Is the United States about to default on US government bonds?
Mar. 06, 2011 6:32 AM ET
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Is the United States about to default on US government bonds?
As some of you may have read, House Republicans want to “cut” 1.7 billion dollars from the Social Security Administration’s budget for this year. The typical press response has been like “Ho, hum. That means that Social Security Administration will have to operate on a “skeleton crew level” for a month or so while new applicants for Social Security benefits will have to wait until those temporarily laid-off public employees return and catch up on the backlog of applications.” But that fact is, the implications of what those Republicans are attempting to do are far more dangerous than that!
To begin with, our Social Security Program is self-financing, so it does NOT add to our government’s “budget deficit” (except perhaps for last December’s deal for a one-year 2% FICA withdrawal “tax cut” that is being reimbursed from the general fund). Also, since the Social Security Trust Fund has built up a reserve of 2.6 trillion dollars in Social-Security-specific US government bonds over to past 25 years to cover the “baby boomer bubble” of expected retirements, our Social Security Program is NOT “broke” simply because its cash outflow is now exceeding its cash inflow (as has been expected all along). Furthermore, it’s important to note that that those Social-Security-specific bonds (which some falsely describe as being mere “IOUs” that implies that aren’t bearing any interest) are intended to cover the Social Security Administration’s administrative costs as well as the payout of Social Security benefits. When our government issues new “marketable” US government bonds to raise cash to redeem those Social-Security-specific US government bonds, it is NOT “adding to our national debt”, because those Social-Security-specific US government bonds are ALREADY counted as part of our national debt, so selling new “marketable” US government bonds in order to redeem the Social Security bonds is a “wash” as far as our national debt is concerned. It merely transfers that debt from the Social Security Trust Fund to the buyers of those new “marketable” US government bonds.
But when House Republicans attempt to “cut” 1.7 billion dollars from the Social Security Administration’s budget, since its cash outflow is now exceeding its cash inflow, they are in effect seeking to ORDER our government TO NOT HONOR its legal obligation to redeem some of those Social-Security-specific US Government bonds when they are legally supposed to be redeemed! And, unlike other US Government bonds that were issued to fund our government’s “deficit spending” (and financed using “money created out of thin air” by the Federal Reserve), these Social-Security-specific US Government bonds were financed using “cold hard cash” withdrawn from the accounts of most US wage earners (and their employers) over the past 25 years! Why should China, Japan, and others continue to put their faith in US Government bonds if our government intentionally defaults on honoring its legal obligation to redeem US government bonds that were purchased using the money of nearly all US wage earners over the past 25 years?
This problem is just one of MANY very serious problems that are being SATANICALLY created by Republican politicians and their corporate sponsors (especially the Koch brothers and health insurance industry CEOs) in order to make President Obama “look bad” for their own political and financial gain. Why are so many of our nation’s news agencies letting them get away with this kind of conduct? For the past two years, most Congressional Republicans have been doing nearly everything they could to SABOTAGE our nation’s economic recovery. They have falsely promised to “create jobs” while voting AGAINST nearly all legislation designed to help create jobs. They have adamantly DEFENDED Wall Street’s “right” to operate an unregulated “shadow banking industry” of (potentially rigged) derivative “casino games” involving hundreds of trillions of dollars worth of highly leveraged “bets” (many of which are “insured” using “credit default swaps” that have no funds reserved to back them up if needed). That’s a financial bubble that can “pop” at any time, which may be one of the main reasons why so many of our nation’s large corporations are currently “hording cash.” Those corporations will need that cash on hand to survive another 2008-like “Wall Street meltdown”, because they know that if (or more likely WHEN) it happens again, those Wall Street “banks” will NOT be rescued this time! Most of those Republican politicians have also been adamantly opposing almost all forms of federal financial assistance to state and local governments (who were actually victims of the Republicans’ “Great Recession”, not a cause of it), and that in turn has caused over half a million public employees to lose their jobs over the past two years or so! It has been REPUBLICAN politicians (and their SATANICALLY INSPIRED corporate sponsors) who have been the REAL JOB KILLERS over the past few years, not just at the federal level of government, but at ALL levels of government (as has now become obvious in Wisconsin, Ohio, and New Jersey).
So, as I asked above, “Is the United States Government about to default on US government bonds?” The answer is, “YES, if our satanically inspired Republican politicians are allowed to succeed at what they are attempting to do.”
Fortunately, if those Republicans’ succeed in “shutting down the US Government”, refusing to “raise our national debt limit”, AND/OR creating another 2008-like “Wall Street meltdown”, this time there is a far more practical AND achievable way available for our government to solve such problems. All our government would need to do is to REPEAL the Federal Reserve Act of 1913 which legalized a slow-moving “Ponzi scheme” that created our ever-growing “national debt” rather than allowing our government to simply “issue new money” WITHOUT incurring any debt (as authorized by the US Constitution). That Federal Reserve Act established our present “debt-based monetary system” which has gotten us SERIOUSLY into debt (as the bankers who pushed that Act through Congress knew very well would inevitably happen). Prior to the passage of that Act, our government was using a fiat-based monetary system as it had also used successfully at various other times throughout our nation’s history. A fiat-based monetary system is where a government issues currency that is not backed up with reserves of gold or silver, but based simply on the “full faith and credit of the government” as represented by the fine print notice on our dollar bills that say, “This note is legal tender for all debts, public and private.” Since President Nixon severed the last remaining relationship between gold and US dollars in 1971, our currency has in fact successfully been a “fiat-based” currency, but unfortunately we continued to use that currency under the debt-creating rules of the Federal Reserve Act of 1913.
Some have argued that we “need” a debt-based money system to keep our government from creating high rates of inflation by issuing too much new money. But the fact is, our Treasury Department can control our nation’s rate of inflation by controlling the amount of new money it issues, just like the Federal Reserve has been doing. But without the Federal Reserve, our Treasury Department could do that WITHOUT adding any debt to all future generations of Americans. Because our “national debt” has been automatically “rolled over” each year, the US has in fact been paying interest on virtually ALL of the new paper money, check-created, and electronically-created “dollars” it has issued since 1913! This is INSANE! It’s a Ponzi scheme! Without the Federal Reserve (which should be more accurately named “The Wall Street Reserve”), within 20 or 30 years, the US Government could continue to pay interest on and ultimately redeem all the US government bonds that are currently outstanding WITHOUT adding any debt burden upon future generations of Americans! This would also nullify one of the major arguments that Republicans have been using to “morally justify” their efforts to create more unemployment and government deregulation by “shrinking” our local, state, and federal governments!
Christopher C. Currie
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Pascoag, RI 02859
401-568-8266
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