Monetizing the Debt

[Okay, okay, I have been gone way too long.  In my defense I have been preparing five new books for publication (more on that in another Blog) and numerous other chores.  But now the state of our country is unraveling before us and I cannot remain silent.]

Yesterday, October 15, Federal Reserve Chairman Ben Bernanke announced that the Feds will buy its own Treasury bonds in order to keep long term interest rates low.  Now, that may sound good to the pleasantly uninformed, but the question quickly arises: With a Fed that has no money, what exactly are you going to buy them with?

It’s the Obama/Fed Ponzi scheme  all over again.  It is like you or me taking our Visa card to pay off the debt on our Master Card.  Did we gain anything by doing so?  Did we pay off any debt?  Did we improve our financial picture?  Are we more liquid now?  The answer, of course, to all those questions, is a clear, NO.  But, since Obama and the Federal Reserve control the money supply, their solution is all too easy:  Just print more money to buy back the bonds.  Actually, they have been quietly doing this since August.  The net result has been that the dollar is getting weaker, dropping another 10 percent against the Euro since August.  Worldwide, the truth is:  no one wants our funny money; no one wants to carry our debt anymore.  So, the only choice is to print more money to buy what no one else wants to buy.

History has demonstrated that once a nation starts to monetize its debt and continues to do so, financial and economic collapse is trailing close behind.

The reality is that there are only three choices (outside of national default or bankruptcy) to turn our nation of debt around: 1) dramatically raise taxes; 2) cut spending; or 3) monetize the debt.  Raising taxes is not that popular, except with President Obama and the Democrats.  Besides the possible repeal of the Bush tax cuts after the election, at least two other Democratic proposals are floating around.  HR4646 proposed in February, 2010 and sitting in committee would impose a 1% transaction fee (tax) on ALL financial transactions—including EFT deposits of pay checks, Social Security and any other deposit, whether EFT or manual—with the presumed goal of using the revenue to pay off the national debt.  But we know how politicians are when they get a new revenue source.  It rarely goes for the intended cause and just becomes a slush fund for more unwise spending.

A second proposal that is being considered by Obama and his team is not really a tax but is an indirect way of reducing everyone’s retirement pot-of-gold.  Call it a regressive tax, if you want.  The plan would be to require everyone who holds a retirement account—IRA, 401(k) or other plan—to buy government debt securities (the percentage required not yet determined).  In exchange the government would “guarantee” an annuity payment at retirement.  And we all know how well government guarantees work.

And to cut spending will not work either.  Politicians only give the public the illusion of spending cuts.  Once the political pig is being fed, its gluttony only increases.  No one wants to cut the pork they are sending back home to pad their elections and their pockets.

The last one, monetizing the debt, is not only reckless and ill-advised, but inflationary.  And, if carried too far, will cause extreme devaluation of our currency and hyper-inflation.  But it is the easiest method to implement without too many people taking note until it is way too late.

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2 Responses to “Monetizing the Debt”

  1. Merryle Wiese Says:

    We are having quite a battle on with the City of san Jose. Any new hires are being required to take a 2 tier system and at a reduced rate. Another small point I feel is the big programs that are supported by the Feds. Various corn subsidies and many others out there that have been used and never repealed. In other words cut a lot of the pork programs. Just as you mentioned.

    AFN Jim MerrylemWiee
    .

  2. Joan Mower Says:

    Jim , I have been following this and I watch Glenn Beck and are watching what is going on. I am saddened to see my country go down the tubes like it is. However I think this has been planned for a long time and is purposely being done. The goal being to eliminate the middle class. Thanks for the update Joan

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