It Is Now Mathematically
Impossible To Pay Off The U.S. National Debt
A
lot of people are very upset about the rapidly increasing
U.S. national debt these days and they are demanding a solution.
What they don't realize is that there simply is not a solution
under the current U.S. financial system. It is now mathematically
impossible for the U.S. government to pay off the U.S. national
debt. You see, the truth is that the U.S. government now
owes more dollars than actually exist. If the U.S. government
went out today and took every single penny from every single
American bank, business and taxpayer, they still would not
be able to pay off the national debt. And if they did that,
obviously American society would stop functioning because
nobody would have any money to buy or sell anything.
And the U.S. government would still be massively in debt.
So why doesn't the U.S. government just fire up the printing
presses and print a bunch of money to pay off the debt?
Well, for one very simple reason.
That is not the way our system works.
You see, for more dollars to enter the system, the U.S.
government has to go into more debt.
The U.S. government does not issue U.S. currency - the
Federal Reserve does.
The Federal Reserve is a private bank owned and operated
for profit by a very powerful group of elite international
bankers.
If you will pull a dollar bill out and take a look at it,
you will notice that it says "Federal Reserve Note"
at the top.
It belongs to the Federal Reserve.
The U.S. government cannot simply go out and create new
money whenever it wants under our current system.
Instead, it must get it from the Federal Reserve.
So, when the U.S. government needs to borrow more money
(which happens a lot these days) it goes over to the Federal
Reserve and asks them for some more green pieces of paper
called Federal Reserve Notes.
The Federal Reserve swaps these green pieces of paper for
pink pieces of paper called U.S. Treasury bonds. The Federal
Reserve either sells these U.S. Treasury bonds or they keep
the bonds for themselves (which happens a lot these days).
So that is how the U.S. government gets more green pieces
of paper called "U.S. dollars" to put into circulation.
But by doing so, they get themselves into even more debt
which they will owe even more interest on.
So every time the U.S. government does this, the national
debt gets even bigger and the interest on that debt gets
even bigger.
Are you starting to get the picture?
As you read this, the U.S. national debt is approximately
12 trillion dollars, although it is going up so rapidly
that it is really hard to pin down an exact figure.
So how much money actually exists in the United States
today?
Well, there are several ways to measure this.
The "M0" money supply is the total of all physical
bills and currency, plus the money on hand in bank vaults
and all of the deposits those banks have at reserve banks.
As of mid-2009, the Federal Reserve said that this amount
was about 908 billion dollars.
The "M1" money supply includes all of the currency
in the "M0" money supply, along with all of the
money held in checking accounts and other checkable accounts
at banks, as well as all money contained in travelers' checks.
According to the Federal Reserve, this totaled approximately
1.7 trillion dollars in December 2009, but not all of this
money actually "exists" as we will see in a moment.
The "M2" money supply includes everything in
the "M1" money supply plus most other savings
accounts, money market accounts, retail money market mutual
funds, and small denomination time deposits (certificates
of deposit of under $100,000). According to the Federal
Reserve, this totaled approximately 8.5 trillion dollars
in December 2009, but once again, not all of this money
actually "exists" as we will see in a moment.
The "M3" money supply includes everything in
the "M2" money supply plus all other CDs (large
time deposits and institutional money market mutual fund
balances), deposits of eurodollars and repurchase agreements.
The Federal Reserve does not keep track of M3 anymore, but
according to ShadowStats.com it is currently somewhere in
the neighborhood of 14 trillion dollars. But again, not
all of this "money" actually "exists"
either.
So why doesn't it exist?
It is because our financial system is based on something
called fractional reserve banking.
When you go over to your local bank and deposit $100, they
do not keep your $100 in the bank. Instead, they keep only
a small fraction of your money there at the bank and they
lend out the rest to someone else. Then, if that person
deposits the money that was just borrowed at the same bank,
that bank can loan out most of that money once again. In
this way, the amount of "money" quickly gets multiplied.
But in reality, only $100 actually exists. The system works
because we do not all run down to the bank and demand all
of our money at the same time.
According to the New York Federal Reserve Bank, fractional
reserve banking can be explained this way...."If
the reserve requirement is 10%, for example, a bank that
receives a $100 deposit may lend out $90 of that deposit.
If the borrower then writes a check to someone who deposits
the $90, the bank receiving that deposit can lend out $81.
As the process continues, the banking system can expand
the initial deposit of $100 into a maximum of $1,000 of
money ($100+$90+81+$72.90+...=$1,000)."
So much of the "money" out there today is basically
made up out of thin air.
In fact, most banks have no reserve requirements at all
on savings deposits, CDs and certain kinds of money market
accounts. Primarily, reserve requirements apply only to
"transactions deposits" – essentially checking
accounts.
The truth is that banks are freer today to dramatically
"multiply" the amounts deposited with them than
ever before. But all of this "multiplied" money
is only on paper - it doesn't actually exist.
The point is that the broadest measures of the money supply
(M2 and M3) vastly overstate how much "real money"
actually exists in the system.So if the U.S. government
went out today and demanded every single dollar from all
banks, businesses and individuals in the United States it
would not be able to collect 14 trillion dollars (M3) or
even 8.5 trillion dollars (M2) because those amounts are
based on fractional reserve banking.
So the bottom line is this....
#1) If all money owned by all American banks, businesses
and individuals was gathered up today and sent to the U.S.
government, there would not be enough to pay off the U.S.
national debt.
#2) The only way to create more money is to go
into even more debt which makes the problem even worse.
You see, this is what the whole Federal Reserve System
was designed to do. It was designed to slowly drain the
massive wealth of the American people and transfer it to
the elite international bankers.
It is a game that is designed so that the U.S. government
cannot win. As soon as they create more money by borrowing
it, the U.S. government owes more than what was created
because of interest.
If you owe more money than ever was created you can never
pay it back.
That means perpetual debt for as long as the system exists.
It is a system designed to force the U.S. government into
ever-increasing amounts of debt because there is no escape.
We could solve this problem by shutting down the Federal
Reserve and restoring the power to issue U.S. currency to
the U.S. Congress (which is what the U.S. Constitution calls
for). But the politicians in Washington D.C. are not about
to do that.
So unless you are willing to fundamentally change the current
system, you might as well quit complaining about the U.S.
national debt because it is now mathematically impossible
to pay it off.
***UPDATE***
It has been suggested that the same dollar can be used
to pay off debt over and over - this is theoretically true
as long as the dollar remains in the system.
For example, if the U.S. government gives China a dollar
to pay off a debt, there is a good chance that the U.S.
government will be able to acquire that dollar again and
use it to pay off another debt.
However, this is not true when debt is retired with the
Federal Reserve. In that case, money is actually removed
from the system. In fact, because of the "money multiplier",
when debt is retired with the Federal Reserve it can remove
ten times that amount of money (and actually more, but let's
not get too technical) from the system.
You see, fractional reserve banking works both ways. When
$100 is introduced into the system, it can theoretically
create $1000 as the example in the article above demonstrates.
However, when that $100 is removed, it can have the opposite
impact.
And considering the fact that the Federal Reserve "purchased"
the vast majority of new U.S. government debt last year,
we have got a real mess on our hands.
Even if a way could be figured out how to pay off all the
debt we owe to foreign nations (such as China, Japan, etc.)
it would still be mathematically impossible to pay off the
debt that we owe to the Federal Reserve which is exploding
so fast that it is hard to even keep track of.
Of course we could repudiate that debt and shut down the
Federal Reserve, but very few in Washington D.C. have any
interest in doing that.
It has also been suggested that instead of just using dollars
to pay off the U.S. national debt, we could use the assets
of the U.S. government to pay it off.
That is rather extreme, but let us consider that for a
moment.
That total value of all physical assets in the United States,
both publicly and privately owned, is somewhere in the neighborhood
of 45 to 50 trillion dollars. Of course the idea of the
U.S. government "owning" every single asset of
the American people is repugnant to our entire way of life,
but let's assume that for a moment.
According to the 2008 Financial Report of the United States
Government, which is an official United States government
report, the total liabilities of the United States government,
including future social security and medicare payments that
the U.S. government is already committed to pay out, now
exceed 65 TRILLION dollars. This amount is more than the
entire GDP of the whole world.
In fact, there are other authors who have written that
the actual figure for the future liabilities of the U.S.
government should be much higher, but let's be conservative
and go with 65 trillion for now.
So, if the U.S. government took control of all physical
assets in the United States and sold them off, it could
not even make enough money to pay for everything that the
U.S. government is already on the hook for.
Ouch.
If you have not read the 2008 Financial Report of the United
States Government, you really should. Actually the 2009
report should be available very soon if it isn't already.
If anyone knows if it is available, please let us know.
The truth is that the U.S. government is in much bigger
financial trouble than we have been led to believe.
For example, according to the report (which remember is
an official U.S. government report) the real U.S. budget
deficit for 2008 was not 455 billion dollars. It was actually
5.1 trillion dollars.
So why the difference?
The CBO's 455 billion figure is based on cash accounting,
while the 5.1 trillion figure in the 2008 Financial Report
of the United States Government is based on GAAP accounting.
GAAP accounting is what is used by all the major firms on
Wall Street and it is regarded as a much more accurate reflection
of financial reality.
So needless to say, the United States is in a financial
mess of unprecedented magnitude.
So what should we do? Does anyone have any suggestions?
***UPDATE 2***
We have received a lot of great comments on this article.
Trying to understand the U.S. financial system (even after
studying it for years) can be very difficult at times. In
fact, it can almost seem like playing 3 dimensional chess.
Several readers have correctly pointed out that when the
U.S. money supply is expanded by the Federal Reserve, the
interest that is to be paid on that new debt is not created.
So where does the money to pay that interest come from?
Well, eventually the money supply has to be expanded some
more. But that creates even more debt.
That brings us to the next point.
Several readers have insisted that the Federal Reserve
is not privately owned and that since it returns "most"
of the profits it makes to the U.S. government that we should
not be concerned about the debt owed to it.
The truth is that what you have with the Federal Reserve
is layers of ownership. The following was originally posted
on the Federal Reserve's website....
"The twelve regional Federal Reserve Banks, which
were established by Congress as the operating arms of the
nation’s central banking system, are organized much
like private corporations – possibly leading to some
confusion about "ownership." For example, the
Reserve Banks issue shares of stock to member banks. However,
owning Reserve Bank stock is quite different from owning
stock in a private company. The Reserve Banks are not operated
for profit, and ownership of a certain amount of stock is,
by law, a condition of membership in the System. The stock
may not be sold, traded, or pledged as security for a loan;
dividends are, by law, 6 percent per year."
So Federal Reserve "stock" is owned by member
banks. So who owns the member banks? Well, when you sift
through additional layers of ownership, you will ultimately
find that people like the Rothschilds, the Rockefellers
and the Queen of England have very large ownership interests
in the big banks. But there are so many layers of ownership
that they are able to disguise themselves well.
You see, these people are not stupid. They did not become
the richest people in the world by being morons. It was
the banking elite of the world who designed the Federal
Reserve and it is the banking elite of the world who benefit
the most from the Federal Reserve today. In the article
above when we described the Federal Reserve as "a private
bank owned and operated for profit by a very powerful group
of elite international bankers" we may have been oversimplifying
things a bit, but it is the essence of what is going on.
In an excellent article that she did on the Federal Reserve,
Ellen Brown described a number of the ways that the Federal
Reserve makes money for those who own it....
The interest on bonds acquired with its newly-issued Federal
Reserve Notes pays the Fed’s operating expenses plus
a guaranteed 6% return to its banker shareholders. A mere
6% a year may not be considered a profit in the world of
Wall Street high finance, but most businesses that manage
to cover all their expenses and give their shareholders
a guaranteed 6% return are considered "for profit"
corporations.
In addition to this guaranteed 6%, the banks will now be
getting interest from the taxpayers on their "reserves."
The basic reserve requirement set by the Federal Reserve
is 10%. The website of the Federal Reserve Bank of New York
explains that as money is redeposited and relent throughout
the banking system, this 10% held in "reserve"
can be fanned into ten times that sum in loans; that is,
$10,000 in reserves becomes $100,000 in loans. Federal Reserve
Statistical Release H.8 puts the total "loans and leases
in bank credit" as of September 24, 2008 at $7,049
billion. Ten percent of that is $700 billion. That means
we the taxpayers will be paying interest to the banks on
at least $700 billion annually – this so that the
banks can retain the reserves to accumulate interest on
ten times that sum in loans.
The banks earn these returns from the taxpayers for the
privilege of having the banks’ interests protected
by an all-powerful independent private central bank, even
when those interests may be opposed to the taxpayers’
-- for example, when the banks use their special status
as private money creators to fund speculative derivative
schemes that threaten to collapse the U.S. economy. Among
other special benefits, banks and other financial institutions
(but not other corporations) can borrow at the low Fed funds
rate of about 2%. They can then turn around and put this
money into 30-year Treasury bonds at 4.5%, earning an immediate
2.5% from the taxpayers, just by virtue of their position
as favored banks. A long list of banks (but not other corporations)
is also now protected from the short selling that can crash
the price of other stocks.
The reality is that there are a lot of ways that the Federal
Reserve is a money-making tool. Yes, they do return "some"
of their profits to the U.S. government each year. But the
Federal Reserve is NOT a government agency and it DOES make
profits.
So just how much money is made over there? The truth is
that we have to rely on what the Federal Reserve tells us,
because they have never been subjected to a comprehensive
audit by the U.S. government.
Ever.
Right now there is legislation going through Congress that
would change that, and the Federal Reserve is fighting it
tooth and nail. They are warning that such an audit could
cause a financial disaster.
What are they so afraid of?
Are they afraid that we might get to peek inside and see
what they have been up to all these years?
If you are a history buff, then you probably know that
debates about a "central bank" go all the way
back to the Founding Fathers.
The European banking elite have always been determined
to control our currency, and that is exactly what is happening
today.
Ever since the Federal Reserve was created, there have
been members of the U.S. Congress that have been trying
to warn the American people about the insidious nature of
this institution.
Just check out what the Honorable Louis McFadden, Chairman
of the House Banking and Currency Committee had to say all
the way back in the 1930s....
"Some people think that the Federal Reserve Banks
are United States Government institutions. They are private
monopolies which prey upon the people of these United States
for the benefit of themselves and their foreign customers;
foreign and domestic speculators and swindlers; and rich
and predatory money lenders."
The Federal Reserve is not the solution and it never has
been.