. During Jefferson’s term (Madison was Secretary of State), a trade embargo was declared forbidding Americans to trade with both Britain and France. This policy was a failure and the British practice of impressment of American sailors/merchants (forcing them to serve in the Royal British Navy) was considered to be an outright affront to US sovereignty. As President, with many overriding economic interests at stake, Madison asked Congress to declare war, which began poorly with Detroit being surrendered without a fight and the British marching to Washington and burning the White House (August 24-25, 1814).
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Madison was forced to flee from the White House. A peace treaty was signed later in December 1814. Overall, the US economy became stronger after the war. The era of determined efforts to paying down the debt, after a crisis, is evident here. The US national debt had nearly dropped to zero, just $33,733.05 in 1835, after reaching what was then a historical high by the end of Madison’s term in office.
Figure 4: The US national debt soared to a new record high during the Civil war but was immediately followed by a sustained period (of three decades) when the debt was being paid off. The national debt crossed the $1 billion mark for the first time between 1862 and 1863 (the year of the Emancipation Proclamation) and reached a peak of nearly $2.8 billion (a near tripling of the debt) before dropping to about $2 billion at the turn of the 20th century. We can draw inspiration from these historical trends and envision a new era of prosperity in spite of the apparently uncontrolled “explosion” of the debt, now in the trillions of dollars.
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The jump from millions during Washington’s term to billions during Lincoln’s term and now to trillions, following Reagan’s term in office, are all simply a part of this long term evolution of the US economy. As in earlier eras, the engagement of the US in two wars (Iraq and Afghanistan) and the war on terror is primarily responsible for the ballooning debt. As in the past, the key to success lies in creating a deliberate debt retirement program while allowing the debt to rise, in the short term, to a manageable level with government spending being directed, wisely, to create millions of jobs (which will have a strong multiplier effect) that are needed to restart the economic engine.
Debt, $Billions 48.961 42.968 40.440 37.165 36.425 33.779 28.701 27.053 22.539 19.487 16.801 16.185 16.931
1941 1940 1939 1938 1937 1936 1935 1934 1933 1932 1931 1930 1929
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Year 1949 1948 1947 1946 1945 1944 1943 1942 1941
Debt, $Billions 252.770 252.292 258.286 269.422 258.682 201.003 136.696 72.422 48.961
Figure 6: As in earlier eras, the wars of the 20th century led to an expansion of the national debt under both Woodrow Wilson (WWI) and Franklin D Roosevelt (WWII). America’s Great Depression and WWII led to a slow and then a very rapid increase in the national debt. In the years immediately following both WWI and WWII, however, witnessed a decline in the national debt, especially after WWI which showed a steady decline, similar to that seen after the War of 1812 and the American Civil War. There is therefore every reason to believe that ending the Iraq and Afghanistan wars will likewise witness a similar era of declining national debt and a peaceful transformation of the US economy.
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Figure 7: Graph of the more recent historical debt data (for each year) as reported by US Treasury department. The presidential terms are marked easily on this graph which uses subunits of 4-years. The debt growth rate began to accelerate during the Reagan and senior George Bush (Bush I) presidencies and accelerated significantly during the Bush II presidency. The slowing down in the rate of growth of the debt in the Clinton years is also very noticeable in this plot. The debt growth rate has reached even higher levels during the first two years of the Obama term, as revealed by the higher slope of the straight line segment joining the two data points for the Obama years (for 2009 and 2010). The estimated debt for the fiscal year ending September 20, 2011 is NOT included here.
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Figure 8: Composite plot of the evolution of the US national debt data over the last 220 years, from 1791-2011, going back all the way to the first term of George Washington. Each minor unit on the x-axis represents one presidential term. A logarithmic scale is used for the debt data plotted on the y-axis, with the numbers being billions of dollars. Since the scale is logarithmic, each major unit represents an increase in the debt by a factor of 10, e.g, from 1 billion (label 1.0 E+00) to 10 billion (1.0E+01) to 100 billion (1.0 E+02), to a trillion (1.0 E+03, i.e., 1,000 billions) and 10 trillion (1.0E+04, i.e., 10,000 billions). Since the scale used is billions of dollars, one million is represented by the label marked 1.0E-03 (0.001 billion), 10 million is 1.0E-02 (0.01 billion), and 100 million equals 1.0E-01 (0.1 billion). The debt on Jan 1, 1791, during George Washington’s first term was $75,463,476.51 ($75.46 million = $0.075 billion = 7.5E-02, which is less than 1.0E-01). It had dropped to nearly zero in 1835. It was officially only $33,733.05
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on Jan 1, 1835. Indeed, it is believed that US was actually totally debt free, with a zero debt, on Jan 8, 1835, during the presidency of Andrew Jackson. http://www.politifact.com/truth-o-meter/statements/2010/jan/11/georgelemieux/fla-senator-says-jan-8-1835-only-day-us-has-been-d/ However, this was short-lived and the debt started rising in the very next term (of Martin Van Buren) and has since increased to the nearly astronomical sum of $14.3 trillion (the current debt ceiling) in May 2011. As we see from this composite plot, the national debt has always increased rapidly during the war years, starting with the War of 1812, then during the Civil War, WWI, and WWII. Hence, the current rapid rate of increase in the debt, with the US being engaged in two wars (Iraq and Afghanistan) fits this historic pattern. Also, noteworthy is the rapid increase in the debt in the two decades between 1835 and 1855. The genesis of this debt explosion may be traced to the first major banking crisis experienced in the US in 1837, not unlike the crises experienced later after the stock market crash in 1929 (on October 24, 1929, which is widely believed to have triggered the Great Depression) and the near total collapse of the financial system in 2008, in the closing months of the junior Bush presidency. In the early 1830s, a period of great westward expansion in the US, millions of acres of public land were sold by the government, mostly to speculators, who would then sell the land off at a profit. This land sale brought in huge amounts of money into the Treasury and the national debt was rapidly paid off – one of the fondest dreams of President Andrew Jackson. http://en.wikipedia.org/wiki/Panic_of_1837 http://en.wikipedia.org/wiki/Depression_%28economics%29 http://www.u-s-history.com/pages/h967.html http://www.u-s-history.com/pages/h1525.html http://ingrimayne.com/econ/EconomicCatastrophe/GreatDepression.html http://en.wikipedia.org/wiki/Andrew_Jackson#Federal_debt However this huge influx of money was in the form of paper bank notes (rather than specie, i.e., gold and silver), This triggered the banking crisis (on May 10,
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1837, when every bank in New York city stopped payment in gold and silver coinage), leading to widespread unemployment and also food riots. The details may be found in some of the links given above. The severe depression, which lasted from 1837 to 1844, resulted in a ten-fold increase in the national debt within the first year, from $33,733 in 1835 to $336,958 in 1837 to $3,308,124 in 1838. All of this also seems eerily reminiscent of the financial crisis experienced in 2008. The parallels between post-1837 debt explosion and the post-2008 debt explosion are remarkable and worth further serious study and investigation.
Appendix 2 Consequences of US debt default Failure to raise the debt ceiling
Unlike any other nation, the US has a legal limit on the amount of bonds the government can issue in order to finance budget deficits. In other words, spending in excess of revenues can be approved by the Congress without any requirement that the debt ceiling be raised to compensate for the deficit just created! Hence, Congress can keep on spending yet engage in a frivolous debt, in routine intervals, on the wisdom of raising the debt ceiling. Some consequences of the failure to raise the debt ceiling in a timely manner are mentioned, briefly, in a recent column by Bruce Bartlett, see link below. http://capitalgainsandgames.com/blog/bruce-bartlett/2090/very-real-threatus-debt-default
……I have spent considerable time trying to figure out what exactly would happen in the event that, at some point, the Treasury literally had no cash to pay interest on the debt, redeem maturing securities, pay Social Security benefits and so on. …….because there is always a danger that Congress will not raise the debt ceiling in a timely manner, meaning that the Treasury may not have sufficient cash to make interest payments or redeem maturing securities. If that happens, there would be a technical default.
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There are serious long term consequences to a debt default, as evident from the Argentine default of 2001 and the looming possibility of a default by Greece. http://www.nytimes.com/2011/06/24/business/global/24peso.html?_r=1&pa gewanted=all http://www.pbs.org/newshour/rundown/2011/06/mcconnell-we-shouldnttalk-about-default-consequences.html
………..Bernanke warned last week that if Congress can't agree to pay for the spending it has already approved, it could cause interest rates to rise and slow any economic recovery. Senator minority leader Mitch McConell “…..He (President Obama) has come to us and said we need to raise the debt ceiling. Because it's actually the only opportunity I can think of that would focus both sides on the possibility of doing something really significant about deficit and debt." McConnell has for weeks been repeating his mantra that the debt limit increase vote is an opportunity to address the nation's $14.3 trillion debt and $1.6 trillion deficit.
Here’s a brief list of some of the consequences of debt default. Inability to make interest payments on the debt Inability to redeem maturing securities Inability to pay social security benefits Inability to pay for agreed upon government spending Rising interest rates Slowing down of the economic recovery Disruptions in financial markets Ratings downgrades of US government debts Fundamental doubts about creditworthiness of US Damage the special role of the US dollar and Treasury securities in the global market in the long term
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About the author
The author is a naturalized US citizen who came to US seeking a higher education. He obtained his Master’s (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, USA. He then spent his entire professional career at leading US research institutions (MIT, NASA, Case Western Reserve University, and General Motors R & D Center, in Warren, MI). He holds four patents in advanced materials processing, has co-authored two books, and has published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. He has also authored several recent documents (all uploaded at this website) addressing a variety of issues to promote fresh thinking and analysis of the large masses of data being collected daily to understand social, economic, and political systems. He can be reached by email at firstname.lastname@example.org
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