Economic disaster: Getting closer and closer

Published 14 years ago -  - 14y ago 46

It was just a few weeks ago, on October 19th, that Peter Costello, the Australian Treasurer pleaded with Asian countries to “telegraph” their intentions to come off the dollar so other nations would have a chance for an “orderly withdrawal.”

Now, just a few days after Bush was handed one of the greatest defeats of his presidency, Reuters reports that “China will diversify its $1 trillion foreign exchange reserves, the largest in the world, across different currencies and investment instruments, including in emerging markets.”

There goes the commonly held belief that “China needs us” because we are their greatest customers. The belief that China must continue to loan us money so we can buy their goods. You can now chalk that up with other pagan fantasies of American arrogance and ignorance. Do we hear the message? Do we understand it?

Although the Census Bureau tells us we just topped the 300 million population mark, this is small potatoes in a world where “emerging markets” like India, with a population about 900 million larger than ours, can easily make up for any losses within our shores. And that’s not including China’s own population almost five times our size where the average savings rate is better than fifty percent compared to our own, in the hole for the first time since the Great Depression, savings rate which recently went below zero.

In other words, the average American family is no more ready to face a long term economic disaster than people in the thirties who lost their jobs and homes, ended up in shelters, bread and soup kitchen lines, or found minimum subsistence working for the CCC and the WPA. The very reason our supplemental retirement program, Social Security, was designed in the first place to insure that no one who worked a lifetime in America would end up in the very real “poor house,” even illigal immigrants allowed to stay here long enough to qualify.

The same Reuters report tried to soften this news by saying that the Chinese Central Banker’s remarks “sent the dollar tumbling for a second day and fuelled a growing debate about how China should best use its fast-growing reserves, which are about 70 percent in U.S. debt securities.” The latter is an absolute falsehood worthy of inclusion in last week’s article “Numbers only confuse them.”

At last report from the U.S. Treasury in August, 2006, China held $339 billion in Treasury securities which is only about 34 percent of one trillion, half of the seventy claimed by Reuters. The difference is held in pure cash reaped by the American consumer’s desperate search and need for lower prices from places like WalMart and its closest competitors where almost everything they sell comes from China or poor third world nations where labor is cheap – including groceries produced in America by illegal migrant workers.

The richest most powerful nation in the world has fully endorsed a marketing strategy that was once laughable and known simply as “price merchandising is the foothold of the incompetent.” Peter Drucker must be throwing a fit. People no longer pay more for or even seem capable of recognizing “quality” and short term obsolescence rules.

What’s more, the country that lost the Second World War but won the economy by producing “better” products now holds the most in government securities. Japan holds another trillion in American dollars and most of that, $644.2 billion, is held in treasury securities that represent money we’ve borrowed from Japan and which they view as a form of welfare. Almost twice as much as what China holds.

If anybody needs our consumers it’s Japan, but they are making the same noises as China when it comes to “diversifying” their investments and coming off the dollar. Maybe we are dealing with the old folklore that “blood is thicker than water.” They’re all Asians who have had their disputes, been all out enemies at times, but may join together against the greater enemy – against the nation with 734 military bases spread across the globe and becoming known as the greatest threat to peace the world has ever seen.

On top of that, we should not forget that Japan occupied Korea for more than thirty years before losing it in the Second World War. Then we went in from the South while China came down from the North and we clashed at the thirty-eighth parallel. The Pentagon itself is on the same parallel and sent our Army Reserve over there in summer uniforms when all our military strategists had to do was to look out their windows in order to see that it was winter.

U.S. Treasury securities are payable on demand and any time the holder decides to forego annual interest which, in terms of our total debt to investors, today amounts to an expense of more than a billion a day. Either China or Japan, acting individually, could bankrupt us overnight. Only American taxpayers are responsible for paying this money back. The not-for-profit American system of government has no other significant revenue except what it gets from taxes.

What are we going to do?

The politicians and bureaucrats in Washington would like everyone to believe that the national debt is a deep and complex thing, not a subject for amateurs. But the only thing that’s complicated about it is its size.

The first, most basic, thing to understand is that the national debt is divided into two distinctly separate parts – what the government deceptively calls “Public Debt” and what they’ve labeled as “Intragovernmental Holdings” (a Greenspan term for what was once called “Government Debt”). The first currently stands at $4.88 trillion and the second at $3.70 trillion for a total of $8.58 trillion as of the end of October 2006 and after another monthly rise of $77.3 billion.

Taken directly from the U.S. Treasury’s Bureau of Public Debt to the penny web site

One side (to the left) is completely honest and forthright. It’s where Japan, China, other countries, big pension houses, 401(k)s, and individual investors have their holdings. In fact, it should be more properly called “Loans” or “Investments” or “Investor Holdings.”

The other side (to the right) is a complete fraud, a scam, and totally corrupt. It’s composed of nothing but so-called “trust funds” that hold nothing but “special” nonmarketable, non-negotiable bonds. At last count, there were 134 of these accounts and none of them ever hold any real cash, not even for an instant. Cash that is thrown towards the activities represented by these accounts is taken by the government that pretends to have merely “borrowed” or “invested” it (it makes no difference) and is immediately spent on other things.

For instance, if a philanthropist like Carnegie donates millions for a specific purpose such as libraries, his cash stays in the Treasury’s general fund until it is spent elsewhere. The government, while pretending that they merely “borrowed” the money, adds the donation to their larder and deposits “special” nonmarketable nonnegotiable bonds in a so-called trust fund or account in Carnegie’s name. If a library is then needed in Chemung, the account will be drawn down by taking current taxpayer money out of the general fund. What’s more, the government will increase the account by simply placing more bonds into it and usually (but not always) calling that deposit “annual interest.” This interest doesn’t cost them anything except printing or the cost of an electronic entry.

There’s no need to devalue cash in circulation by printing more money. Not when these debt bonds can be used to cover all sorts of things, including their own lavish health and retirement plans. In a sad sort of way, we’re lucky the national debt isn’t much greater than it is.

What’s more, 97 percent of the debt in this second IH category is held by 32 entitlements with Social Security leading the pack and where our supplemental retirement system holds roughly $2 trillion in debt that we got by giving the government extra money and where they add self perpetuating interest by simply dumping more bogus bonds in the account every year.

Through exorbitant payroll tax overcharges, we handed them surplus money which they spent and then gave us debt in return, pretending that the same money can be both spent and saved. Did you ever hear of anything so outlandish?

In the case of Social Security, it’s double taxation plain and simple. That’s just one example of many entitlements involved in the rip-off. And don’t forget that Bush just told us “something must be done with entitlements” meaning the government needs to rip you off even more.

In April of 2005, seventy six of us signed an open letter to President Bush and members of Congress proposing that since they were so good at pretending things, they could pretend to be fiscally responsible by simply erasing these illegal nonmarketable bonds no one asked for and reducing the national debt by more than forty percent. The general public and most investors who had not noticed the scam they’ve been pulling would probably attribute the debt reduction to sound financial practices.

Do you think the democrats will do any different? I don’t. They’ve been going along with the scam for many years without much of a peep.

The democrat’s claim to financial fame is that in fiscal 2000 they balanced the budget and produced a $237 billion surplus. But they will never tell you where that surplus came from, and none of our loyal newshounds or think tanks have the courage to ask.

In fiscal 2000, the last year Clinton and Gore were in office, $87 billion of the surplus came from personal and corporate income tax overcharges. This was a large part of the tax reduction Bush initiated during his first year and was probably the only good thing he’s done in life besides marry Laura. Most democrats hate the fact that he cut these taxes and have been trying to get them back ever since.

The most important thing that’s never mentioned is that the vast majority of the 2000 surplus came from entitlement overcharges of $149.8 billion with Social Security leading the charge at $94.5 billion in its part of excessive payroll taxes.

It was also one of the few times the government counted the money “borrowed” from entitlements as a positive thing. Usually, when running deficits they somehow forget to include the surplus money “borrowed” from entitlements, especially Social Security surpluses that are still coming in by the truckload. It’s their golden goose and that’s why they want you to believe that it’s the booga-booga third rail of politics. And what they did in 2000 looked to me like a money laundering trick they learned from Marc Rich. Remember him and his music composing wife?

Did Bush even think about cutting payroll taxes?

While complaining about Bush’s income tax cuts, Charles Rangel (D-NY) and the once famous Dick Gephardt (D-MO) were bellowing that “if you want tax cuts, we’ll cut payroll taxes” but that’s as far as their threat went. No formal move to cut these taxes for working class Americans has ever been proposed, much less the correction of the federal government’s own lavish health and retirement benefits flourishing under the same scam.

Today, and after their victory, the democrats are telling us that they’ll “do things to make life better for the people.” Do you think they will have the guts to take on the scam they’ve been helping to run? Do you think they’ll stop stealing Social Security’s money? We’ll see. And what would they do with all that money if they did stop stealing and spending it?

We’ve been through that one before when the talk in pirate’s cove was about “lock boxes” which is exactly what “trust funds” are supposed to be. Because they couldn’t decide what to do with the money, they gave up and kept stealing it.

Today, they’re desperate for more money and the Pentagon wants another $160 billion over their half trillion 2007 budget to spend in Iraq and Afghanistan.

Onward Iraq

Proving that the cartoon character Pogo was right when he said “we have met the enemy and he is us” the financial magazine on Thursday, November 9, 2006, released an article titled “A Staggering New Bill for Iraq” that covered a new appropriation for an additional $160 billion in supplemental appropriations to carry on the conflicts in Iraq andAfghanistan.

And this is after the $92 billion Congress has already authorized in additional 2007 funding for the same purpose.

What’s more, Nancy Pelosi seems to have gone to bed and breakfast with the enemy and has just promised that the democrats will support everything for our troops in those countries even though the main reason her party was just put in control of Congress was because of public disgust with that very situation.

The only question I have is why the Bush administration hasn’t set up a War Chest trust fund so the war mongers could simply draw whatever money they want from taxes and money borrowed sitting in the Treasury’s general fund.

Maybe they can’t decide whether to call it a “War Chest” an “Invasion Chest” or a “Preemptive Invasion Peace & Protection” trust fund accompanied by a “Throttle Dissidents Torture” fund or the “Texas Cowboy’s Fast Draw” account.

Whatever the reason, it doesn’t look like it’s going to be as easy to borrow from other nations as it has been in the past. Even if they are just flexing their muscle a bit, you can bank on interest rates rising in an attempt to entice them.

Maybe Mexico will come to our rescue if we don’t build that fence across half of the 1,400 mile border. If they just sent back the money illegal aliens are pouring into their country, maybe we would be able to cover as much as five percent of what we’ve borrowed from China.

Just below the radar, by the light at the end of the tunnel, pushing the envelope towards a bridge into the twenty-first century, where the hallways smell differently, lies a constant assessment or bi-partisan outreach for common ground, changing the tone of bell-weather programs, hands across the aisle and global challenges to contain an evil devil monster from the valley of doom named bingo gas station motel cheeseburger with a side of aircraft noise and you’ll be Gary, Indiana, who wants to destroy our way of life. But hey, how about those Chicago Bears?

Published originally at : republication allowed with this notice and hyperlink intact.”

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