Underground Politics Independent Politics, History, and Economy

6Jul/104

Fixing the Economy Fast

Best case: Everyone defaults.

Then, when the banks fail (again) we DON'T bail them out.

Reform Federal Reserve so that money creation is done through public, member owned, and not-for-profit banks: eliminate private banking representation on the board. If we're going to subsidize banking as if it were a public good, we should operate it as a public utility.

Institute simple yet gradually progressive tax system to pay for remaining public obligations. Eliminate deductions/exemptions/incentives/payroll taxes.

There ya go. All debt-related problem are solved!

Worst Case: Get ready for 30 years of austerity and a violent awakening that gives way to the unraveling of empire and an even more violent crisis that shakes the very foundations of our government & corporate economy.

What do you want the next 70 years to look like?

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  1. RIP-OFF BY THE FEDERAL RESERVE

    The operation of the Federal Reserve is usually obscured by euphemistic smoke and mirrors. With full knowledge that this is not the way the Fed/government describe the system, allow me to offer my analysis of the mathematical operation.

    Congress can pay for federal expenses with funds collected from taxes, but congress is never satisfied with this amount. The desire to buy votes/campaign contributions from special interest groups induces congress-critters to spend more, and this is identified as deficit spending. To create this make-believe money requires the assistance of the Federal Reserve.

    Congress will give the Fed a security (bill, bond, or note) and one of the Fed’s twelve banks will accept the document as an asset. The Fed will then establish a line of credit for the U.S. government for the same amount and list the liability as Federal Reserve Notes. Presto !! Fiat money has just been created for Congress to spend. The accumulated securities that are not redeemed add up to the national debt. Ref: 2009 Annual Report to Congress by the Board of Governors, page 448. http://www.federalreserve.gov/boarddocs/rptcongress/annual09/pdf/ar09.pdf

    [You undoubtedly remember how the Fed obtained $700 billion TARP funds. It begged Congress for money and Congress gave them $700 billion in securities and the Fed gave the securities to GSE/international bankers. The Annual Report lists Assets of $776 billion securities and $908 billion Government Sponsored Enterprise Mortgage Backed securities out of $2.2 trillion total assets. Whether the purchase of the GSE securities from foreign banks was required to prevent US businesses from being sued for fraud is beyond the scope of this paper.]

    If all of the securities were retained by the Fed, the public would quickly complain that interest payments were for no benefit and the inflationary pressure would also be obvious. The Fed therefore wants to sell a major portion of the securities so it has arranged with the Treasury department to act as auctioneer for selling to the Primary Dealers (i.e., commercial businesses). The PD submit sealed bids. Since the security has a fixed face value, the lower the bid, the higher the interest rate for the buyer.

    The taunted concept that the Treasury’s auction is used to obtain money to run the government is absurd. How could the government sell trillions of dollars of securities if the money was not already in circulation ?

    The mathematics are now going to get more detailed. If the Fed sold all of the securities at face value, there would be no money left in circulation. The money that was created for Congress by the securities would all be taken out of circulation and returned to the vaults of the Fed. The operation is identical to the FOMC selling or buying of securities to alter the amount of money in circulation.

    The value of any securities not sold by the Fed is still in commercial banks and becomes the Reserves for those banks. The Reserves (known as base money) are then multiplied via loans utilizing the fractional reserve practice. The Fed currently holds about $750 billion of $12.5 trillion issued securities. Ref. http://www.fms.treas.gov/bulletin/b2009_3.pdf. Chart OFS-1.

    Observe that the amount of money created by the security is the amount of the principal but the amount promised to be repaid is the principal AND the interest. The interest is never created but it is promised to be repaid. It is impossible. The linear expansion of base money via fractional reserves to create commercial loans does not change this. If, hypothetically, all money was to be used to pay off the securities issued by Congress, all bank Reserves would be wiped out and the commercial loans would collapse.

    The debt created by usury based sovereign debt is perpetual; it can never be paid off.

    There is more skullduggery involved. Let us assume a newly established sovereign nation is setting up a usury based economy with an initial issue of 100 unit securities, a five year maturity, and an annual interest rate of 20 percent. The program will be continued for five years. Identities of congress and Fed will be used for convenience.

    Upon the issuance of the first security, congress has 100 units to spend. At the end of the year, congress/Treasury has to pay 20 units to the Fed for interest. If the nation had to pay off the security at the end of the first year, the bankruptcy is obvious. There was never 120 units created. Twenty units could be removed from society but that would leave only 80 units in circulation and cause great financial hardships. The solution is to put off the interest payment until after the issue of securities for the second year. The interest is paid from the principal created by the second issue.

    During the second year there are 200 units in circulation but the actual rate of interest on the second issue is not 20 percent. Since 20 units had to be paid to the initial security holders, congress only received 180 units to spend (100 + 80) but they are committed to pay 40 units of interest on the security at the end of the second year. The interest rate of 40 divided by 180 is 22.2 percent. Considering the second year alone, the interest is 25 percent; i.e., 20 divided by 80.

    When the security for the third year is issued, the interest of 40 units for the first two years securities will not be available for congress. Congress will receive only 60 units for public projects but will have to pay 20 units interest at the end of the year. The 240 units received by congress (100 + 80 + 60 ) will require 60 units of interest at the end of the third year. The cumulative interest rate (60 divided by 240) is 25 percent. The interest rate for the third year alone (20 divided by 60) is 33.3 percent.

    At the start of the fourth year, the security will have to cover the interest charge for the three prior years of 60 units. Congress will receive 40 units for government spending. The 280 units received by congress (100 + 80 + 60 + 40) will demand 80 units of interest at the end of the fourth year. The cumulative interest rate (80 divided by 280) is 28.5 percent. The interest rate for the fourth year alone (20 divided by 40) is 50 percent.

    The security issued for the fifth year will pay the 80 unit interest for the prior four years. Congress will have 20 units to splurge. The 300 units received by congress (100 + 80 + 60 + 40 + 20) will require 100 units of interest at the end of the fifth year. The cumulative interest rate (100 divided by 300) is 33.3 percent. The interest rate for the fifth year alone is 100 percent.

    After five years, 500 units of security have been issued on the full faith and credit of the nation for securities that must be redeemed. 300 units have been available to congress for spending. 200 units have been given to the Fed as interest and another 100 units for interest are due the security holders at the end of the fifth year.

    In addition, 100 units must be found somehow to redeem the maturing security issued the first year.

    The inescapable whirlpool of usury debt can only avoid bankruptcy by increasing the value of future issues. Increasing the value of issued securities merely postpones the inevitable result.

    A high rate of interest has been selected for the example to minimize calculations. A ten percent interest rate will consume 100 percent of securities issued with constant value after ten years; a five percent interest rate will take twenty years. Lower rates of interest merely require more years to reach the same inherent bankruptcy.

    An economic scheme that utilizes later investors to pay the interest due earlier investors is identified as a Ponzi scheme. This is precisely the scheme that has been presented above. The scheme will survive only as long as more principal is generated to pay the interest. This action only postpones the ultimate time of a much larger reckoning. If purchasers of the new debt cannot be found, the interest must be paid from previously generated principal and the scheme quickly collapses like any Ponzi scheme. Astute investors will demand a higher rate of interest than inflation (resulting from the creation of new principal) or they will suffer a loss of actual wealth. The increase in interest will always be greater than the increase in principal because of compounding effects; i.e., the more the principal increases, the more the interest increases.

    The exponential growth in interest was observed to be 15 percent while the budget only grew 7 percent in a newspaper article a couple of years ago. Currently, the budget has been increasing much faster and temporarily conceals the rapid growth in interest requirement.

    [Current economic conditions find entities with surplus funds buying short-term securities at near zero interest rates. This acceptance of a low interest rate minimizes the potential loss of value if the money was instead invested in the chaotic market of today. Recent auctions have found Primary Dealers bidding such low prices on long term securities (which raise the interest rates) that the Fed ate more than 50 percent of the auction to keep the interest rate artificially low. The PD‘s would have taken a haircut from inflation with a low interest rate on long terms.]

    The practice of tax collection for part of the government spending is well known within the United States. Payment of part of the government expenses by taxation does not alter the governments usury program; for analytical analysis, they can stand alone.

    Frequently individuals will insist that money to pay off the debt and interest exists. It brings back fond memories of a favorite professor who had an idiosyncrasy of asking the question “Does money grow on trees ?” on his final exam. There would always be a few political liberals, Economics majors, or other dolts who would invariable supply the wrong answer.

    Footnotes:
    Dr. Bob Blain, Emeritus Professor of Sociology at Southern Illinois University in a paper “Revisiting U.S. Public and Private Debt” published in January 2005 observes the exponential nature of the increase in national debt and the destruction inflicted upon historical societies by usury based monetary systems.

    Benjamin Ginsberg, in FATAL EMBRACE, recently documented numerous historic societies in which a usury debt based economic system (but not so identified) resulted in the instigations facing public fury including deportation and confiscation of estates of the individuals involved–among other grievous injuries.

  2. The American people are still sleeping.

  3. Sometimes I question the internet and what is posted? Honestly the internet used to be like a different place, except that recently it seems to have become better and of the reason for it to be improving are blogs like this.

  4. most of the money are still in the banks not much leaves the banks when there is no more in coming for the banks the get more from the gov’t making the value of a $1 less so something needs to be done about that i think that might help


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