This page has been archived and commenting is disabled.
The National Debt Cannot Be Paid Off
by Keith Weiner
Government spending is out of control and, while most say they want spending cuts, people oppose cuts that impact them. Among those who get government money, there’s practically an unspoken, unbreakable pact to keep the money coming. But when I say that the national debt cannot be paid off, it’s not a political forecast; it’s a statement on the flawed nature of the dollar.
Astute observers call the dollar a fiat currency. Fiat means force. It’s true that we’re forced to use the dollar (e.g. by taxes on gold) but the dollar is also irredeemable. There’s no way to cash it in. The dollar is credit that is never repaid. Today’s dollar is a dishonored promise.
This was not always true. Before 1933, the dollar represented an obligation to pay 1/20 ounce of gold. People could deposit gold and get paper notes in receipt. Those notes circulated, and any bearer could redeem them for gold. Back then, $20 was not the gold price. It was the legal rate at which gold was deposited and redeemed.
In 1971, President Nixon changed the monetary system with the stroke of his pen, making the Fed no longer obligated to redeem dollars for gold. The consequences of using debt as if it were money were soon clear. Rising debt became a more serious problem than rising prices.
To understand debt, credit and the importance of redemption, consider Joe borrowing sugar from neighbor Sue. To pay Sue back, Joe goes to the store, buys sugar and hands it to Sue. Not only is Sue repaid; the debt goes out of existence—it is extinguished. Borrowing money used to be like borrowing sugar. The repayment of debt in gold-backed dollars settled the loan and wiped the debt clean.
Not anymore, since Nixon detached the dollar from gold. By making people pay with paper-only dollars, each debt is transferred, not cleared.
Suppose Sue owed Joe $1,000, then hands Joe ten $100 bills. Sue gets out of the debt loop. But now the Fed owes Joe the $1,000. What does Joe do? He deposits his cash in a bank. Now the bank owes Joe money, while the Fed owes the bank. What does the bank do? It buys a Treasury bond. Now the Treasury owes the bank. And so on.
By Nixon’s design, the system omits a crucial feature. The extinguisher of debt, gold, is not allowed to do its job. Debt can only be transferred from one party to another. It’s like a lump being pushed around under a rug. With no means of final payment, that lump is never put in the trash. Debt is never extinguished.
In fact, the debt must increase, because the interest is constantly accruing. Interest is added to the debt, as it can’t be paid off either. Total debt must grow by at least the interest. Debt actually increases faster than that, because the government craves what now passes for growth.
The rate of debt increase is proportional to the debt itself. It is not a fixed dollar amount, such as $100 billion a year. It is instead a percent of total debt. Mathematics has a term for this type of growth: an exponential function.
Exponential growth is not sustainable, according to credible scientists. Mainstream economists ignore this fact in the hope that that somehow growth can outpace debt, one year a time.
But exponentially rising debt is not sustainable because the capacity to service the debt is finite. Without a means of extinguishing debt, servicing is merely borrowing new money to pay off old debts. This is the equivalent of taking out a home equity loan to get money to pay the mortgage.
The U.S. debt is putting us in danger of economic catastrophe. Like Greece, which found no more buyers for their bonds, the U.S. relies on selling new bonds to pay interest and principal when due. The difference is that the whole world bids on U.S. Treasury bonds, for now. But eventually, market participants will realize that the American debt cannot be paid off.
- advertisements -
what the printer broke again or we run out of ink? otherwise STFU!
:)
Enough with this stupid argument! The federal debt most certainly can be paid off! All it would take is for the federal govt. to consistantly spend less than it receives in taxes. No money gets destroyed when the federal govt. pays down its debt, it is just transfered to the bond holders, who then spend it and some gets taxed, and can be used again to pay off more of the debt. It is a flow, so the fact that the debt is perhaps 10 times the money supply does not mean that there is not enough money to pay the debt.
Also, fiat does not mean force, it means to make a rule or law by decree, from the latin for make it so.
Jan '00 - '07 - Dec '13
$1 T ---> $1.6 T ---> $5.6 T (cumulative "foreign" held US Treasury debt)
25% ---> 40% ---> 55% (% of notes / bonds held by "foreigners")
1% ---> 1% ---> 25% (% Fed held notes / bonds...Fed primarily held Bills until '08)
74% ---> 59% ---> 20% (% domestically held notes / bonds)
180% ---> 130% ---> 247% (% public vs. intra-gov debt)
350% increase (public outstanding debt, $3.5 T to $12.4 T)
250% increase (intra-gov debt, $2 T to $5 T)
6.6% ---> 5% ---> 2.4% (net interest rate on debt)
$300B -> $270B ---> $223B (net interest paid on national debt)
$9.2 T --> $13.7 T --> $16.1 T (GDP = 75% increase);
$5.7 T --> $9 T --> $17.4 T (National debt = 305% increase )
Japan vs. US debt - In Japan we are told institutions buy Japanese debt due to deflationary conditions coupled w/ a sense of national duty but nearly all Japanese debt is domestically held. In the US, 1/3 of all Treasury debt is now "foreign" held and 55% of Public Outstanding. With the Fed tapering (for argument sake to zero by year end) and deficits persisting, someone will need to continue buying the new issuance of a minimum of $500 B plus rollover all existing debt. States and domestic institutions are loathe to buy @ such low rates. This leaves only "foreigners" to continue increasing their gross and % of US debt likely to 75% holdings of all notes / bonds by 2015 and nearing a 50% holding of all US Treasury debt.
The implications for Japan are scary but regardless whatever debt level is hit and the corresponding interest payments, the silver lining is the money will remain in the Japanese economy. These Yen paid in interest can at least stay within the Japanese economy increasing the money velocity and multiplier effects.
The implication for the US are honestly far worse as "foreigners" are under no such national duty and may redeploy assets as they please. Much of the interest paid to "foreigners" simply exits the economy with no multiplier or velocity effects.
The idea that this is sustainable or that US debt isn't an issue right now, right here is unbelievable. There is a $5 T and growing weight over our heads and the rope suspending it can fail at any moment. A reversion to the average 50yr yields around 7% would produce Treasury yields with gigantic interest payments, of which nearly half would exit the economy to "foreigners":
5% blended interest payments = $875 B of which nearly half would likely exit the economy.
7.5% = $1.3 T
10% = $1.75 T
(btw - total '13 Federal tax revenue = $2.8T)
Of course there is always the chance that the Fed (or it's agents) are actively buying Treasury's in a shadow QE as some portion of the "foreign" demand. And that's a whole other discussion.
Jus saying.
There! That pretty much sums it up. Well done.
No. The dollar itself is born as debt, it is not fiat, it is debt backed. THAT is why the debt can never be paid off. Enough dollars do not exist to pay off the debt - they have to be borrowed into existence, which then makes the debt even higher.
Great comment. But I would amend to say "that the dollar today is born as debt". Grains of silver was a dollar years ago. Now we live with only the ghost of money, debt begetting debt.
http://www.monetary.org/intro-to-monetary-reform
paused as I read through... My bad.
The government will never shrink itself. History has demonstrated this time and time again.
Collapse is the only way to get rid of the surveillance state, kleptocrats, plutocrats, banksters and TPTB.
Hold your wealth outside the banking system, and if you live in a city, move to the country.
It's time...
Just because they will not shrink themselves does not mean they cannot. At some point people do get fed up and they shrink government manually. The hand of Britain was slapped in 1776 and it shrunk back. Also, the French revolution shrunk the French monarchy to nothing for a time
Pullbacks can and do happen when the burden and the expense get too high
To make a rule or law by decree is the same as to make a rule or law by force.
Not quite...as that force is in the constitution and can be used by the legally elected; but should be limited to "exceptional" situations. Congressional gridlock is now considered "exceptional" on debt and related issues by this admin.
It seems like the Govt has become such a big part of the economy that if it did spend less then it would crash the economy.
Also, fiat does not mean force, it means to make a rule or law by decree, from the latin for make it so.
Laws are meaningless without the threat of force.
the 10% sequester cuts couldn't be tolerated.
the debt ceiling was removed.
I don't really see any other choice but some sort of internationally induced debt intervention.
If its a jubilee with fun music and face painting, or something ...less festive... remains to be seen.
The debt can be extinguished, but only by the theft of labor or resources.
All part of the business deal
"flawed nature of the dollar"?
I thought that was a feature.
FLEETWOOD MAC - LANDSLIDE
http://www.youtube.com/watch?v=WtufVKdRTN0
Time makes you bolder......
Yes Stevie , I'm finding that to be very true.....
"I've been afraid of changing 'cause I've built my life around you."
Family, friends, bullets, beans, Bibles, and land. Reprioritize.
Get the bibles out of there and I'd give you a +.
Take the Bible out and there is no +
" mirror in the sky..."
Obama finally has one sucess after 5 years in office! He set out to destroy America and the sheep were led to slaughter. You fools1!
Well, he promised "change", didn't he? Yes there WILL BE CHANGE, but most will not like it.
one of the more concise explanations of fiat currency conundrum
I disagree. I see no sense in the claims of this piece. How does gold extinguish debt any more than a bushel of wheat or bag of coal? If someone is paid off in gold the money goes off to land somewhere else as a debt obligation. Debt can be extingushed by default or by collecting bills and burning them in a furnace. All you need to know is that the Feds are printing too damned much money. Period.
I agree. This myth is floating around the gold community but it is a flawed argument. Just because they are creating more debt to pay off current debt doesn't mean that is how things must be. You don't need gold to pay off the debt plus the interest. Any barterable item can be used including labor. If someone borrows $1000 from the bank why can't that person go to the bank and clean their floors for a period of time until that $1000 is paid off. In a case like that, $1000 extra has entered the economy via bartering and labor.
The only reason it doesn't work that way is that not everyone can do work for the bank but it still can work in principle. Money should be the measure of the goods and services we barter, be it gold, silver, labor, wheat or basketball tickets
Yes money should be the measure but what happens when that measure is debased? People see WS brokers making gazillions from fake investments in a fake economy while their take home pay shrinks and their $ buys less and less.When the government breaks the rules and pays off its debts by debasing the currency it is simply showing that the trust between it and the people has been broken. In such a scenario it is understandable that people lose faith in fiat and turn to assets that they hope cannot be debased such as land, gold, RE. This is very clear to those in countries where this trust has never really existed...it is starting to take hold in NA now too.
I agree completely. Yet again how many of those discouraged people have a mortgage and thousands in consumer debt themselves? They are feeding the problem in that case and are not part of the solution
(for the record, I have no debt myself and swore off it years ago)
less a conundrum that a theft, fraud
and system of enforced debt servitude
resulting in ubiquitous stealing and usury
not to mention fascism overrunning
natural governance.
So, other than that, what do you like about it?
and this...
http://jessescrossroadscafe.blogspot.com/2014/02/the-corporate-tax-scand...
.
27 FEBRUARY 2014
The Scandal in America That Is Hidden In Plain Sight
“There’s a new isolationism,” Kerry said during a nearly one-hour discussion with a small group of reporters. "We are beginning to behave like a poor nation,” he added, saying some Americans do not perceive the connection between US engagement abroad and the US economy, their own jobs and wider US interests.
The Guardian, John Kerry Slams 'New Isolationism'
Things may seem rosy from your perspective, John, but the sad truth is that far too many people in this country are doing without, doing more with less, too often living on the edge, and are far too often afraid. They are referred to disparagingly as 'the common 99%', as takers not makers, and even the 'parasitic 47%,'. They are what is commonly referred to as 'the people' in the Constitution.
They are being spied on, bullied, repressed, and conned at almost every turn by a foul partnership of big money and power. They often sacrifice their personal liberties, and send their children to foreign shores to fight in a perpetual war against a loosely defined 'enemy.'
One of the great marvels of the time is how effectively well-funded propaganda campaigns and a captive mainstream media have distorted the peoples' view of reality so that they act as if they are sleep-walking.
An ongoing trend in the US has been a tax code that favors large multinational corporations with loopholes and subsidies that far too often result in an effective tax rate of close to zero, despite booming corporate profits in the face of a long stagnation in median family income and wages.
The real unemployment numbers are shockingly high, and those jobs that are available are often part time and poorly paid. Justice is openly administered in ways that give the powerful a free pass on grossly criminal activity, from laundering drug money to financial racketeering. The rigging of prices and markets by powerful interests, and the lack of effective prosecution of such grave abuses of power, is something that seems to be de facto government policy.
This places small private businesses and individuals at a distinct disadvantage with regard to economic viability in the marketplace. It fosters consolidation and monopoly. It lends itself to a cynicism that is undermining the conscience of many of those who have sworn oaths of office. It isolates dissent to corrals and 'free speech zones.' It breaks up peaceful gatherings of protest with pepper spray, bullets, and clubs. It pollutes the internet with campaigns of disinformation, and silences the voices of journalists.
It is intertwined with the financialisation of the real economy that is a tool for the redistribution of wealth from the many to the well connected few. It feeds the corrupting influence of big money on the political landscape.
And often these multinationals are beneficiaries of government spending of tax revenues on procurements, outsourcing, and other initiatives, particularly with regard to infrastructure and defense spending on perpetual and largely discretionary wars.
And lately corporations have been making headway in the courts to receive all the benefits and privileges of personhood, without having to pay the price of citizenship. War, far from being an occasion of personal loss and privation and risk, is often a beneficial period of significant revenues and greater profits.
The way in which dividends, certain types of executive compensation, and private equity investments are treated for tax purposes merely exacerbates the problem and the ongoing hypocrisy in the trickle down approach to The Recovery™.
The partnership between large corporate America, often called the moneyed interests, and the political class is something that is of deep concern to some, but not known nearly enough. It has been a point of political contention over and over again in US history, and the history of all nations.
If tax reform is on the agenda, closing loopholes, subsidies and government welfare programs for corporate America ought to be a top priority. But change must come.
We are acting like a poor nation John, even a third world nation, with widespread corruption, declining press freedom, a crumbling infrastructure, and an alarming concentration of power in a few hands, a few powerful families. Both political parties are owned by the same elite class and are essentially the same corporate sponsored products; they are just different brands with different target markets.
And you and yours have made it that way. Welcome to our brave new world.
The following is from Ralph Dillon at Global Financial Data:
"Inevitably, the tax man will cometh…..Except of course, if you are a large multinational corporation. Despite the political banter over who pays and who does not, the 2000s have ushered in an era of corporations avoiding paying taxes. Armed with teams of CPAs and attorneys, these large multinational companies have pushed the limits on how they can avoid paying taxes and have done so quite successfully.
General Electric, one of the largest and most well respected companies in America has been criticized for paying little or nothing on their corporate taxes the last few years. In fact, GE is currently suing the IRS for over 650 million dollars they feel should have been a tax credit instead of a liability that they owe taxes on.
If you look at the S&P 500 members citing effective tax rates of 0%, it is staggering. With names like Broadcom, Verizon Wireless, Public Storage, Seagate Technologies and even News Corp having not paid any taxes in the past twelve months. The list of companies with a 0% effective tax rate is a long one and perhaps one that needs some attention. It just seems odd that we can tax everything in this country but not huge multinational companies that make billions of dollars each year.
Favorable tax codes and massive amounts of lobbying have created corporate welfare in this country and perhaps the time has come to address the inequalities that exist in the tax code.
It is estimated that that there is over 2 trillion dollars in cash sitting in the coffers of corporate America right now. Shareholder activists like Carl Icahn, are forcing companies like Apple to address what they are going to do with the loads of cash they are sitting on.
What’s really interesting to see is that the divergence between corporate profits and tax receipts on that corporate income. In early 2000, we saw a gap that widened and then virtually exploded.
Currently, corporate profits have never been better yet the liability of paying taxes on those profits has stayed flat. It has created the largest divergence the 2 series have had in over 65 years!"
.
jca ..
and there is much more .....
"YOU HAVE STORED UP TREASURE FOR THE LAST DAYS. BUT BEHOLD, THE WAGES YOU FRAUDULENTLY WITHHELD FROM THE WORKERS WHO LABORED FOR YOU ARE CRYING ALOUD; AND THOSE CRIES HAVE REACHED THE EARS OF THE LORD OF HOSTS. YOU HAVE LIVED ON EARTH IN LUXURY AND WANTON PLEASURE; YOU HAVE FATTENED YOUR HEARTS AS IF FOR THE DAY OF SLAUGHTER. YOU HAVE OPPRESSED AND YOU HAVE KILLED THE INNOCENT, WHO CAN OFFER YOU LITTLE RESISTANCE." JAMES 5:3-6"
.
jca
.
27 FEBRUARY 2014
Gold Daily and Silver Weekly Charts - Heart of Gold
"The desire of gold is not for gold. It is for the means of freedom and benefit...For what avail the plough or sail, or land or life, if freedom fail?"
Ralph Waldo Emerson
There was more shuffling around of bullion between the warehouses, but nothing particularly meaningful happened yesterday. Or today for that matter. We are in a phony market, a seeming impasse between the bulls and the bears. But this in only in the market that we can see, or rather, are allowed to see.
When will this end? I think Tolstoy said it this way. "Truth, like gold, is to be obtained not by its growth, but by washing away from it all that is not gold."
There was intraday commentary titled The Scandal In America That Is Hidden in Plain Sight.
While it is addressed in particular to the States, the same words can certainly apply to most of the English speaking nations. And much of Europe as well. They have created that most ironic of remarkable things, a social environment that is hostile to human life.
Powers and principalities, the rulers of the darkness of this world, and wickedness in high places. C'est la guerre, sans fin. Ainsi soit-il.
Have a pleasant evening." jca
.
http://jessescrossroadscafe.blogspot.com/2014/02/gold-daily-and-silver-w...
Tom Waits - Union Square
http://www.youtube.com/watch?v=CNLLVTZCxbE
.
Well time is always money
For the boys on Union Square
You can bust your ass till doomsday
But don't forget to say your prayers
Someone's right there on the backstreet.
Say papa got the bran' new slacks
And your baby is handcuffed on the front seat
You just sit right there, boy and relax
[Chorus:]
we're goin' down down down
goin' down down down
goin' down down down
goin' down down down
Well they spill out of the Cinema 14
To that drag bar there on the block
Best live show by far in the whole east coast
With a bank rolled up in your sock
She stand right there for your pleasure
Half Puerto Rican Chinese
Your got to find your baby somebody to measure
I'm goin' to get me some of these baby.
[Chorus]
Four in the mornin' on a Sunday
psycho drinkin' whiskey in church
Half pint festival brandy
That 'bout to fall right off his perch
The guy in the sweaters off duty
Out in front on the welfare hotel
The guy in the dress is a beauty
Go on the welfare you never can tell
[Chorus]
Repudiate!
fraudulent induction of credit-debt would lead to repudiation
but it has become the cornerstone of the financial empire
intended to "take over the world"!(read last quote in the
voice of mr. panos, it is funnier that way.)
http://www.usdebtclock.org/
.
why it is referred to as a "clock", there an interesting
question.
because the dial only moves in one direction.
The dial moves?
Sorry, couldn't resist.
How cute, a touch tone baby.
You see an item you want to buy for $97. You have no money. You borrow $50 each from your mom and your dad. You buy the item and get $3 in change. You give your mom & dad each $1 leaving you with $1. That means you now owe your mom and your dad $49 ea. $49 + $49 = $98 + your $1 = $99. What happened to the other dollar?
The Fed holds it!
Actually you only borrowed $98 and the Item cost $97 and you kept the change.
"why it is referred to as a "clock"
Ever get "CLOCKED"?
a couple of times but the best was getting kicked in the
sternum resulting in an involuntary exhalation that
lasted about a minute. fortuitously and thankfully
the blow was supplied by someone whom i have concluded
actually cared for me, it was more than a "touching"
moment; educational, though i'm not sure i have
learned the full lesson.