After 45 years of collecting premiums for their pension plans, which
the government refers to as “Social Security,” Baby Boomers become aware
that while normally with contracts for future obligations of this kind
the issuer is required by law to accumulate money into a fund to make
sure that there will be enough available when future payments become
due, the federal government did not abide by those laws. The funds exist
on paper only. The money that comes in for future obligations is
immediately spent and replaced by a government IOU. So, as those future
payments come due,
all of the money must come from revenue being
collected at that time. Now the government says they have spent the
money and can’t honor the I.O.U. Herein lies the doomsday mechanism.
These obligations
will be paid out of future taxes or inflation.
Entitlements currently represent 52% of all federal outlays, and they
are growing at the rate of 12% each year. When this is added to the 14%
that is now being spent for interest payments on the national debt, we
come to the startling conclusion that two-thirds of all federal expenses
are now entirely automatic, and that percentage is growing each month.
Even if Congress were to stop all of the spending programs in the
normal budget–dismantle the armed forces, close down all of its agencies
and bureaus, stop all of its subsidies, and board up all of its
buildings, including the
White House–it
would be able to reduce its present spending by only one-third. And
even that small amount is shrinking by 10 to 12% per year. That is a
best-case scenario. The real-case is that Congress is accelerating its
discretionary spending, not canceling it. One does not have to be a
statistical analyst to figure out where this trend is headed.
The biggest doomsday mechanism of all, however, is the
Federal Reserve
System. It will be recalled that every cent of our money
supply–including coins, currency, and checkbook money–came into being
for the purpose of being lent to someone. All of those dollars will
disappear when the loans are paid back. They will exist only so long as
the debt behind them exists. Underneath the pyramid of money, supporting
the entire structure, are the so-called reserves which represent the
Fed’s monetizing of debt. If we tried to pay off the national debt,
those reserves also would start to disappear, and our money supply would
be under-mined. The Fed would have to scramble into the world money
markets and replace U.S. securities with bonds from corporations and
other countries. Technically, that can be done, but the effect would be
devastating. Congress would be fearful to eliminate the national debt
even if it wanted to.
Debt Ceiling is an Illusion
Congress passed the Monetary Control Act of 1980 which authorized the
Federal Reserve
to “monetize foreign debt.” That is banker language meaning that the
Fed was now authorized to create money out of nothing for the purpose of
lending to foreign governments. It classifies those loans as “assets”
and then uses them as collateral for the creation of even more money
here in the United States. That was truly a revolutionary expansion of
the Fed’s power to inflate. Until then, it was permitted to make money
only for the American government. Now, it was able to do it for any
government. Since then it has been functioning as a central bank for the
entire world.
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