The U.S. Is Shackled By Historic Debt

Authored by Lawrence Thomas via The Gold Telegraph,

Do you feel as if you’re drowning in debt? It’s worse than you think.

The U.S. government reached a new milestone when our country’s debt topped $21 trillion for the first time. The national debt grows by an average of $17,000 every second – more than some people earn in an entire year. That’s only an average, and During the past eight months, the national debt grew by $52,000 per second. And the trend toward bigger and higher spending is only getting worse.

The ratio of national debt to GDP is at 105 percent, larger than the economy as a whole. In 1981, the national debt comprised a mere 31 percent of GDP. We are not moving in the right direction. The Treasury Department has plans to borrow $1 trillion this year, an 84% jump from last year. 

When individuals borrow, they can use the money wisely to increase their wealth. That’s what happens when people make good investments. What does the government do with all this money? While some of it may be put to good use, the National Science Foundation’s spending $856,000 on having mountain lions run on treadmills can’t be termed prudent spending. Nor can the $2 billion spent on former President Obama’s healthcare website. In 2017, Brooklyn, NY spent $2 million on a 400 square feet restroom in a public park. Flushing money down the toilet?

Even the government’s legitimate spending is out-of-control. In 2017, half the entire budget went toward Social Security and Medicare. More than all tax revenues are spent on entitlement programs and defense. The rest is “borrowed,” and that creates interest payments. Of course, as the debt increases, so do the interest payments. Which means the government needs to borrow even more money just to pay interest on money it’s already borrowed. What happens when the U.S. debt reaches $30 million? President Trump is showing no signs of curtailing this spending/borrowing spree. The interest rate was recently raised to 3 percent, and it will go higher yet.

Since the government can print fiat money at will, it probably isn’t overly concerned. However, what about companies and individuals who need to borrow at increasingly higher rates?

When it comes to interest rates, we need to look at LIBOR, the benchmark interest rate used by leading banks around the globe. The LIBOR rate is intrinsically tied to government debt. According to JP Morgan, the U.S. has approximately $7.5 trillion in LIBOR-related-debt alone. Individual loan debts are 97 percent LIBOR-related. Fifty percent of the corporate debt is tied to LIBOR. As interest rates rise, it will hurt individuals and corporations.Chapter 11 bankruptcies have increased to a seven-year high.

Why is the government raising interest rates at a time consumer prices and wages are rising only marginally? During Obama’s administration, prices rose 14.6 percent, and the Federal Reserve kept interest rates low. Inflation is up by a mere 2.2 percent since Trump took office, and interests rates keep rising. Is the Federal Reserve playing politics? While the rate of inflation was somewhat higher during the Obama years, the Federal Reserve didn’t get aggressive in handling the problem until Trump came to office. If it’s politics, what game is being played?

One thing is certain. Government borrowing will continue at an increasingly faster rate, and the unprecedented debt is creating a very vulnerable economy. While revenues are growing, the spending increase is 300 percent of our total revenue.

The current budget for 2018 is expected to be $804 billion, up from $665 billion in 2017. By 2020, the annual budget is expected to top $1 trillion. How long can this type of borrowing be sustained without creating an eventual economic crisis?

People have cause to be concerned. But how does U.S. Treasury Secretary Steve Mnuchin feel about this pile of debt? “It’s a very large, robust market — it’s the most liquid market in the world [U.S. bond market], and there is a lot of supply… But I think the market can easily handle it… I’m not concerned about that. I think that there are still a lot of buyers for U.S. Treasuries.”

Mnuchin assumes there will be a continuing supply of foreign investors willing to buy up U.S. bonds. The interest in U.S. bonds is decreasing, however. Foreign buyers currently hold about 40 percent of U.S. bonds – or debt. This is at a new low since November 2016. Foreign investors have been on a downward trend since its high of 55 percent in 2008. The combination of reduced foreign demand and the need for increased funding could spell disaster for the U.S. economy.

During times of economic chaos, the government has historically resorted to giving the printing presses free reign and flooding the economy with fiat currency. This will devalue the dollar more than it is already, leading to higher inflation.

But Mr. Mnuchin isn’t worried a bit. At least, he won’t admit that he is. The problem is that putting on a smiley face won’t rescue a troubled economy. We can only hope Mr. Mnuchin has the good sense to begin frowning very soon…

Comments

J S Bach Mon, 05/21/2018 - 23:11 Permalink

It all started with the enactment of the Federal Reserve Act. Never forget that.  Debt has been compounding exponentially since that infamous December day in 1913.  The question is, "Who gets all that interest on the debt?"  Hmmmmm... I wonder.

MK ULTRA Alpha Four Star Tue, 05/22/2018 - 02:52 Permalink

The last chance for survival.

Unfortunately this is over. Many knifes in the back of America, from demands we provide more troops for the Baltic states, Israel, and on and on, well we're bankrupt and the only way to pull the nation out of the nose dive into the ash heap of history was the Trump movement to lower the nearly $400 billion China trade deficit and a ten year $1 trillion infrastructure build(which was a campaign promise, with both sides coming out with a plan which has now been forgotten.)

It is an emergency at this point, why? because interest rates are rising causing the federal debt costs to increase exponentially. It will kill us and there is not enough social safety net to cut to stop it, like back in the Reagan era. In the Reagan era, massive tax cut paid for with cuts in social services(at that time, the US was still rich, and the China trade hadn't hollowed out the US.)

The Bush II  formula was a large tax cut at the same time as a massive defense build up and more wars for Israel. Recall, the richest rich got a massive tax cut while the rest of the nation was asked to sacrifice to fight for a global control grid war and an active wasteful war in Iraq for oil and to secure Israel based upon a terror attack done by our own people. And don't forget Afghanistan still draining us of over $50 billion a year with no light at the end of the tunnel.

$5 trillion of our future has been flushed down the drain.

The 8 years of Obama I didn't rebuild the economy, the government was used for a war on the Bush kind of minds, aka evangelicals. Obama's economic policies were designed to weaken the US and the result was a nation which couldn't add jobs and grow above 3%. Every kind of regulation from farming to speech was forced on the nation by communist Obama clones.(recall shovel ready projects was proven to be a lie, we wasted nearly a trillion on the Obama I era economic stimulus, right after the Bush II TARP bank robbery of nearly a trillion.)

Both sides have used the government to rob the nation for select groups. The low  long term economic growth rate is a direct result of the government being used to rob the nation. The economy has been roiled over and over for the past thirty years, each roiling of the economy had the hallmarks of an economic roiling by design to rob masses of people of their life savings and houses.

A solution would be too hard to contemplate. The federal government must be purged of around 500K government workers and their armies of contractors. Entire federal agencies that duplicate state agencies must be abolished. The $1 trillion infrastructure build must start now. And the China trade deficit must be reduced by the $200 billion to $150 billion Trump stated when the China trade negotiation started. Now we don't have a deal and we don't have time left.

Geopolitical power games and control issues have consumed this president and trade deals are being determined on the basis of geopolitical issues, not economic issues.

A tax reform act doesn't solve the fundamental weakness of the US economy. There is global over capacity, thus the only way to rebuild the US economy is to block trade to prevent greater trade deficits. No nation can continue with the massive trade deficits and expect to provide their people with work.

In conclusion, before there can be change for the better, all efforts will be destroyed by the trade deficits, more wars for Israel and poor productivity growth caused by a lack of infrastructure build.

It's only going to get worse.

In reply to by Four Star

Harry Lightning J S Bach Mon, 05/21/2018 - 23:33 Permalink

The Federal Reserve does not pass budgets with huge deficits, the Congress does. And the Congress gets away with it because the imbecile American voters re=elect 90+% of them in every national election. 

If you want to stop the debt from increasing and even see a budget surplus that will begin paying down the debt, vote for Congressional candidates who pledge not to vote for deficit budgets. Until you do that, nothing will change in the States, no matter how much you want to blame the Fed.

And btw, the Fed has no choice but to print money to finance the government debts. Because in their charter they are mandated to be the lender of last resort. So when primary dealers buy the debt from the government and cannot pay for the purchase, the Fed must lend them the money to pay for the purchased debt securities. That's why the Fed's hands are tied in the matter.  The only place you can get this situation changed in in the Congress. Congress has the power via the Constitution to make new debts, and every time they were faced with political pressure to pass balanced biudget amendments to the Constitution they either refused to do so or they drafted a bill like the line item veto that was ruled by the Supreme Court to be un-Constitutional. 

Voters have to wake up to the lethal injury this debt will cause, and understand that the injury from the debt will be greater than whatever sacrifices are necessary to cut spending and balance the budget for years to come. Only then will they have the foresight to change the kind of people who are elected to Congress, and that's the only way to stop the madness of profligacy that characterizes the Federal government in Washington.

 

In reply to by J S Bach

luckylongshot Harry Lightning Tue, 05/22/2018 - 00:36 Permalink

The current financial system is (according to the Bank of England, 2014) a fraud . Money is invented into existance out of thin air and the public then get to pay this back, plus interest. It functions as a conveyor belt, transferring all wealth into the hands of a small group of private bankers and can be compared to a giant parasite, that takes but gives nothing back. Keeping it alive makes no sense. It is also a ponzi scheme and the system would collapse if the debt was repaid.

What does make sense is to return to sovereign money (public banking) where the state issues money that is not debt. This approach has been tried and proven a number of times, including in the US and in Germany. To make it happen all debt needs to be cancelled and then the banks nationalised as they fail. This can be done within the law as there is no consideration on bank loans by  private banks, meaning they are legally invalid.

 

 

In reply to by Harry Lightning

Harry Lightning luckylongshot Tue, 05/22/2018 - 04:05 Permalink

I think you have a very good point, but I am not sure how it would be implemented. Can you provide some actual examples from the past where the method was employed ?

The problem I have with the concept is this : For the State to issue money that is not debt, then it must represent some form of equity, since money is a medium of exchange and not an asset in and of itself. So to get money from the State, the populace would have to sell something of value to the State in order to get a fair return of value represented by the money the State issues. 

How does the State sell off its assets through the use of money to the public ?

Secondly, as I said above, the money issued by the State would represent some store of value owned by the State that they are selling through this use of money. This is really what the US government did when it issued dollars backed by the State's ownership of gold and silver. When you had dollars, you owned a share of gold and silver that at one time was owned by the government. The question now is what assets does the government have own that could back the issuance of the money ? The capital balance sheet of the US government very well may be negative considering it has accrued 21 trillion of debt. So what does the government do to create a net asset value that is positive and large enough to issue enough currency to support the government ?

Your suggestion to solve this dilemma is to cancel all government debt ? That would cause incredible losses of capital for everyone from financial institutions to individuals, and capitalism depends on capital to survive. Very problematic to cancel the existing debt. 

I think that the debt problem can be answered the way anyone in debt does it now. Cut back on spending, raise more revenue, and pay down existing debts over time. That will slow the US economy initially, since the government spends nearly $4 trillion now. But at least in 50 years the balance sheet of the US will be healthy again, and it did not take a destruction of the world financial system and everyone's assets and savings to accomplish that goal.

Regarding the restoration of integrity to the currency, there are a lot of good ways to peg a nation's currency growth to the dynamic value of its economy. That's where Central Banking needs to go, but it cannot get there as long as it is hamstrung by the requirement to be the lender of last resort. So again it all comes back to balancing budgets, which then allows a Central Bank to exercise discipline in the printing of the nation's money.

One last point that many do not consider...fiat currency is not truly backed solely buy the amorphous definition of "faith and credit". A nation's currency loosely represents the value of the assets of that nation's individuals and businesses. As a country becomes more prosperous, its existing unit of currency increases in value, which then allows its Central Bank to produce more currency so as to return each unit back to its original value. In so doing, the Central Bank produces enough money for credit to expand, which allows the economy the fuel to grow. When the Central Bank produces money at a rate faster than the growth of net asset value of the economy, the unit of currency falls below its original value, meaning it buys less goods and services. This is why excessive money creation causes inflation, because it devalues each unit of currency to a point where the currency buys less than what it did previously. 

Accordingly, with this definition in hand, it is quite possible to create rules that tie the production of new money to the increase or decrease of net assets in the economy it represents. The Austrians had this idea, but thought the individuals of an economy could perform this task independent of regulating authority. In the hundred years since the proposition by the Austrians we have learned that the greed of individuals to create profits overwhelms the need for them to maintain responsible fiscal practices. As such, regulatory authority needs to over see the worst aspects of what people will do given the opportunity, Just look at what went on with the subprime mortgage issuance and you will see the paradigm example. 

So, there is a need for the currency to be closely tied to the net asset value of an economy, and the need for a regulatory authority to enforce that tie. If you can balance the national budget, this would be the next step. And if you could ensure balanced budgets with fiscally responsible monetary governance, then the economy would prosper from sound fiscal and monetary policies.

In reply to by luckylongshot

luckylongshot Harry Lightning Tue, 05/22/2018 - 06:10 Permalink

Here are some examples of public banking from a powerpoint presentation. In terms of economics you need to dig deeper- Keynes for example points out that as long as money supply does not exceed the value of goods available in an economy the result is not inflationary. This means for example that if a shopping center was built and had the capacity to shift $10 million in goods each week, giving the local population $10 million a week creates growth but not inflation. The Chinese appply this principle with pensions, they create money which then generates demand for products. Hope this helps

  •  
  •  
  • Abraham Lincoln faced a serious problem in the lead up to the civil war (Brown, 2012)
  • The secessionists he was opposed to were supported by the British private bankers who financed them.
  • Because of this partiality when Lincoln approached them to fund his army they offered  $150 million at interest rates of between 24 and 36 percent, something that would be impossible to pay off.
  • Lincoln solved his problem with government issued currency `Greenbacks`
  • By issuing  greenbacks Lincoln managed to 
    • Build and equip the largest army in the world
    • Smash the British financed insurrection
    • Abolish slavery
    • Turn America into the greatest industrial giant the world has ever seen
    • Launch the steel industry
    • Build a railroad system
    • Provide free higher education.
  • What was even more impressive was that he did all this within four years.

 

  • Hitler took Germany out of bankruptcy following the Weimar Republic.
  • Hitler was exposed to the ideas of Gottfried

 Feder after the first World War (Zarlenga,2002).

    • Feder argued that the state should create and control its money supply through a nationalized central bank rather than having it controlled by privately owned banks, to whom interest would have to be paid.
  • According to Liu (2005) when Hitler came to power in 1933 the German economy was in total collapse
    • “yet through an independent monetary policy of sovereign credit and a full employment public works programme,  the third Reich was able to turn a bankrupt Germany stripped of its colonies into the strongest economy in Europe within four years”.
    •  The key to the German economic miracle was the government issuing its own money.              
  • China owns its own central bank .
  • This enables it to issue money without interest attached and this enables Chinese businesses to operate differently from western ones.
  • Between 1980 and 2010 China achieved one of the most rapid sustained rates of economic development in the history of the human species(Unz, 2012)
  • China has a hybrid public banking system as parasite owned private banks are allowed
  • Liu (2002) claims this is the reason China has been unable to match in 25 years what Germany achieved in four
    •  “Because China made the mistake of relying on foreign investment instead of using its own sovereign credit. The penalty for China is that it has to export the resultant wealth to pay for the foreign capital that it did not need in the first place”.

In reply to by Harry Lightning

Teja luckylongshot Tue, 05/22/2018 - 06:40 Permalink

Well, what you describe is a bet on the future. The Greenback would have gone the way of the Confederate dollar if the North had lost the war or if it had ended up in a stalemate.

Same with Hitler. The financial expansion by printing money financed the war. The occupied countries were plundered and forced to provide credit and gold. Countries like Switzerland and Sweden, not occupied but providing raw materials and weapons, would not have accepted freshly printed Reichsmark bills, I believe. All imploded after the war was lost of course.

China is betting that they will win the economic world game and that finally the Yuan will become a world currency.

To print a local currency works only in a local expansionist context, not for imports, otherwise e.g. Venezuela would not have any problems at all.

In reply to by luckylongshot

luckylongshot Teja Tue, 05/22/2018 - 07:48 Permalink

Not quite. The factor you overlook is that the money that was created had no interest attached to it. This meant it did not need to be repaid and this is the way the Chinese operate today. 

The historic proof  that  money that is not debt can survive the test of time comes from 500 years of financial stability in Europe when they used Tally sticks for money and there was no interest attached. It is when money has interest attached to it that all chances of long term survival disappear.

In reply to by Teja

NYC_Rocks luckylongshot Tue, 05/22/2018 - 09:16 Permalink

This presentation is factually incorrect and spews fallacy.  It's drawing false conclusions.  These are all unfounded claims if you go dig into the details.  Not enough time or space here to cover it all.  But these simple bullets jump to huge conclusions that are ridiculous.  All centrally controlled fiat systems eventually collapse. All of them.  Whoever wrote this stuff is a biased statist who doesn't understand money at all.

In reply to by luckylongshot

luckylongshot NYC_Rocks Tue, 05/22/2018 - 11:27 Permalink

Sorry, but it is you who are incorrect and spew fallacies. The tally system operated in Europe for 500 years and did not collapse. What ended it was the banksters funding Oliver Cromwell to invade and then replace the money system with a debt based one.

What this means is that when you write that "All centrally based fiat money collapses" you are being dishonest, as the tally system which was a fiat system survived 500 years and never collapsed. While all debt based fiat systems inevitably collapse, fiat money that is not debt based has shown that it can stand the test of time and all your claims to the contrary make you look like you are unable to be objective  and simply reject  facts that do not fit in with your views. To be taken seriously you need to adjust your views so that they are based on  facts.

In reply to by NYC_Rocks

Harry Lightning snblitz Tue, 05/22/2018 - 03:40 Permalink

All I said is vote for candidates who pledge to support only those budget proposals that are either balanced or create a surplus. I don't care if they have triple X after their name. Vote for the principles and not the party, and if the person elected breaks the promise, vote for someone else in the next election who will keep the promise. At some point, if the electorate maintains this vigilance, the country will have a majority of elected officials who will do the right thing as far as fiscal responsibility is concerned. 

In reply to by snblitz

Harry Lightning Wrenching Away Tue, 05/22/2018 - 05:31 Permalink

Earnings of the borrower, just like when a commercial bank makes you a loan and you pay back interest. Remember, the Fed doesn't just issue money, all of their operations are either them borrowing money or them lending money. For example, the Quantitative Easing program where they bought Treasury securities...that was a loan from the Fed to the US Treasury. The Treasury pays back the principal at a future date along with interest, with money it collects from the taxpayers through taxes and fees.

When the taxes and fees are not enough to pay the interest or repay the principal, the Congress then must re-engineer the national budget to either reduce spending on other programs so as to free up money to pay the Fed, or they must increase tax revenues if spending is not cut, or they must employ a combination of both. 

In reply to by Wrenching Away

J S Bach Harry Lightning Wed, 05/23/2018 - 20:47 Permalink

Sorry to pop your bubble, Harry, but it's the system ITSELF which is the problem.  The issuance of money, as debt, is the problem.  This is the Rothschild system personified.  It has nothing to do with getting your congressman or woman to spend less or any other such bullshit.   It is the issuance of money - AS DEBT - that is the problem.  Never forget that.

In reply to by Harry Lightning

Harry Lightning kikrlbs Tue, 05/22/2018 - 05:34 Permalink

Because the debt problem of the US originates with the fiscal irresponsibility of Congress, which the Fed is forced by mandate to finance. There is a lot to blame the Fed for as they have made many bad decisions, but the debt situation of the US government is not one of those items you can blame on the Fed. The real blame belongs on the shoulders of every voter who ever has voted for a Congressperson or Senator that has voted in favor of a deficit budget.

In reply to by kikrlbs

Harry Lightning JibjeResearch Tue, 05/22/2018 - 05:54 Permalink

That fuck did worse than default, he confiscated all individual gold holdings at way below market price so as to use the profit on the confiscation to reduce the debt of the US. That's why its a very difficult proposition to own gold as a hedge against calamity, because the goddamned governments will confiscate it at below market price and use the profit to pay down their debts. They will set a fixed price that all gold dealers are allowed to pay for the gold that is sold to them, provide a small mark-up to the dealer, and still get hold of the public's holdings at prices much lower than what the investment community values the gold at. The difference will be the repayment of principal to the lenders who bought government bonds.

Here's how it would work : the government will pass a law saying individuals owning gold in any form other than jewelry muist turn it into a gold dealer for $250 per ounce. The government will buy it from the gold dealer at $275 an ounce, and then issue gold trust securities valued at $1300 per ounce to redeem outstanding Tresury debt securities. So if you own $1300 in US debt securities, you will receive a gold trust security valued at $1300. The government only paid $275 and was able to translate that gold purchase into a debt paydown of $1300...that's a profit of almost a $1000 an ounce. If they buy a billion ounces, they repaid $1.3 trillion in debt and it cost them only $300 billion. The American people who turned in their gold for a loss against market value supplied the money to repay the debt. 

In reply to by JibjeResearch

SicknTiredofBS Harry Lightning Tue, 05/22/2018 - 07:09 Permalink

That 'gold trust security' only works if you can actually GET gold at some point.  What you are describing is the time period from 1933-1971.....when other nations could redeem US paper for gold.  Once we issued way more paper than had gold to back it up, the bank run began (lead by France), forcing Nixon to shut the gold window.

 

Today, the public not only doesn't own any gold, those few that do wouldn't turn it in. (Fool me once.....) The govt wouldn't get enough to fill a 5 gallon bucket. The major reasons for the 1933 grab was to remove gold from circulation so the public would forget what honest money actually was....which was wildly successful, and to remove 'gold contracts', which specified repayment in gold rather than paper, a way to beat legal tender laws.

In reply to by Harry Lightning

Truth Eater Mon, 05/21/2018 - 23:21 Permalink

Corruption.  The willingness to do evil without concern for violating principles or good practices.  Just because they could temporarily get away with it, the devils-in-charge have stolen from our futures with increasing oppression on our present.

Harry Lightning yogibear Tue, 05/22/2018 - 05:39 Permalink

Gold is the worst enemy of a politician, because if there was a gold standard that limited the production of money, the Central Bank would not be able to finance the budget deficits the politician uses to buy votes for re-election. Then the politician would actually have to convince voters that the voters are best served by having the politician represent their interests in the government rather than just throw borrowed money at the programs the citizens want but don't have the money to pay for.

This is the classic flaw of democracy, in that politicians will bankrupt the national Treasury in an attempt to buy votes for re-election. That;s why there was a movement to impose term limits on national politicians in America. For if they did not have to worry about re-election, perhaps they would make fiscally-sound decisions regarding the national budget even if such decisions were unpopular.

But since everyone loves Santa Claus, people keep electing the wrong kind of politician, and someday the populace will pay for their greed. 

In reply to by yogibear

JBL Mon, 05/21/2018 - 23:24 Permalink

"there r 2 ways to conquer & enslave a nation: one is by da sword, the other is by debt"

 - John Adams

 

looks like after they duped as many nations as they could, lent them trillions thru the IMF & World Bank, these same neoliberals are enslaving the american population

 

>.<

Harry Lightning JBL Tue, 05/22/2018 - 05:44 Permalink

Its more than just liberals although they are the main culprit. Reagan was no liberal but it was he who ushered in the era of big budget deficits. George Bush the Second approved of the biggest annual deficit in the country's history to his time in order to pay for the war on terror. 

Its a political problem not confined to ideology, all due to the fact that elected officials are allowed to run for re-election as many times as they want. So their main job in office is to have enough money spent on their district so as to portray themselves as the great Santa Claus of their district. And who doesn't like Santa ? That's how politicians buy votes at the expense of the national Treasury. By the time the chickens come home to roost and the debt has to be repaid, the politicians who voted for it to begin with are long gone into retirement, leaving the mess for future politicians to clean up.

In reply to by JBL