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Saturday, May 28, 2011

Debt Ceiling Fallacies

In 2008-2009, politicians were saying "OMFG! We need deficit spending to 'stimulate the economy'!" Now, politicians are saying "OMFG! We need to cut the deficit!"

That isn't a logically consistent viewpoint. In 2008-2009, deficit spending was desperately needed. Now, a balanced budget is urgently needed?

Congress will eventually raise the debt ceiling. What else are they going to do? Are they going to quit and get a real job?

It was amusing to see Wednesday's Colbert Report. His guest was Austan Goolsbee, a "budget economic expert". He bragged "I've been working for Obama since 2009! I was studying this subject academically for more than 10 years before that!" My reaction was "So what? You've never had a real job."

(That's a frequent criticism of Obama. Most of his advisors only have academic experience or government experience. In other words, they were employed in the parasite sector their whole lives. Of course, a CEO of a large corporation doesn't have a true "free market perspective" either.)

There's a statistic structural defect in the monetary system, which I call the Compound Interest Paradox. In a debt-based monetary system, the only way new money is created is when someone borrows it. However, only the principal is created and not the required interest payments. This means that you need continuous inflation to keep the scam running. Exponentially-increasing debt and money supply is required, in a corrupt debt-based fiat monetary system.

I'm seeing other sites starting to mention the "Compound Interest Paradox" argument. However, they don't call it the same name as me. I've also seen it called "The Debt Virus".

During a severe recession, banks stop lending. This would lead to a money supply crash and hyperdeflation. No new money is created via loans, but outstanding loans are still due. Money is destroyed as loans are repaid, leading to a money supply crash.

That's one way the banksters cheat people. In a recession/depression, the money supply temporarily crashes. Old loans are still due, but the money supply is shrinking. Individuals lose their homes and their savings, while insiders get a bailout. Each business cycle is a massive wealth transfer to the banksters. The banksters profit from inflation during the boom. The banksters foreclose on real assets during the bust, and then get bailed out.

The Federal government may have unlimited debts. Therefore, in a severe recession, deficit spending by the Federal government prevents hyperdeflation.

The Federal Reserve may create money, bailing out banks.

Technically, TARP was unnecessary. The Federal Reserve could had bought bank assets with newly-printed money. However, that would have been too obviously corrupt. The Federal Reserve stealth bailouts were much greater than TARP.

The "national debt" is an accounting fiction. Theoretically, Congress could change the Federal Reserve law and print enough money to pay off the national debt. However, with 10:1 reserve ratios and fractional reserve banking, printing $14T to pay off the national debt would cause approximately $140T of inflation. If Congress printed new money to pay off the national debt, fractional reserve banking practices would need to be changed.

Another common misconception is "Our grandchildren will pay the national debt." Most people's reaction to this statement is "Yeah! Let's cheat our grandchildren! Who cares about them?" Actually, the cost of the national debt is not deferred to the future. The cost of deficit spending is paid immediately via money supply inflation.

For example, if there is $1T of deficit spending, there is immediate $1T of inflation. There's no free lunch.

There also is a wealth transfer to the banksters via "interest payments on the national debt". The State collects money/wealth via taxes, and gives it to the banksters via interest payments on the national debt.

China (and other foreign governments) do not profit from the national debt. This is a common misconception. China has an unleveraged long position in Treasury debt. The interest payments are insufficient compensation for inflation.

The banksters profit from Treasury debt, via leverage. They borrow at the Fed Funds Rate and buy higher-yielding Treasury debt, making a practically guaranteed riskless profit.

In a fiat debt-based monetary system, the "national debt" is an accounting fiction. It's an excuse to transfer wealth to the banksters, via interest payments. When there is deficit spending, the cost is not deferred to the future. The cost of deficit spending is immediately paid via inflation. The cost of the national debt is not deferred to the future. It is paid immediately. There is a continuous wealth transfer to banksters, via interest payments on the national debt.

Congress has to raise the debt ceiling. It's necessary due to a statistic defect in the monetary system rules.

In a fiat monetary system, there's no limit to deficit spending and inflation. The only limit is complete currency collapse and hyperinflation.

Once inflation crosses a certain threshold rate, inflation becomes too obvious. The slaves stop holding State paper money. People rush out to spend their paycheck immediately after getting paid, due to inflation concerns. Once that happens, it's all over for the State paper monetary system.

Historically, every paper monetary system has ended in hyperinflation. The US paper dollar is dangerously close to hyperinflation.


Anonymous said...

Another well written article explaining what is going on. Thanks.

Anonymous said...

Don't worry everyone. There are lots of bunny farmers who have not paid their fines yet!

My dad used to tell me that the government can not run out of money because they have the ability to tax everyone as much as they like.

gilliganscorner said...

When there is deficit spending, the cost is not deferred to the future. The cost of deficit spending is immediately paid via inflation. The cost of the national debt is not deferred to the future. It is paid immediately.


I'd argue both. It is paid via inflation immediately, but it is on the books to be paid back via the future tax cattle.

Governments use the future productivity of the unborn tax cattle as collateral for the debts incurred today. This "selling off the unborn" is a term not to be used, as the tax farmers prefer to call it "national debt" or "deficit financing". Governments are simply delivering the people into the banksters hands and use violence (taxation) to ensure they are paid.

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