$17 Trillion: An Inquiry into the United States Perpetual Motion Machine of Debt and Inflation

“Given control of a central banking system and an inconvertible currency [a currency not backed by gold], a sovereign national government is finally free of money worries and needs no longer levy taxes for the purpose of providing itself with revenue. All taxation, therefore, should be regarded from the point of view of social and economic consequences.”  – Beardsley Ruml,  Chairman of the Federal Reserve Bank of New York – 1946

America loves debt. The National debt is $17 Trillion and total debt including private debt in the United States totals $60 Trillion. For the last 30 years the United States has run monthly trade deficits, at times more than $60 billion dollars a month.

How is this possible? How have we not folded under the weight of debt with crippling deflation and rising taxes to pay for the insane levels of public and private spending?

The answer is that we monetize the debt by printing more fiat money (debt) to create inflation, which reduces the weight of debt in real terms despite the fact that future debts continue to rise in nominal terms.

Structurally, this is a Ponzi Scheme. Turns out Madoff was playing T-ball compared to the ever hypocritical Federal Government and the political-media-parade that ran him into prison.

A few authors have crystalized the explanation in perfection. Author G. Edward Griffin in his book “The Creature From Jekyll Island” explains it this way:

“It is a sobering thought that the federal government now could operate, even at its current level of spending, without levying any taxes whatsoever. All it has to do is create the required money through the Federal Reserve System by monetizing its own bonds. In fact, most of the money it now spends is obtained that way. Make no mistake about it inflation is a tax. Furthermore, it is the most unfair tax of them all because it falls most heavily upon those who are thrifty, those on fixed incomes, and those in the middle and lower income brackets. The important point here is that this hidden tax would be impossible without fiat money. Fiat money in America is created solely as a result of the Federal Reserve system. The [politicians] who authorize this process of monetizing the national debt, and the monetary scientists who  carry it out know that it is not true debt. it is not true debt, because no one in Washington really expects to repay it, ever. The dual purpose of this magic show is simply to create free spending money for the politicians, without the inconvenience of raising direct taxes and also to generate a perpetual river of gold flowing into the banking cartel. The partnership is merely looking out for itself.”

And continues…

“Why, then, does the federal government bother with taxes at all? Why not just operate on monetized debt? The answer is twofold. First, if it did, people would begin to wonder about the source of the money, and that might cause them to wake up to the reality that inflation is a tax. Thus, open taxes at some level serve to perpetuate public ignorance which is essential to the success of the scheme. The second reason is that taxes, particularly progressive taxes, are weapons by which elitist social planners can wage war on the middle class.”

Reserve Currency and Inflationary Debt as the New Imperial Empire

“Since U.S. overseas military spending forced the dollar off gold in 1971, a U.S. centered Monetary Imperialism has involved fiat dollar creation. Instead of holding foreign reserves in gold, the world’s central banks hold U.S. Treasury bonds. These are issued mainly to finance U.S. global military spending. Removing gold as a limiting factor on the ability of the United States to run domestic budget deficits and balance-of-payments deficits, American banks have been able to create credit and flood the global economy with fiat credit. This has enabled U.S. financial firms and companies to buy up foreign industry with low-interest fiat dollars, which the foreign recipients turn over to their central banks to recycle back to the U.S. economy by buying more Treasury securities, to finance the domestic budget deficit and payments deficit and so on, seemingly ad infinitum.” – Professor Michael Huddson

Foreign nations believe all Americans are fat and lazy and that may have something to do with the Dollars reserve status globally. The reserve status enables US citizens to buy mountains of plastic crap from China and expensive, high quality products from Germany, France and England with little regard to producing anything in return. In fact, last year the chief export of the United States was CASH. Thats right, cash. Since the highest official export, motor-vehicle parts and motors – $213 billion, was less than the trade deficit $471 billion, cash became the de facto chief export! (Sources: Bloomberg, & WTEx)

This trade system is agreed upon by world leaders ahead of time in secret forums where national sovereignty is of little concern compared to special political interests.

These are the Bilderberg Meetings and G20 Summits

Professor Michael Hudson continues…

“The link between the dollarized global monetary system and military force became explicit after OPEC quadrupled its oil prices in 1973-74. Treasury officials met with Saudi Arabian and other OPEC officials and explained that they could charge as much as they wished for oil as long as they agreed to hold their reserves in U.S. Treasury bonds or otherwise recycle their export earnings into the U.S. economy by buying stocks, real estate and other property claims, but not ownership of strategic industries. Not to recycle these petrodollars would be treated as an “unfriendly act.” For the United States, this reversed the traditional impact of balance-of-payments deficits on interest rates. Under the gold standard, countries running deficits had to raise rates to borrow enough to stabilize their currency’s exchange rate. But for the United States, the larger its payments deficit grew, the more dollars ended up in the hands of foreign central banks, which had little alternative but to recycle them to the U.S. economy, mainly by buying Treasury bonds. Monetarily, the U.S. payments deficit had become inflationary, not deflationary as was the rule in times past. The payments deficit thus became the means of financing the domestic budget deficit. This circular flow enabled a kind of perpetual motion machine. Banks were able to create their own credit electronically without international constraint, U.S. strategists came to realize that their government could run domestic budget deficits almost without limit while American investors bought up foreign assets and consumers imported more.”

So the Saudis have a close relationship with the U.S. that doesn’t sound believable at all:

Maybe this also explains why when the Saudi’s were implicated in the funding and planning for the 9/11 attacks, George Bush and the CIA were quick to redact those portions of the 9/11 Commission Report.

From NYPost:

“The Saudis deny any role in 9/11, but the CIA in one memo reportedly found “incontrovertible evidence” that Saudi government officials — not just wealthy Saudi hardliners, but high-level diplomats and intelligence officers employed by the kingdom — helped the hijackers both financially and logistically. The intelligence files cited in the report directly implicate the Saudi embassy in Washington and consulate in Los Angeles in the attacks, making 9/11 not just an act of terrorism, but an act of war.”

This long boat ride to hell is only going to end when the U.S. reserve currency status comes to a close. If history is any indication it appears that that may be happening sooner rather than later.

Vladamir Putin is headling a charge for the BRIC nations to euthenize the Dollar.

From RT:

The group of emerging economies signed the long-anticipated document to create the $100 bn BRICS Development Bank and a reserve currency pool worth over another $100 bn. Both will counter the influence of Western-based lending institutions and the dollar.

The new bank will provide money for infrastructure and development projects in BRICS countries, and unlike the IMF or World Bank, each nation has equal say, regardless of GDP size.

Each BRICS member is expected to put an equal share into establishing the startup capital of $50 billion with a goal to reach $100 billion. The BRICS bank will be headquartered in Shanghai, India will preside as president the first year, and Russia will be the chairman of the representatives.

Huffington Post:

The BRICS development bank and contingency fund are the forerunners of a new multi-currency world that breaks US dollar hegemony and the domination of Fed monetary policy geared to the exigencies of US business cycles and economic crises. The US will lose its exorbitant privilege as the world’s reserve currency as the Yuan Zone expands. This will help resolve the US twin fiscal and current account deficits by imposing fiscal discipline on the US. A multi-polar financial world with new international financial centres emerging in Mumbai and Shanghai will be a more stable world, less prone to financial crises or hostage to mal-regulated too-big-to-fail banks and financial institutions in the too-big-to-fail hubs of New York and London. For the BRICS and emerging economies a new dawn can arise with better access to finance both within and across countries, and less prone to disruptive capital flows and irrational exuberance.

As this movement gains headwinds Americans need to be prepared for some real inflation as all those Dollars finally begin to return home to roost.