With A Deficit Like Ours, Who Needs Enemies…?Posted: February 13, 2010
by Giordano Bruno
Published: Feb. 09, 2010 – NeitherCorp Press
For decades, spurred by the alluring snake oil sales pitch of Keynesian Economics, U.S. financial analysts and Wall Street investors have operated on the assumption that indeed, “greed is good,” but debt… debt is better. Average Americans, bathed in an overwhelming deluge of “easy money,” were convinced to abandon their traditions of thrift and sound saving sense and throw caution to the wind. The U.S. government, along with an inviting Treasury and private Federal Reserve, took on a policy of historical deficit spending which has yet to relent. The rationale for this behavior being force fed to the masses was a strange one; somehow, by creating a significant margin of debt, we could conjure a kind of ‘financial gravity,’ a force of monetary physics that could drive our economy forward in perpetual motion. Of course, anyone who knows the laws of physics understands that energy, and thus motion, cannot be created from nothing. Something must be expended in order for something to be gained. America’s banking elite were attempting to defy the laws of physics and balance as they apply to finance; creating illusory wealth in the form of “credit” which they in fact never intended to be paid back.
It is very likely that they did this knowing full well that eventually the economic apparatus they built, like a poorly constructed rocket, would hit a point at which the inadequate fuel of fiat debt driving us into the sky would soon be incapable of defying the unchangeable root laws of capital weighing us back. It was only a matter of time before we once again came crashing to Earth.
It is interesting and perhaps despairing to note that the government’s solution to our current economic spiral (caused in large part by the unchecked creation of debt by the Federal Reserve) is to now create even MORE debt through successive bailouts, in an attempt to encourage Americans and the U.S. Treasury to borrow even MORE money which they cannot afford to pay back. When this plan meets its inevitable failure, as common sense and simple mathematics dictate it will, we the people will be told that it was all a terrible “mistake.” That our government’s greed and stupidity led to a horrible “miscalculation.” In fact, such mistakes, such “perfect storms,” are not made by accident. They are purposely engineered…
The Point Of No Return
The U.S. Debt Ceiling, the limit Congress sets on the Treasury to cap dangerous levels of spending and borrowing, has been raised eleven times since 1996, from around $5 Trillion, to $14 Trillion at the end of January, 2010. The Debt Ceiling has been raised 6 times since the beginning of 2006, just before the “Great Recession” began to take shape:
The total U.S. National Debt stands at over $12 Trillion dollars and is rising quickly. Every American citizen would be required to pay around $40,000 each in order to settle this debt:
At the beginning of 2010, the Obama administration announced a record federal spending budget of $3.8 trillion. The government’s spending now exceeds its tax revenues for the year by $1.56 Trillion, commonly referred to as the “budget deficit:”
This means that for this year alone, Americans will have to add yet another $1.5 Trillion to our national debt. How is our government able to continue functioning when it is essentially broke? By selling treasury bonds to foreign nations. The problem is that this strategy of deferring debt using T-bonds is about to backfire, as foreign central banks are cutting down their long term U.S. Treasury purchases to almost nothing. The private Federal Reserve has resorted to purchasing our own T-bonds with money printed from thin air in order to keep the government operational:
It has also caused corporate borrowing costs to jump, further hindering progress in the private sector:
Interestingly, this explosion in government spending has been initiated while Federal tax revenues are dwindling. Last year, the IRS reported that total tax revenues fell by 34%:
This seemingly contradictory financial policy by our government can result in only one outcome; a cumulative snowball effect in which our national debt will soon hit a point of no return. A point at which our revenues will be so eclipsed by our debt that our Treasury will have no choice but to either severely inflate our currency to pay debt demands, or declare insolvency.
It is projected that our national debt is currently at 75% of our GDP, and that it will reach 100% of our GDP by the end of Barack Obama’s first term. Historically, countries whose debts exceed 50% of their GDP are at high risk of going bankrupt.
Default And Hyperinflation
This is not the first time in history that the U.S. has stood at the edge of national default. In 1933 during the early stages of the Great Depression the U.S. government was technically bankrupt. However, at that time U.S. bonds were tied to gold, and were issued with the promise that said bonds could be exchanged for gold coin. Investors and foreign banks bought U.S. bonds believing that the gold backed paper would protect them from inflation and that the U.S. government under Roosevelt would honor the gold agreement. Roosevelt did the opposite, inflating the dollar to pay government and military expenses, then refused to allow bondholders to cash in their bonds for gold:
The bondholders lost an incredible sum, while Roosevelt and the Treasury hoarded gold stores and walked away with other peoples savings.
It is important to note that the government under the direction of President Obama has recently declared the continuous issuance of new “Buy America Bonds” apparently because foreign interest in U.S. debt has disintegrated:
This may be another ill-conceived attempt to recreate the same swindle Roosevelt initiated in the 1930’s, and BAB’s should be avoided.
Roosevelt was able to get away with his clever scam for a number of reasons, including the fact that physical gold was still used widely as a currency in the U.S., and the fact that the advent of WWII obscured the after-effects of default in the public eye. Today, circumstances are different.
Now, U.S. Treasuries and the Dollar are backed by nothing, meaning there is no incentive that can be used to manipulate investors (as Roosevelt did) into continued purchases of U.S. Bonds. Back then, the Dollar’s fate was tied more-so to gold than government debt, but today, the Dollar is the world reserve currency, and its value hangs solely on this status. Many mainstream economists assume that hyperinflation will occur only if the dollar supply is increased at a massive sustained rate over a concentrated period of time. However, if the U.S. Government was to default on its debts in our modern era, the Dollar would immediately lose its title as a world reserve currency and its value would plummet, also causing hyperinflation. Thus, inflation is not necessarily caused by “overprinting” of dollars, but by a DROP in the overall worth of the dollar. Overprinting is only one mechanism by which a devaluation of the dollar can be achieved.
This dynamic creates a frightening “catch-22” situation; if the U.S. defaults, the Dollar loses reserve status, other countries will dump their U.S. T-bonds, and we will see hyperinflation. If the U.S. attempts to avoid default by continually printing money from thin air to cover its debts, then this will drive down the value of the dollar until other countries are forced to dump their T-bonds anyway, and once again, we face hyperinflation. The key to this entire affair is our growing national debt and unfettered government spending.
Signs Of Nearing Bankruptcy
At the beginning of February, the Moodys credit rating agency reported that the U.S. with its slower than expected “recovery” and its extensive spending platform is now at risk of losing its AAA credit rating:
Treasury Secretary Timothy Geithner has stated that the U.S. “will never” lose its Triple-A rating, but somehow, I am not comforted.
Much attention has been paid by the markets to the current sovereign debt trouble in Europe, including Greece and Spain, but at least seven U.S. states with GDP (and in some cases populations) much larger than Greece are having their own troubles:
And, at least 41 states have reported growing problems meeting budget demands:
California in particular is on the verge of financial meltdown as budget shortfalls and low tax revenues continue to plague the west coast state.
The fact that the Federal Reserve is currently buying between 80% and 90% of all long term Treasury Bonds should be very alarming to average Americans. If this rate of treasury purchases continues, hyperinflation is a certainty:
It is also important to realize that there are a number of factors which make projecting the budget deficit difficult. While it may now stand at $1.56 Trillion for the year, this does not take into account, for instance, bank failures. The FDIC has been officially broke since last year and is drawing on fiat funds from the Treasury. Hundreds of banks are expected to shut down this year, and for each bank the Treasury will have to draw money from the Federal Reserve, printed out of thin air, in order to cover the savings of account holders in those banks. Depending on the number of banks that close, the budget deficit could increase by billions more. Another monetary black hole siphoning money from American taxpayers is the government acquisition of Fannie Mae and Freddie Mac, which hold over $5 Trillion in home mortgage securities. With each passing month, more of these mortgages go into bankruptcy and the government now covers these costs. The potential for mass mortgage defaults is very possible this year, conceivably adding trillions to the budget deficit. The Treasury has had to continually bailout Fannie and Freddie since the housing crisis began:
Stupidity… or Genius…?
After looking at the evidence, one might wonder if elements of the U.S. Government are deliberately trying to bankrupt our country, or drive us into hyperinflation. How is it possible that men such as Greenspan, Bernanke, Geithner, or Paulson, all supposed experts on international monetary policy, could miss the absurdly obvious danger inherent in the actions they are taking?
Is it arrogance? Hubris? I think not.
While Central Bankers and the government officials that pander to them may have both arrogance and hubris in spades, this is not their primary drive. They also believe in the concept of “Globalism”; the dissolution of sovereign nations and the centralization of financial and political power into the hands of an elite minority.
“The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank…sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.”
– Carroll Quigley, member of Council on Foreign Relations (CFR), mentor to Bill Clinton, quote from “Tragedy and Hope”, 1966
In order to create a globalized economy and a world governing body, free nations would have to relinquish private control of their finances along with many of their personal liberties. Americans would never go along with such a scheme, especially as they are used to being the primary economic power in the world. It is not only possible but quite probable that Central Banking officials in the U.S. along with the help of certain politicians are deliberately creating a financial panic scenario by which they hope to drive the American people into desperation. The goal is to make us ASK for globalization, to make us believe that it is the only solution to the problem they originally created.
This behavior of blatant currency destruction has also been coupled with open threats to countries which could sever our economic lifeline at any moment. The Obama administration’s increasingly aggressive attitude towards China in the midst of the greatest Recession the world has seen since the 1930’s appears nonsensical, unless one realizes that Globalists want to provoke a financial war in which they influence both sides, and thus the outcome. In October, 2009, Neithercorp reported on China’s newfound habit of political flexing in the face of the U.S.:
We believe that this mind-set is getting progressively worse, and that China may soon act on its threats by dumping treasuries as a method of economic retaliation:
The generation of extreme debt and national default is more damaging to the stability of a country than any foreign invader, its aftereffects just as devastating and longer lasting than any nuclear bomb. The United States is on the verge of such an explosion. While all eyes seem to be on the bankruptcy threats of Greece, or Dubai, the real threat to world markets lay squarely in our backyard. The debt accumulated by countries in the Eurozone could never compare to what we face…