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Paying Down The Debt Is Now Almost Mathematically Impossible

Tyler Durden's picture




 

Submitted by Simon Black via Sovereign Man blog,

Exactly 199 years ago, in 1815, a “temporary” committee was established in the US Senate called the Committee on Finance and Uniform National Currency.

It was set up to address economic issues and the debt accrued by the US government after the War of 1812.

Of course, because there’s nothing more permanent than a temporary government measure, the committee became a permanent one after just one year.

It soon expanded its role from raising tariffs to having influence over taxation, banking, currency, and appropriations.

In subsequent wars, notably the American Civil War, the Committee was quick to use its powers and introduced the union’s first income tax. They also detached the dollar from gold to help fund the war.

This was all an indication of things to come.

Over the subsequent decades there was a sustained push to finally establish the country’s central bank that will control money and credit, as well as institute a permanent income tax to feed the expanding aspirations of government.

They succeeded in 1913 when the Federal Reserve Act was passed and the 16th Amendment ratified, binding the country in the shackles of central banking and taxation of income.

Over the century that followed, the US has gone from being the biggest creditor in the world to its biggest debtor.

Decades of expanding government programs, waste, endless and costly wars, etc. have racked up such an enormous pile of debt that it has become almost impossible to pay it down.

A lot of folks don’t realize that, since the end of World War II, the US government’s total tax revenue has been almost constant at roughly 17% of GDP.

In other words, even though the actual tax rates themselves rise and fall, the government’s ‘slice’ of the economic pie is almost always the same - 17%.

I’ve worked out a mathematical model which shows that, even with absurd assumptions (7%+ GDP growth for years at a time, low interest rates, etc.), it is simply not feasible for the US government to ‘grow’ its way out.

Default has become the only option. And that could mean a number of things.

They could default on their creditors (other governments like China who loaned money to the US government). But this would spark a global financial and banking crisis.

 

They could default on the Federal Reserve, which owns trillions of dollars of US debt. But this would create an epic currency crisis for the US dollar.

 

They could also default on their obligations to their citizens—primarily to future beneficiaries of Social Security (who collectively own trillions of dollars of US debt).

 

Or they could choose to default on their obligations to every human being alive who holds US dollars… and engineer rampant inflation.

None of these is a good option. And simply put, the US government has reached a point of no return.

I aim to demonstrate this to you in today’s video podcast episode. It’s a very sobering realization.

Join me to see it for yourself:

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Fri, 12/12/2014 - 14:54 | 5545345 dbTX
dbTX's picture

The Rubicon has been crossed.

Fri, 12/12/2014 - 14:58 | 5545360 1000yrdstare
1000yrdstare's picture

I wish I could erase my debt by burning down my neighborhood....next up, WAR! kiddies...

Fri, 12/12/2014 - 14:57 | 5545365 PAPA ROACH
PAPA ROACH's picture

oooooooooo

Fri, 12/12/2014 - 15:00 | 5545379 ACP
ACP's picture

Confiscating all the money bankers stole the last 6 years would pay down well over half the national debt.

Fri, 12/12/2014 - 15:01 | 5545390 Bastiat
Bastiat's picture

Cancelling the debt held by the Fed would take care of the rest.

Fri, 12/12/2014 - 15:14 | 5545457 max2205
max2205's picture

But I am sure EBT WOULD GROW

Fri, 12/12/2014 - 15:17 | 5545465 NoDebt
NoDebt's picture

Paying down the debt became mathematically impossible when the first dollar was borrowed under our pure fiat system.  Don't confuse the point at which the problem becomes acute with the point at which the problem actually started.

Fri, 12/12/2014 - 15:50 | 5545606 Groundhog Day
Groundhog Day's picture

But what about all the natural resources the US Gov owns.  thats got to be worth 100's of trillions.  I'm sure GS can figure out a way to do a LBO so they don't defualt and heaven forbid can't tap the international credit markets

Fri, 12/12/2014 - 16:01 | 5545642 Stackers
Stackers's picture

Anyone who even talks about paying down the national debt has no idea how our money system works. To pay off debt is to decrease the money supply. In other words TRUE deflation and not the CPI nonsense deflation that central bankers track. To contract the money supply by $17 trillion would send commerce and the econmy into a frozen death pit.

Fri, 12/12/2014 - 16:24 | 5545738 I am more equal...
I am more equal than others's picture

 

 

Let's just print the money to pay the debt off.  I recommend 8 - $10 Trillion Dollar - notes.  It will get the presses ready for hyper-inflation.  It was good enough for Germany, dam-it, it is good enough for US.

Fri, 12/12/2014 - 16:40 | 5545826 Publicus
Publicus's picture

There is no need to pay off the debt, it's just a bunch of digits in a computer, and we have control of the computer.

Fri, 12/12/2014 - 16:53 | 5545911 Richard Chesler
Richard Chesler's picture

We indebted some folks.

 

Fri, 12/12/2014 - 21:15 | 5546940 aminorex
aminorex's picture

Simon post your spreadsheet!

 

Fri, 12/12/2014 - 21:37 | 5547019 mjcOH1
mjcOH1's picture

When we print the first trillion dollar bill, the Kenyan's picture should go on it.   It's only fair.   I'll wait 2 years, buy a 55g drum of them on ebay for an ounce of silver, and wipe my ass with them for the next 10 years.  

Fri, 12/12/2014 - 21:43 | 5547037 Xibalba
Xibalba's picture

more likely, they pay off the federal debt with them and pass the expense onto us with a 99% tax of everything

Fri, 12/12/2014 - 22:40 | 5547215 CH1
CH1's picture

pass the expense onto us with a 99% tax of everything

And the sheep will obediently line up to pay!

Fri, 12/12/2014 - 22:49 | 5547227 mjcOH1
mjcOH1's picture

"more likely, they pay off the federal debt with them and pass the expense onto us with a 99% tax of everything"

By the time those suckers hit the street....and they will hit the street......there'll be 12 more zeros on the national debt.   And a Kenyan will get you a loaf of bread .... at least for  6 months.

Sat, 12/13/2014 - 08:32 | 5547775 SilverIsKing
SilverIsKing's picture

It will get you a loaf of bread for sure but don't forget that each loaf will come with a free obamaphone.

Sat, 12/13/2014 - 13:17 | 5548226 Gaius Frakkin' ...
Gaius Frakkin' Baltar's picture

"...Almost..."

Hahaha... and I've almost grown angel wings.

Fri, 12/12/2014 - 19:58 | 5546723 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

Do what Captain Kirk always did: Pull the plug!

Fri, 12/12/2014 - 20:00 | 5546733 ShakaZulu
ShakaZulu's picture

That was Scotty's job.

Sat, 12/13/2014 - 00:22 | 5547459 HardlyZero
HardlyZero's picture

McCoy: "She's dead Jim."

Fri, 12/12/2014 - 22:03 | 5547115 ejmoosa
ejmoosa's picture

Nor do I have any moral obligation to pay this debt.  

Those that pruchased this debt have made some seriously bad investments-just like they did during the real estate bubble.

Fri, 12/12/2014 - 22:16 | 5547159 IRC162
IRC162's picture

Jus' unplug da mothafucka 

Sun, 12/14/2014 - 10:39 | 5550057 Leopold B. Scotch
Leopold B. Scotch's picture

Stackers says "To contract the money supply by $17 trillion would send commerce and the econmy into a frozen death pit."

Fallacy!

As the debt would be paid down -- Instead of endlessly debasing the currenc, harming existing holders' purchasing power as fresh printing divorced those holders of wealth and redirected it to those who get to play with the fresh minted first (Blood Sucking Squid, et al), each unit of currency would regain wealth as old currency was contracted as debt was retired.   The  only difference between $ 0.75 bluejeans of the 1905 sears roebuck catelog and today is a century of Fed policy.  As debt retired, pennys would again gain relevance and those who actual earned their money the old fashioned way ( by exchanging value for value using currency as a medium) would find their purchasing power / wealth again protected from the bankster-looters.

Sure, with our systme as structured, we'd have to eventually de-tach the dollar fromm government debt, orwe'd be forced to consider an alternative currency -- perhaps gold and notes, like the days where this country lauched to unprecedented wealth. 

But before that'd happen, we'd need to also restore a lot of our lost liberty.  NeoConns and Progressives have too many wars to fight, most of which involves what's fundamentally a war on your right to say "no thanks" / Liberty.

Fri, 12/12/2014 - 15:49 | 5545607 Groundhog Day
Groundhog Day's picture

But what about all the natural resources the US Gov owns.  thats got to be worth 100's of trillions.  I'm sure GS can figure out a way to do a LBO so they don't defualt and heaven forbid can't tap the international credit markets

Fri, 12/12/2014 - 18:26 | 5546381 cynicalskeptic
cynicalskeptic's picture

And WHO buys all those resources? - the holders of all the $US created out of thin air over he past decade... you'll have the bankers - and foreign holders of US debt converting their otherwise worthless oaoer nto TANGIBLE HARD ASSETS while the US taxpayer and citizen sees the little left in the US looted.....  Look at Russia after the collapse of the Soviet Union - the country was bought up by the oligarchs at rock bottom pirces.

The rich end up owning EVERYTHING either way.......   with rampant inflation the holdes of $US convert their paper holdoings into tangible assets sa well - only at MUCH higher prices.  Better to pay 10x the price and get somethign tangible instead of getting stuck with worthless paper...

Fri, 12/12/2014 - 18:27 | 5546382 cynicalskeptic
cynicalskeptic's picture

And WHO buys all those resources? - the holders of all the $US created out of thin air over he past decade... you'll have the bankers - and foreign holders of US debt converting their otherwise worthless oaoer nto TANGIBLE HARD ASSETS while the US taxpayer and citizen sees the little left in the US looted.....  Look at Russia after the collapse of the Soviet Union - the country was bought up by the oligarchs at rock bottom pirces.

The rich end up owning EVERYTHING either way.......   with rampant inflation the holdes of $US convert their paper holdoings into tangible assets sa well - only at MUCH higher prices.  Better to pay 10x the price and get somethign tangible instead of getting stuck with worthless paper...

Sat, 12/13/2014 - 00:31 | 5547477 shovelhead
shovelhead's picture

Psstt.

Wanna buy some shares in a well connected solar company?

Solyndra.

Spread the word.

Sat, 12/13/2014 - 09:57 | 5547847 Agstacker
Agstacker's picture

United States National Parks, for sale, cheap!

Fri, 12/12/2014 - 19:58 | 5546728 Stoploss
Stoploss's picture

Good post Simon.

1801, look at 1801.

Banks and govt are the same thing. Two wings of the same butterfly.

Sat, 12/13/2014 - 16:38 | 5548664 photonsoflight
photonsoflight's picture

Not butterfly, think vulture.

Sat, 12/13/2014 - 02:02 | 5547575 Antifaschistische
Antifaschistische's picture

I guess they didn't have spreadsheets then......yah, does it really take a spreadsheet to figure out our debt is long past the point of no return.

Sat, 12/13/2014 - 11:16 | 5547971 Compwiz4u
Compwiz4u's picture

Indeed. The currency did not exist to pay back the interest on that first dollar, so more borrowing and debt was needed.

Derivatives were then used to continue the system but it is all crumbling now as the parabolic increase in debt reached its zenith.

The central banks are just trying to slow it down and hide it as best as possible.

Sun, 12/14/2014 - 06:55 | 5549854 Jack Daniels Esq
Jack Daniels Esq's picture

Granted - so we cancel the $18T debt, clawback all Wall St profits, jail them, reboot America - which is what we should have done before TBTF Barry emigrated to America

Fri, 12/12/2014 - 15:35 | 5545545 ebworthen
ebworthen's picture

Bastiat said: 

"Cancelling the debt held by the Fed would take care of the rest."

Agreed.  However, judging by the bailouts and the newly crammed Crony-Bus bill - they will default on obligations to citizens first, banks dead last.

The U.S. Government is "Of the Banks, By the Banks, For the Banks", and of course the corporations and insurance companies who the Supine Court deemed "individuals".

This means taxpaying citizens are the fatted calf's of the plantation owners.

Fri, 12/12/2014 - 17:15 | 5545981 ajax
ajax's picture

 

 

"This means taxpaying citizens are the fatted calf's of the plantation owners."

Tax paying citizens may well be fat but their wallets certainly are not.

(By the way: 'calves' is plural for calf, my father was a dairy farmer ...)

Sat, 12/13/2014 - 04:10 | 5547651 ebworthen
ebworthen's picture

You are correct, thank you, "calves" is the correct plural form for fatted calf.

No doubt there are bankers rubbing their hands over the marbled fat in 401K's/IRA's and the Gold teeth of pensioners.

Sat, 12/13/2014 - 08:36 | 5547779 SilverIsKing
SilverIsKing's picture

But if you cut a calf in half, you'll have two halves but not two calves.

Sun, 12/14/2014 - 06:11 | 5549837 Phil Free
Phil Free's picture

You can say that again.

 

Fast, three times ...

Fri, 12/12/2014 - 15:05 | 5545410 PAPA ROACH
PAPA ROACH's picture

Cyrpess levy weekend cometh to the USA. The left has always wanted to 'redistribute wealth'. So have the Treasury send survival kits to its bankers, set a $400 daily limit on gold, and let the "one-time wealth tax on accounts over $100k", commence. How's that math work out?

Fri, 12/12/2014 - 15:15 | 5545454 Hohum
Hohum's picture

Right wants to redistribute wealth, too.  Just differently.

Fri, 12/12/2014 - 18:30 | 5546401 cynicalskeptic
cynicalskeptic's picture

The right lets corporate America pay NOTHING on billions of profits......

truth is that BOTH parties are the servants of wealth - a false dichotomy exists only to preserve the illusion of choice - thow the bastards out in alternate elections but NEVER get a REAL alternative to either.

Sat, 12/13/2014 - 09:29 | 5547815 fastpilot
fastpilot's picture

"The right lets corporate America pay NOTHING on billions of profits......"

I think only a thief could object to that.  Corporations don't really exist.  They can't make a profit.  Only when the money goes into someone's hand does it become a profit to be taxed--the once it is actually earned by a real person.  It becomes taxable again when someone earns it and it becomes their income to be taxed.  Why lefty's are such fans of double taxation, I've no idea.

Oh.  Wait.  I know why.

 

They're theives.

Fri, 12/12/2014 - 15:14 | 5545455 stewie
stewie's picture

"Paying down" the debt was never a goal.  Really, think about it.  You can issue an almost unlimited amout of debt at near zero interest, why would you want to pay it down with real production, EVER!?  I sure wouldn't.  Much better to squeeze that lemon for as long as you can then switch to lime when the world is sick to death of lemon juice. 

Fri, 12/12/2014 - 15:26 | 5545513 zaphod
zaphod's picture

Yes, this. 

Sat, 12/13/2014 - 09:04 | 5547801 Alex DeLarge
Alex DeLarge's picture

I will drink a pan galactic gargle blaster to this!

Fri, 12/12/2014 - 18:23 | 5546367 Mepaulus
Mepaulus's picture

Maybe the Bilderburgers were discussing switching to lime (digital currency) and just how bitter it should taste. 

Sat, 12/13/2014 - 08:39 | 5547780 SilverIsKing
SilverIsKing's picture

I order my Bilderburgers very well done. Charred beyond recognition.

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