National Debt

"Blessed are the young, for they shall inherit the national debt.” ~Herbert Hoover

National debt? How do they figure it’s the nation’s debt? There’s no such person as “The Nation” and none of us real people borrowed or spent a penny of that shit. It ain’t “our” debt, it’s the politician’s debt; let the politicians pay it back. Can you imagine the reaction if you had your credit card bills sent to your neighbor every month? Absurd right? But perfectly normal on the other side of the political looking glass. The State gets the central bank to whip up some counterfeit money, “loan” it to them to spend on anything they decide, and then they tax the working class to pay it back, with interest! It’s for your own benefit, national security and the children, of course. You should be proud to pay for it! If you’re not shaking your head in disbelief you should be.

Government bonds are the instruments though which the State borrows money to fund their empire and welfare state. Someone buys a bond and the government promises to pay the face value of the bond in 10 years plus an effective rate of interest. These bonds are considered a risk-free investment, believe it or not, even though they are backed by an organization that produces nothing. An organization that has no wealth of its own, they’re scavengers constantly on the take looking for another source of income. Their only means of paying this debt back is to take money from those who do produce via taxation or to borrow more money. Debt to pay debt, what could go wrong? The only assurance anyone has that their investment in a government bond will be paid back is the force of government. That government being government has the resources to do anything and everything it wants regardless how morally or economically destructive. Possibly even using the existing borrowed money to invade, occupy, and confiscate the oil and wealth of other nations? Just spit balling here.

These bonds are also an essential part of the central banking system—you knew there had to be a connection between the FED and the GOV, right? The FED artificially manipulating and fixing interest rates by creating new money and buying government bonds. There’s an inverse relationship between the price of a government bond and the effective interest paid on it. As demand for bonds goes up the price of the bonds is driven up, the effective interest goes down and vice-versa. The interest rate on government bonds is used as the basis for all other interest rates charged by banks since at worst the banks could just loan the government money; so if they are going to loan it to anyone else, the interest rate they charge will be at least the rate they could get on government bonds. But there’s a catch: this new money created out of thin air by the FED increases the supply of money in circulation, thus devaluing the dollar. This sort of monetary policy is meant to stimulate economic activity. Lower interest rates typically motivate people to borrow and invest, thereby creating even more new money by the banks and leaving those investors holding the bag for the bonds as well. How about that double whammy? Bet you didn’t see that coming?

For almost two decades now the FED has tried to hold interest rates between 0.25% and 0%. They created over $4 trillion in new money in an attempt to do so. Like any economic good, the price reflects the market value of the good and money is no different. The interest is the price of money as determined by supply and demand. Federal Reserve Notes though are not real economic goods, they are artificial economic goods meaning their supply is artificially manipulated by the FED and not determined by the market. The FED decides at any point in time how much money is in circulation in order to manipulate interest rates. And like any economic good, a price of zero indicates it’s worthless in the market.

Essentially, the FED must destroy the value of the currency in order to drive interest rates down in an attempt to stimulate economic activity. But even if successful, inflation will be so high it’ll be one step forward, two steps backward for economic growth. It’s a vicious financial circle that eats itself in the end—and dinner is almost over. The government and its financial “experts” will brag that the government debt doesn’t matter, that the government can borrow and spend as much as it wants because it can always just borrow more to pay back existing debt—which is exactly the current situation. The current $21 trillion in government debt is untenable; it will never be paid back in full. It’s a mathematical impossibility. The government must borrow trillions every year just to make their payments with interest. This debt has crossed the inflection point and is now feeding on itself and will continue to do so until it explodes—creating a currency crisis.

The “experts” also perpetuate the economic myth that the government will never default on their debt, but what difference does it make if they default outright and refuse to pay it or if they pay it but the currency is worthless? Great. You have a bunch of government bonds that you can cash in at any time but the money you get has been devalued to the point the bonds would be more valuable as kindling for a fire on a cold winter night. It’s still a default, you still lose your wealth and purchasing power.

So the magic show goes from the FED buying government bonds by inflating the money supply in order to manipulate interest rates, in an attempt to stimulate the economy, which devalues the currency, which causes higher prices, which stifles economic activity, thereby prompting the FED to buy more bonds, by inflating the money supply, rinse and repeat. This, my friends, is how you create a third world country.