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Saturday, June 20, 2009

Who Owes the National Debt?

I saw President Obama give a speech, and noticed another new evil fnord. President Obama said "Our children will have a huge burden of repaying the national debt."

With fiat debt-based money, the national debt is an accounting fiction. Congress could, if they wanted, print enough new money to pay off the national debt. Congress can always roll over the national debt by printing more and more Treasury Bonds.

Financial industry insiders will always buy Treasury debt. The banksters borrow at the Fed Funds Rate and buy Treasury debt, profiting from the spread. For example, the Fed Funds Rate is currently 0%-0.25%, and the yield on longer-term Treasury debt is around 3%-4%. The spread is riskless arbitrage profit for the banksters. This trade is only available to insiders who may borrow at the Fed Funds Rate. A bank may use leverage of 100x or more when buying Treasury debt, making this trade very profitable.

The money/wealth collected in income taxes and spent on "interest payments on the national debt" doesn't vanish into thin air. It winds up in the pockets of the banksters. The banksters profit from their highly leveraged investment in Treasury debt. The banksters profit from their perk of printing and spending brand new money. Foreign central banks, such as China, are not the beneficiary of these interest payments. They earn a negative real interest rate on their unleveraged investment in Treasury debt. Foreign central banks that hold Treasury debt lose their purchasing power due to inflation.

"Our children will be forced to repay the national debt." is an evil fnord. When faced with this statement, many people will think "HAHAHA!! **** our children!! We're getting stuff now and they're getting the bill! It sucks to be them!"

The reality is that the cost of deficit spending is immediately paid as new money is issued. Everyone experiences immediate inflation to compensate for deficit spending. If there is $1T of deficit spending, then everyone currently holding dollars immediately experiences $1T of inflation. The loss of purchasing power by people currently holding dollars matches the amount of deficit spending by the Federal government. People don't notice, because money supply inflation does not lead to uniform and immediate price inflation. Biased economic statistics like the CPI provide the illusion that inflation is lower than it really is.

The cost of the national debt is not deferred to the future. It is paid immediately as inflation.

The national debt is greater than the amount of money in circulation. According to this page, M2 is currently $8.4T. The national debt is over $11T. No mainstream economist/comedian points out the obvious contradiction. The Federal government is in debt by more money than actually exists! Even if the income tax were raised to 100% and all circulating dollars were collected as taxes, then the national debt still cannot be repaid.

The reason for this contradiction is the Compound Interest Paradox. When the Federal Reserve "monetizes the debt", it only creates the principal and not the interest payments. This practically guarantees that, over time, the national debt will be greater than the money supply. The scam doesn't collapse, because the Federal government can keep issuing new Treasury debt to refinance and roll over the debt. The financial industry can keep issuing more and more loans, to ensure that previous borrowers can repay their loans. The financial industry reaps seignorage profit, as they print and spend brand new money.

That's the reason it was necessary to bail out the financial industry. Suppose all the "too big to fail" banks go bankrupt, and they no longer issue new loans. All currently existing loans would still be due, but no new money would be printed. This would cause the dollar to collapse in hyperdeflation. The true solution, "Reform a corrupt monetary system!", is never discussed in the mainstream media. Instead, bailouts to insiders keep the scam going.

The scam will continue until the cattle say "**** this! I'm not using slave points as money anymore! I'm using gold and silver!" Remember that in order to boycott the Federal Reserve you must also boycott the income tax, because the IRS demands that the income tax be paid in the form of Federal Reserve Notes. According to the IRS bureaucrats, all economic activity in the USA is subject to the income tax.

Private debt is estimated to be $50T or more, which is *MUCH* greater than the money supply. Again, this is due to the Compound Interest Paradox. The total amount of debt is far greater than the total money supply. This makes everyone the slaves of the banksters. New money is only created when a bank issues a loan. New loans must continually be issued so that old loans can be repaid.

(Under certain circumstances the national debt can decrease. This only occurs if the private sector takes out a lot of new debt. This new money can then be collected as income taxes. The national debt can be partially repaid, but only if people other than the government take on a lot of new debt. During a recession/depression, deficit spending by the Federal government is needed to keep the money supply up. This guarantees that the national debt will increase over time. Also, politicians cannot resist the temptation to print and spend new money. The Federal government is the only entity that can have unlimited dollar-denominated debt without being bankrupted. The Federal government is the issuer for dollars, and cannot be bankrupted as long as all of its debts are dollar-denominated and people are forced at gunpoint to use Federal Reserve Notes as money.)

When a comedian says "Our children will be stuck paying the national debt!", that is an evil fnord. The cost of Federal deficit spending is not deferred to the future. Everyone pays the cost immediately in the form of money supply inflation.

1 comment:

fritz said...

Our children don't owe crap.

Imagine if your parents took out a loan to work on their house while you were in high school.And they told you that when you graduated you had to help them pay back that loan.Because they fixed the house for you.

Or imagine if your slave master went bankrupt. And the person who purchased the plantation told you you owed money because the last master went broke.

no one asked me if they could barrow on our future. There was no referendum . I tell all people that you are not responsible for any of it.

Our slave master is bankrupt. And when our master is forced to give up the farm. We can pummel our ex-master with the bags of fiat money we were forced to use.

Don't be fooled by those who control you.They took out a loan to keep the slave farm operating. The slaves on the farm are not responsible for their masters folly.


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