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Friday, June 5, 2009

What is the US Government's Credit Rating?

I was watching the Communism Channel, and the comedians were saying "Due to increasing national debt, the US Federal government may lose its AAA credit rating. Great Britain is similarly under review for a downgrade."

In a related story, Treasury Secretary Geithner was speaking to a bunch of Chinese students. He said "The US dollar is strong and an investment in Treasury debt is safe!" The Chinese students laughed at him. It's disappointing that the comedians/journalists in the USA don't have a similar reaction. Even though there's been a lot of hype about "The Chinese State censors information on the Tienanmen Square protest!", the Chinese State does not censor information on "The US dollar and US Treasury debt is a bad investment!" You'll never hear a comedian on the Communism Channel say "Inflation is theft! If you invest in Treasury bonds you're guaranteed to get ripped off by inflation!"

The fallacy is that all of the US Federal government's debt is in US dollars. The US government is the issuer for dollars, and can never be bankrupted as long as all of its debts are in dollars *AND* people in the USA are forced at gunpoint to use slave points instead of real money.

When I say "The US government is the issuer for dollars.", that's slightly inaccurate. Congress has delegated its money printing power to the Federal Reserve and financial industry. However, Congress does have the power to print new Treasury bonds. These Treasury bonds are then sold primarily to financial industry insiders, who then sell approximately 10% of them back to the Federal Reserve, and then via 10:1 reserve ratio fractional reserve banking create the money required to buy the remaining 90%.

Congress can always print new Treasury bonds to increase the national debt. Financial industry insiders will always buy these bonds, at a price greater than the expected Fed Funds Rate over the life of the bond. For example, if the Fed Funds Rate is expected to average 1% over the next year, then the banksters will buy a 1 year Treasury Note for slightly more than 1%. Banks are allowed to use very high leverage ratios when investing in Treasury debt. For example, if leverage ratios are 100x for Treasury debt, and the 1 year Treasury Note yields 1.2%, then the banksters make a guaranteed riskless profit of 20%, when they make a 100:1 leveraged investment in Treasury debt, borrowing at the Fed Funds Rate.

Some Treasury debt is sold to individuals/suckers and foreign central banks. These people hold an unleveraged long investment in Treasury debt. Their return is far less than true inflation, which is 10%-30%+ per year, depending on what measure of inflation you use.

Because the Federal Reserve keeps the Fed Funds Rate much less than true inflation, the yield on Treasury debt will also be much less than true inflation. Negative real interest rates cause an investment in Treasury debt to lose to inflation over time.

At any time, Congress could repeal or amend the Federal Reserve law, but the Federal Reserve is politically untouchable. With the ability to literally print new money, financial industry insiders make sure they spend a lot on lobbying. Financial industry insiders receive a massive State subsidy, paid by everyone else as inflation; they can always profitably lobby to block reform. For this reason, if you're convinced of the evil of the Federal Reserve, your only option is to boycott the Federal Reserve and income tax, and to use gold or silver or barter instead of slave points.

The income tax prevents slaves living in the USA from boycotting the US dollar. According to IRS State enforcers, all economic activity is subject to taxation, even if you use barter. Legally, it is impossible to boycott the Federal Reserve, because you must pay income taxes whenever you work. The IRS only accepts Federal Reserve slave points in exchange for permission to work.

As long as the State has the power to use violence to force people to pay income taxes, the US government cannot be bankrupted. People cannot boycott the US dollar and pay income taxes at the same time. Some State economists cryptically say "The US dollar is not backed by gold. The US dollar is backed by the Federal government's taxation power." What that literally means is "The income tax prevents people from boycotting the US dollar and using real money instead." The comment "The US dollar is backed by the State's taxation power." indicates that the pro-State troll economists are vaguely aware of the scam, but unable to explicitly say so.

Of course, if there were runaway hyperinflation, then there are some people living in the USA who would say "**** this!" and start using real money instead. If things got that bad, then the government and taxation system would collapse. During hyperinflation, the income tax would not be sufficient disincentive against using real money. Income tax need not be paid immediately, so hyperinflation would make the income tax burden on barter transactions negligibile. However, inflation might need to get as high as 100%-500%+ per year, before people will start to abandon the dollar.

If all the central banks outside the USA simultaneously sold their dollars, and people outside the USA refused to accept dollars, then all those dollars would find their way back to the USA. This would cause a massive inflation spike in the USA, but it might not be so bad to completely wreck the economic and political system.

State enforcers have some tricks up their sleeve, during times of hyperinflation. They can issue a new fiat paper money, convertible at a rate of 10^15:1 or whatever with the old hyperinflationary paper money. This is accompanied by mainstream media propaganda "The economy is getting better!" Surprisingly, this sometimes works! After getting burned by hyperinflation, people are all too gullible to accept a new fiat paper money printed in a different font and color!

All countries everywhere have a corrupt fiat monetary system. I haven't checked, but I'm pretty sure that every country also has a debt-based monetary system; I know of no country that uses credit-based fiat money instead of debt-based fiat money. With credit-based fiat money, new money is directly spent into circulation by the government, rather than borrowed from a central bank as occurs in the USA and most/all "modern" industrialized countries.

Other countries don't abandon the dollar because their fiat money is just as worthless as the US dollar. From the point of view of the parasites controlling other countries, it's better for them to support the US dollar, than risk the collapse of the scam and the gravy train. Other countries' leaders don't say "The US dollar is worthless paper!", because that would also bring up the issue "Isn't our fiat paper also worthless?"

If you invest in a money market account, or in Treasury debt, or in corporate bonds, then you are making a donation to the State. You money loses its purchasing power to inflation faster than you are credited with interest. The CPI is biased and is far less than true inflation. The CPI is an evil fnord that provides the illusion that inflation not a problem.

It is silly to say "The US government has an AAA credit rating." If you invest in dollars or dollar-denominated bonds, then you are guaranteed to get ripped off by inflation over time.

The US government has been technically bankrupt since:

  1. 1971, when President Nixon defaulted on foreign central banks' right to redeem their US paper dollars for gold.
  2. 1933, when President Roosevelt defaulted on the gold-redeemability of the Federal Reserve Note, and demanded US citizens turn over their gold for paper.
  3. 1913, when the Federal Reserve was created. The default on the dollar didn't occur until 1933, but once the Federal Reserve was created, a default on the gold-redeemability of the US dollar was inevitable. The Federal Reserve was allowed to print more Federal Reserve Notes than there was physical gold in the US Treasury, guaranteeing an eventual default. Even though the US dollar was gold-redeemable from 1913-1933, it was still debt-based money. New Federal Reserve Notes would only enter circulation when the Federal Reserve "monetized debt".
  4. 1861, when the southern states walked out of Congress. Until the Civil War, the Constitution was supposed to be a voluntary contract, and states could withdraw their consent at any time. This placed a check against expansion of Federal government power. After the Civil War, the power of the Federal government dramatically increased. Also, the banking industry was heavily regulated during the Civil War.
  5. 1787, when the Federal government was first created. All forms of taxation are theft, and no monopolisitc government is legitimate. Further, the people who wrote the Constitution were only supposed to fix minor flaws in the Articles of Confederation, rather than making a strong central government. The Constitution was actually an act of treason, and that's why it was written in secret.
The US government cannot be bankrupted as long as people in the USA are forced to use the US dollar as money, under threat of IRS State violence. The US government can always print new money to pay off its debts.

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