Re: U.S. Federal Debt Nearly $12 Trillion

**RandomGuy** · 02-07-2010, 01:24 AM

Originally Posted by aeroripper

The current cash in your wallet is going to be worthless in the not too distant future, along with any savings you haven't converted to silver/gold bullion or other valuable commodities.

I'll wager one million USD that the USD won't be worthless in the not too distant future. Seriously though, people keep talking about hyperinflation just around the corner but it's not going to happen.

Originally Posted by aeroripper

I believe the transition to a better currency will be a bit messy at first, but as time goes on, the most popular will win out and be widely accepted.

So instead of the Fed "monopoly" on legal tender we would eventally have a real monoply by the prevaling private currency? Once most economic activity happens in Microsoft Points I don't think the people will be better off or more free.

**aeroripper** · 02-07-2010, 02:40 AM

I'll wager one million USD that the USD won't be worthless in the not too distant future. Seriously though, people keep talking about hyperinflation just around the corner but it's not going to happen.

The lynch-pin that is keeping it back it caused by two factors:

1) Our foreign creditors are still lending us money, and the government is grossly spending outside its means (from tax income), and along with two credit card wars, the bank bailouts of 2008, credit from China, and keeping interest rates at 0% for 2 years. This is not even including the unfunded future obligations from Bush's expanded Medicare D (and ObamaCare, assuming it passes) which will put us into the double digit trillion dollar range.

We are borrowing extensively from China, which is both hurt, and benefited by this arrangement. While they hold $2tril+ in dollar foreign reserves, they are also hurt if they suddenly become valueless unless they convert it to a more valuable currency or commodities. This is a politically sensitive option since China still relies on the U.S. for being the prime market for their exports, but as other expanding global markets continue to open up, we'll become less important. They hold many of the cards to our economic future. Also with the bank bailouts of 2008, a number of corporate and banking entities have become directly subsidized by taxpayer dollars, and this list is likely to expand in the future. Keep in mind our monetary system is designed to bailout banks that fail from risky loans, and the Fed will continuously increase the money supply to achieve this. This all adds up to more and more inflation, which devalues the currency. The process does have an end, and since it has no backing in gold/silver anymore, it will completely lose all of its value and reset to 0.

2) Artificial demand for the dollar. As we are still the world's reserve currency, especially for oil transactions, there is always a need to keep the dollar strong. This has been working for the past few decades, but it is changing rapidly. Iraq was invaded partially for this reason, as Saddam was going to trade his oil in Euros, which the gov't was afraid might set an example to other gulf nations. Even with military intervention, and as Iraq's large oil reserves come online in the next decade or so, it appears the gulf is still looking to replace the dollar for oil transactions. As demand grows less for the dollar, it becomes less and less favorable to buy up U.S. debt to support this petro-dollar arrangement.

When we default on our debt obligations (which will happen, we cannot pay down the national debt to 0, as all the dollars in the world would disappear since they're created out of debt), the Fed will either print the money to pay off these other nations (which they likely won't accept with its depleted value), or these countries will buy up whatever is left of value in the country as repayment. I would say within 10 years honestly, but I can't say for sure. Our future is with China and whatever deals the Fed is making with foreign central banks. It is only a matter of time.

So instead of the Fed "monopoly" on legal tender we would eventally have a real monoply by the prevaling private currency? Once most economic activity happens in Microsoft Points I don't think the people will be better off or more free.

No. While there may be an prevailing currency used by a good majority of the country due to popularity (which could be considered a legitimate monopoly), it is not protected by the police power of the state that is forcing us to accept it through legal tender laws. This is especially important if those that maintain this currency begin undesirable business practices. Things such as shaving bits of gold off every coin to enrich their own fortune, which artificially expands the money supply for everyone else (inflation, prices rise while wages lag)

The Fed does this (electronic and printed) type of debasement all the time, yet we cannot protest since we're legally required to accept it. Not only that, through the wonderful process of inflation, we lose the value of all our hard earned labor since the currency is losing value, which is essentially a hidden tax on all of us. A free people that had a choice, could demand they either stop this practice or they'll move to a competing currency that is honest.

If Congress actually followed its constitutional mandate, they could print their own coins with gold backing, and set the value as determined by settled market prices. As I understand it, there are still competing currencies freely available if Congress started to abuse its power as a check against monetary corruption.

**Sabre_Tooth_Tigger** · 02-07-2010, 04:15 AM

The oil traded in euros thing is a bit of a myth I think. Saddam mostly traded in corruption afaik whatever curency he sold in the money to rearm would have presented a threat no doubt
In recent months the Euro has not shown great stability itself. They are just as likely to trade in a gulf currency and there is discussion on this but it is years away.

I dont think hyperinflation will occur (a change of government is more likely ) but just ordinary price inflation is bad enough especially while household income is falling.
There is a long history of governments inflating their budget to the detriment of the greater population going back thousands of years or more recently in the extremes, Mr Mugabe.

They set the dollar to a fixed gold standard to stop corruption of it, so it figures that one of the most corrupt politicians was the guy to completely remove that

Inflation and the Fall of the Roman Empire
http://blog.mises.org/archives/010611.asp

Although I imagine they already have a contingency plan in place to introduce a new currency (or temporarily use a basket of international currencies) once the dollar is destroyed.

There are IMF SDR or special drawing rights and china have suggested use of these I believe but its not generally considered a reasonable alternative to the dollar for reasons I forget.

Most likely because its not tied to any country or trade of that country. I think the swiss franc was the last major currency to be gold backed.
The nearest thing to that is a currency or country that is rich with commoditys. Per capita Canda qualifies I think and surely is the most natural alternative at least as a stop gap.

**aeroripper** · 02-07-2010, 05:50 AM

The oil traded in euros thing is a bit of a myth I think. Saddam mostly traded in corruption afaik whatever curency he sold in the money to rearm would have presented a threat no doubt
In recent months the Euro has not shown great stability itself. They are just as likely to trade in a gulf currency and there is discussion on this but it is years away.

It was true, and was widely reported at the time. It just kind of got pushed aside when everyone was excited about bringing freedom to Iraq:

http://www.time.com/time/magazine/ar...998512,00.html

I think the gulf countries as a whole would be better off using a voluntary regional currency for oil transactions, assuming its patterned off Islamic law that requires it to be backed 100% with gold bullion.

I dont think hyperinflation will occur (a change of government is more likely )

I hope your right. Hopefully we'll get someone elected that understands the importance of real money to a free country and people, and set the country back on the right track. G. Edward Griffin wrote an interesting chapter on how to successfully transition the country back to a full gold standard in his book "The Creature from Jekyll Isle". I recommend it to anyone that's interested about the history of money in the modern world.

There are IMF SDR or special drawing rights and china have suggested use of these I believe but its not generally considered a reasonable alternative to the dollar for reasons I forget.

Most likely because its not tied to any country or trade of that country. I think the swiss franc was the last major currency to be gold backed.
The nearest thing to that is a currency or country that is rich with commoditys. Per capita Canda qualifies I think and surely is the most natural alternative at least as a stop gap.

I am not a fan of the IMF, simply because they have a dubious record throughout the third world. Namely, making huge loans to dictators that waste the money, then when they default, the loans are restructured to keep the interest payments coming back in (which I presume, is to maintain perpetual debt and political influence). Also, IIRC, the IMF prohibits members from linking their currencies to gold. That sort of system is unacceptable for a free society, especially coming from an international system that is fairly hostile to the ideals of an individualistic republic, but I suppose those days have been dead for a long time now in this country.

I imagine this will be a major issue in the coming years as the world transitions away from the dollar as a reserve currency.

**RandomGuy** · 02-07-2010, 03:19 PM

Originally Posted by aeroripper

1) Our foreign creditors are still lending us money, and the government is grossly spending outside its means (from tax income), and along with two credit card wars, the bank bailouts of 2008, credit from China, and keeping interest rates at 0% for 2 years. This is not even including the unfunded future obligations from Bush's expanded Medicare D (and ObamaCare, assuming it passes) which will put us into the double digit trillion dollar range.

These are all good points but to me they point to tax increases and spending cuts. The Fed won't keep the interest rates at zero forever. It is at zero because of the fear of deflation.

Originally Posted by aeroripper

We are borrowing extensively from China, which is both hurt, and benefited by this arrangement. While they hold $2tril+ in dollar foreign reserves, they are also hurt if they suddenly become valueless unless they convert it to a more valuable currency or commodities. This is a politically sensitive option since China still relies on the U.S. for being the prime market for their exports, but as other expanding global markets continue to open up, we'll become less important. They hold many of the cards to our economic future. Also with the bank bailouts of 2008, a number of corporate and banking entities have become directly subsidized by taxpayer dollars, and this list is likely to expand in the future. Keep in mind our monetary system is designed to bailout banks that fail from risky loans, and the Fed will continuously increase the money supply to achieve this. This all adds up to more and more inflation, which devalues the currency. The process does have an end, and since it has no backing in gold/silver anymore, it will completely lose all of its value and reset to 0.

Inflation has existed for generations. You can expect inflation to continue at historic levels but I see no reason to expect it to become infinite.

**aeroripper** · 02-07-2010, 04:52 PM

These are all good points but to me they point to tax increases and spending cuts. The Fed won't keep the interest rates at zero forever. It is at zero because of the fear of deflation.

These are debt management solutions, not a fix for the national debt. No administration is willing to cut entitlement, defense spending, or significant agency spending enough to turn trillion dollar surpluses that can go directly to paying off the debt. If we simply got rid of our current monetary system and went back to a full gold standard, many of these problems that arise from artificially manipulating the money supply would disappear.

Inflation has existed for generations. You can expect inflation to continue at historic levels but I see no reason to expect it to become infinite.

Just because its been around for a long time, doesn't mean it should be accepted as normal or right. Our current monetary system is designed to primarily benefit the ruling, corporate, and banking elite at the expense of the lower classes. It promotes the continuous growth of government regulation and laws, which always decrease the amount of personal liberty and freedom in a society. True, we do benefit some, but we pay the heaviest burden (especially once it has been entrenched for generations) to support it through inflation and taxes.

I say this process is infinite in the sense of worldwide adoption of fiat currency central banking. I see this as intentional process, whereas national fiat currencies (and remaining gold standards transition to full fiat) are eventually destroyed and transitioned to regional fiat currencies. The process keeps going until every nation in the world is using their local regions currency. There is nothing inherently wrong with regional currencies, provided they're backed by gold and nations are not obligated under law to accept them. What is currently happening is that so much economic power is going to these monetary scientists in these central banks, they're taking away our ability to decide our own national destiny.

**RandomGuy** · 02-07-2010, 05:18 PM

Originally Posted by aeroripper

These are debt management solutions, not a fix for the national debt. No administration is willing to cut entitlement, defense spending, or significant agency spending enough to turn trillion dollar surpluses that can go directly to paying off the debt. If we simply got rid of our current monetary system and went back to a full gold standard, many of these problems that arise from artificially manipulating the money supply would disappear.

That's a hell of claim. You are going to have to explain that one.

Originally Posted by aeroripper

What is currently happening is that so much economic power is going to these monetary scientists in these central banks, they're taking away our ability to decide our own national destiny.

But in most countries the government has the ability to destroy the central bank if it is politically expedient. If Ron Paul got to pass all the crazy bills he wanted that's what would happen. Fortunately it isn't politically expedient to destroy central banks.

**aeroripper** · 02-07-2010, 05:37 PM

That's a hell of claim. You are going to have to explain that one.

I don't mean to point you to a link, but this is going to save me a few hours of typing:

http://theeconomiccollapseblog.com/a...-national-debt

But in most countries the government has the ability to destroy the central bank if it is politically expedient. If Ron Paul got to pass all the crazy bills he wanted that's what would happen. Fortunately it isn't politically expedient to destroy central banks

Many of Ron Paul's bills are not crazy if you understand monetary policy and the history of fiat central banking as he does. We are in serious trouble, and he is presenting real solutions to help get us out of it, while getting back our economic freedom at the same time. It is not "politically expedient" because Congress, and government are directly benefited by the arrangement. Why bite the hand that feeds you? I am also sure that many in Congress and Executive, are hesitant to seriously challenge or abolish the Fed's authority, since the Fed is likely to cause great economic pain in response.

**RandomGuy** · 02-07-2010, 06:33 PM

Originally Posted by aeroripper

I don't mean to point you to a link, but this is going to save me a few hours of typing:

http://theeconomiccollapseblog.com/a...-national-debt

There is nothing wrong with throwing in a link. The article explains how bad the federal debt is but I don't see anything in there that explains how returning to the gold standard will fix government finances. It may imply that if we had stayed on the gold standard we would not be in such trouble. I would still disagree but that's a more defensible claim.

Originally Posted by aeroripper

It is not "politically expedient" because Congress, and government are directly benefited by the arrangement. Why bite the hand that feeds you? I am also sure that many in Congress and Executive, are hesitant to seriously challenge or abolish the Fed's authority, since the Fed is likely to cause great economic pain in response.

Anyone at the fed that did such a thing on purpose would only hasten their dismissal. I wouldn't expect the fed to screw up the money supply any more than I'd expect the FAA to ground all flights.

**aeroripper** · 02-07-2010, 06:52 PM

There is nothing wrong with throwing in a link. The article explains how bad the federal debt is but I don't see anything in there that explains how returning to the gold standard will fix government finances. It may imply that if we had stayed on the gold standard we would not be in such trouble. I would still disagree but that's a more defensible claim.

It will fix it by forcing government to spend with what they take in through taxes. If our paper currency is 100% backed in gold, they will simply not be able to inflate the money supply to fund international military interventionism, sprawling welfare bureaucracies, and other government pet projects. It's size and scope would shrink drastically, because it becomes a limited government once again, and makes us a much freer and sustainable nation.

Anyone at the fed that did such a thing on purpose would only hasten their dismissal. I wouldn't expect the fed to screw up the money supply any more than I'd expect the FAA to ground all flights.

All they have to do is throw out some technical terms like liquidity and market forces, and most of Congress is satisfied. They have never had an audit, and for the most part, we have no idea what their internal deliberations are until they announce it at a hearing. How do we know they are working in the nations best interest?

**RandomGuy** · 02-07-2010, 11:59 PM

Originally Posted by aeroripper

It will fix it by forcing government to spend with what they take in through taxes. If our paper currency is 100% backed in gold, they will simply not be able to inflate the money supply to fund international military interventionism, sprawling welfare bureaucracies, and other government pet projects. It's size and scope would shrink drastically, because it becomes a limited government once again, and makes us a much freer and sustainable nation.

The mechanics might be different, but the government could still run deficits in that scenario. They could still get themselves into debt just like any corporation or individual.

**Kerostasis** · 02-08-2010, 02:44 AM

Originally Posted by aeroripper

It will fix it by forcing government to spend with what they take in through taxes. If our paper currency is 100% backed in gold, they will simply not be able to inflate the money supply to fund international military interventionism, sprawling welfare bureaucracies, and other government pet projects. It's size and scope would shrink drastically, because it becomes a limited government once again, and makes us a much freer and sustainable nation.

Even assuming your theory on gold-backed currency is correct, returning to a gold standard would prevent our monetary problems from growing in the future, not eliminate the monetary problems we already have. The government would still be in debt by $12 Trillion with trillions more in unfunded liabilities, even if you took away their ability to print or borrow money to PAY for those programs. In fact I would bet that moving to a non-expandable money supply today would result in the US Federal government going completely bankrupt in under a year.

We're quite simply in too deep of a hole to fix it just by stopping the expansion of the money supply.

**aeroripper** · 02-08-2010, 03:30 AM

The mechanics might be different, but the government could still run deficits in that scenario. They could still get themselves into debt just like any corporation or individual.

True, but whatever taxes wouldn't cover, would have to be privately loaned to the gov't by gold reserves from other friendly nations (assuming the western world follows our leadership), or private loans from business or individuals at (hopefully) favorable interest rates. This is still a hefty restriction on how much the government can go into debt. Regardless, the debt CAN be paid off through savings, increased taxes, and budgeting over time since we're dealing with REAL money. This system discourages gov't from getting entangled in unnecessary wars and wasteful spending, and is more fitting for a individualistic constitutional republic. It is likely a move such as this would be viewed as outright hostile towards the modern internationalist system, which is designed to dissolve national currencies and sovereign states, and move towards regional blocs of nations with unified fiat currencies.

Even assuming your theory on gold-backed currency is correct, returning to a gold standard would prevent our monetary problems from growing in the future, not eliminate the monetary problems we already have. The government would still be in debt by $12 Trillion with trillions more in unfunded liabilities, even if you took away their ability to print or borrow money to PAY for those programs. In fact I would bet that moving to a non-expandable money supply today would result in the US Federal government going completely bankrupt in under a year.

We're quite simply in too deep of a hole to fix it just by stopping the expansion of the money supply.

You're correct, we are in some real trouble, but where we are at today is not entirely a surprise. It was only going to be a matter of time until the gov't got drunk on easy money and get us heavily into debt, especially with our history of military interventionism around the globe and grossly expensive entitlement programs. Throw into the mix a system that doesn't allow big banks and other large corporate entities to fail, and you're assured economic ruin given enough time. Whichever path is chosen, its going to be a painful transition regardless. It's better to make the better long term solution for the country, than continue with another fiat currency that will further erode the foundations our republic was built upon.

I support the working solution to transition the country back to a full gold standard as presented in the final chapters of "The Creature from Jekyll Isle", and the reasoning behind it. This would include converting the current fed notes to the favorable "new dollar" value determined by gold backing, which would be used to pay off the national debt. Fed notes would eventually be phased out entirely, along with the federal reserve itself. I can re-post these steps here if anybody is interested.

**Morganan** · 02-08-2010, 02:22 PM

Aeroripper, there is one big thing you are missing in your position.

If 98 people are staying within the pre-determined rules of a monetary system and 2 people are not, is it the fault of the system or those 2 people when it starts to fail? The changes to the bretton woods accords in the early 70's essentially made countries tie the value of their currency to the Us dollar and their trade with countries denoted in dollars. Why are we trading with countries who aren't playing by the rules? You have to follow the rules if you want to be a member in the exclusive club, and you can't stop following them once you are accepted.

All we need to do is enforce the rules against China and to a lesser extent Japan and make them engage in real trade, which is a back and forth exchange of goods instead of the horrible lopsided situation we have now, and they wont have spare billions of dollars to invest in our debt. No "world-wide financial system" is going to work when some countries manipulate it to suit their own ends and the countries who follow the rules simply allow it to happen. Unfortunately no republican or democrat has the testicular fortitude to stand up to the Chinese or Japanese and let them know if they don't want to play by the rules, they are going to have to find another country (which of course doesn't exist) to sell their hundreds of billions of dollars of good to, we'll make do without them.

**ScratchMonkey** · 02-09-2010, 03:37 PM

What is China doing, exactly, that's not "playing by the rules"? The last time I checked, dollars aren't edible, so if they give us lots of stuff and we give them lots of worthless dollars, aren't they the fools?

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