Great Analogy of the US National Debt

A 5% interest return on the use of money is about par and for people that have the money to loan to others, which is really what a T-bill represents (i.e. the loan of private money to the government), would be a fair cost for the use of that money. Of course if the government was "playing fair" the interest on our $15 trillion national debt would be $750 billion a year which is about 1/2 of all general tax revenues. Of course eventually the interest rates will rise again as the Fed can't keep printing more Federal Reserve notes indefinately.

I'm actually anticipating interest rates to rise back to the levels of the early 1980's and the interest on the national debt will go above 10% or basically equal to ALL GENERAL TAX REVENUES. That will leave ZERO dollars for any general expendatures.

People simply can't understand the seriousness of the national debt and the harm it is causing to America. The politicians should know and should be taking measures to address this problem but they're not. Either they're the most ignorant people in America, not beyond the realm of possibility, or they are intentionally bankrupting America.

 

They are still funded by the tax payer, and will be more so as us baby boomers stop working (less Federal income) and start tapping SSI & Medicare. The consumer even pays tarrifs, I doubt there is any Federal income that doesn't come from the consumer, even the bribes, ah "contributions", corporations give politicians.

Excellent point. I have full faith that if we set 10% of GDP as a limit, GDP would triple every year for 1000 years....

Taxing children hasn't cost votes until now, so they want to tax the rich. The problem is the rich pay for campaign contributions. The Democrats will demonize the rich for a while, then they will gain more votes than they lose. That still won't balance the budget.

The current situation means the politicians lose votes if they rasie taxes, and if they cut spending. The point of making taxes painful is to put the voter back in charge of the politicians.

Most of the government spending is unecessary, outside the scope allowed by the constitution, and creates a weaker public that stopped looking out for themselves because the government is going to do it.

 

Don't forget they also allocated an additional $500B on Obummer care.

 

If interest rate increased, the housing market bubble would have been stopped, as would the need for more triple A paper to fund the housing bubble.

But, hey, if the interest rate increased, the government couldn't have borrowed so much money, and would to have to pay more back (the second largest lender to the government - retiree's).

 

Good concise summary of the problem. It is always the money. I don't get how people think we can just print it & keep going. It does not grow on trees. We cannot spend more than we make. It is just like real life.

 

I like the analogy but they totally screwed up the ending. An accurate analogy would have had the kid playing with new toys that signed on the dotted line to show we keep them in the dark (out of the bank office) while portraying a benefit.

 

Granny says dem politicians is spendin' us all into the poorhouse...

Gov. Mitch Daniels: ‘Terrifying Rate’ at Which U.S. Debt Is Accumulating ‘Will Lead to National Ruin’
March 13, 2012 – Indiana Republican Gov. Mitch Daniels said Tuesday that the size of the U.S. national debt and the rate at which the debt is accumulating will lead the United States to “ruin” -- and no other outcome is mathematically possible.

See also:

'Military-Industrial Complex Has This Country By The Throat'
Wed Mar 14, 2012 - CNN commentator Jack Cafferty railed against the United States’ ongoing involvement in Afghanistan following the alleged murder of 16 Afghan civilians by a rogue U.S. soldier.

 

People don't understand the nature of money.

They wrongfully believe that Federal Reserve notes are "money" but they are not. They are "legal tender" promissory notes representing the borrowing of money according the the Supreme Court decision in Julliard v Greenman. We actually have "Legal Tender Lawful Money" which are American Eagle coins and "Legal Tender" currency which is the promise of payment in "Legal Tender Lawful Money" under the Constitution.

Here's a problem though. The US government needs (or wants) to borrow "Money" but instead it doesn't receive "Money" but instead accepts "Legal Tender" promissory notes being produced by the Federal Reserve. Our government never actually recieves any "Money" when it borrows but instead accepts the promise of "Money" when it borrows. It issues a Treasury Promissory Note for a Federal Reserve Promissory Note but never actually gets the "Money" that is promised. It's very much like going to Avis to rent a car but all you're given is the paperwork for the rental but not given the car itself.

We can also note that the US Constitution does not authorize the US govenment to "create money and regulate the value thereof" but instead to "coin money and regulate the value thereof" and there is a huge difference between the two. Coining money is taking "money" which is silver and gold and minting into "legal tender lawful money" and is a manufacturing process. The government cannot logically "create" money because it is gold and silver and the government cannot create gold or silver. It can only manufacture it into coinage.

Based upon the current legal definition of "lawful money" in the United States the United States government has borrowed the equivalent of 300 billion ounces of gold which is far, far more than all of the gold ever produced in the history of the world. If the US government required actual payment in "lawful money" for the purchase of Treasury debt it would have been literally impossible for the government to borrow $15 trillion. There isn't enough gold to cover that amount of debt in the entire world.

 

But supposing you invade a country and reduce it to near rubble .
Two or three years later , say , you invest one trillion in infrastructure whose worth has dropped from an indexed 100 to 2 , that is , property etc is just selling for land value price .
You build from your one trillion investment and five years later the property is at index 190 versus start point .
Your profit is a multiplier of 95 .
Ninety five trillion .
Should solve most problems .
Incidentally the example is based on Iraq 2006 where it is suggested the multiplier will be 140 .
Good ?

 

More good points. The problem as i see it: there is no way out. We, the us govt, has issued promissory notes for so long, & everyone has pretended it is 'real money' for so long, that returning to a hard currency is impossible, as you have noted. It seems to me that the collapse of the dollar, like greece, is inevitable. At some point, there will be one major player that will dump their tbills. For what, i don't know. Then all the rest will begin to follow, & the hyper inflation that always accompanies this kind of monetary policy will ensue.

The creation of the current fiat currencies of the last 100 yrs or so has made more super wealthy people than ever before in the history of the world. It is an illusion. They only own fiat... a declared value. To be fair, it probably has also helped create a middle class.. nothing like the world has see before, either. But both may be short lived. I do no know what kind of currency can be concocted that can be based on something of value, & still hold it's value in uncertain times.

Back in the mid 70's i remember trying to get a home loan. Interest rates were in the 20's! It was all because of deficit spending, said the economists. Of course, this was when the federal reserve tried to actually make sure the dollar had some substance behind it. But now that the treasury, the fed, & the executive branch are all on board with getting something for nothing, they have made sure the interest rates are low, even though there is nothing behind it. Wait, i forgot the legislative & judicial branches.. they were in on it, too.

I'm not completely convinced a hard money system can work in a modern, industrialized world. There isn't enough gold to fund all the nations on earth & their economies. But our currently mismanaged fiat system is nothing to brag about. Fortunately for the us taxpayers, there is nothing better out there, so other nations will continue to invest in us & hold off the dollar's impending collapse.

All the perplexities, confusion and distress in America arise not from defects in their Constitution or Confederation, nor from want of honor or virtue, so much as downright ignorance of the nature of coin, credit, and circulation. ~John Adams

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. ... This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard. ~Alan Greenspan

With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people. ~Friedrich August von Hayek

 

Actually it's not impossible but it is hard and "expensive" to do. For example, simply paying off the national debt eliminates the 300 billion ounces of gold obligation of the US government. That does not redeem all Federal Reserve notes.

Next, force the Federal Reserve to start redeeming it's promissory notes in "lawful money" which are American Eagle coins. This is actually required by Title 12 but the law hasn't been enforced by our government.

Finally, because the Title 31 requirements for the Federal Reserve to ensure that Federal Reserve notes must be equal in purchasing power to American Eagle coins has never been enforced it would probably mean revising the Gold Bullion Coin Act of 1985 to increase the demonination value of American Eagle coins. In short, a one ounce silver coin with the current denomination value of $1 would be changed into a $30 silver coin and a one ounce gold coin would be changed to a $1500 denomination as opposed to the current $50 denomination. This is the approximate market value of "lawful money" today.

Yes, this "devaluation" screws the American People but then the Federal Reserve has been screwing the American People since it was created but it would return us to a "lawful money" economy.

 

At least Medicare is supposed to be funded by FICA contributions.

Obamacare will be funded by everyone and everything located anywhere in the USA...

 

I'm going to provide a quick hypothetical situation that is not beyond the realm of possibility.

The US government can go bankrupt by incurring too much debt and it's close to that point now. As soon as the tax revenues don't meet the interest payment obligations the US government is bankrupt and we're close to that now.

The only way the States and the People can absolve themselfs of the federal debt is to call for a Constitutional Convention and desolve the United States. Each State would be left on it's own and all Federal Reserve notes would become void. Each state would then be left to create it's own money and it would be basically the same money the States had before the forming of the US government which are gold and silver coins.

Everyone's savings accounts would be wiped out instantly but the economy could endure. It would be very painful financially for Americans but it would be less painful than the alternative of the People having to bail out the Federal Reserve and the US government. In the end the United States would cease to exist completely and instead we'd have 50 independent sovereign nations.

 

If we assume $1 trillion per year in deficit spending, and you split the cost with higher taxes and a reduced budget, this means the government will extract another $500 billion in tax revenue from the private sector, and reduce government by $500 billion.

$500 billion in tax revenues is about 22% more tax revenue than we currently collect...this is a huge increase. $500 billion in reduced government spending is about 13% of current spending...again a large number.

Taking $500 billion out of the private sector economy will remove about 5,000,000 jobs ($100K per job). $500 billion in additional government spending will create about 2,000,000 jobs ($250K per job). Reducing government spending by $500 billion will remove about 2,000,000 jobs ($250K per job). So...we lose 5 million jobs, then add 2 million jobs, then lose 2 million jobs, for a net loss of 5 million jobs. And this does not disclose other collateral damage to the economy.

All of the above and we still have not paid a dime towards the debt. In our dream scenario even if we could come up with $200 billion per year in surplus tax revenue to pay down the debt, at the current $15 trillion in debt, it will take approximately 75 years to pay down the debt!

You are correct that it can be done, but IMO because of the scope of the problem and it's negative effects, today and for the next several years, it won't be done...

 

Regarding the BOLD above, unless we are to terminate social spending and military and homeland security and other government BS expenditures, today the USA is paying it's debt interest with more deficit spending...like using a credit card to pay for another credit card payments.

I'll bet most Americans would love to have the government's revolving credit system; go into debt, then go into more debt, then pay your debt interest with more debt.

Regarding your scenario above...wow! I think I'll start drinking wine early today...

 

I would advise absinthe. Although the hallucinogenic properties of wormwood are exaggerated anything is better than nothing. LOL

It really is a wonder that so many Americans fail to see the problem for what it really is. It is actually far worse than what's being described here.

I'll say one thing, even though I hate taxation, Congress needs to first start raising taxes. They need to raise them until they begin to "hurt" the average taxpayer. Then and only then will we see the People demanding the severe cuts in expendatures that we've really needed for decades.

Democrats, for one, think that all of the financial problems can be solved by the rich and they're idiots. All of the wealth of all of the wealthy people in the United States won't buy us out of the hole that Congress has dug. It wouldn't even equate to a shovel full of dirt in a 300 ft deep well.

 

This just in; http://money.cnn.com/2012/03/16/news/economy/obama-budget/index.htm?hpt=hp_t2

 

Instead of raising tax rates, I would prefer Obama explain to everyone that starting this year the government MUST assess a DEBT TAX on Americans. Just have Obama demand that every American 18 years or older to send a $50 check on July 4th to the federal government.

This alone will create a revolution!!!

 

While not surprising the interesting statement I found was this:

We have a $15.2 trillion debt currently if I'm not mistaken so this is calling for a $9.12 trillion reduction in the national debt. Now I'm not exactly sure if this is over 7 years for the 2010-2019 decade or for the next ten years that would end in 2022. Either way it's would require $9.12 trillion in more revenue than expendatures. It also means that the projected $6.4 trillion in deficits Obama proposed between 2013 and 2022 that the CBO calculated would have to be cut from the budget as well.

Now, want to hear a real scary thought. Back in 2008 when Obama and McCain were running against each other the experts predicted that McCain's budget proposals would create larger deficits than Obama's budget proposals. Does anyone besides me remember that? Amazingly even though not being elected we can tell from McCain's political rhetoric that he would probably have generated greater deficits than Obama. With McCain's "Bomb, bomb Iran" and "Bomb Syria" comments we could almost assume the US would be involved in four wars today instead of one.

 

That is cute but would only represent about $11.5 billion or equal to, by analogy, a single rain drop in a thunder shower.

How about having everyone send in $1,500 instead. Didn't the federal government send out $1,500 checks back in 2009? Let's just send the same money back to the government and call it a no interest loan.

 

$1.2T in debt, would be $5000 for every man, woman and child.

Or, they could levy a $1M a year tax on each of the 1% making $250K or more.

That balances the budget (assuming no more increases).

 

While I give McCain credit for being a great war-monger, I'll also give a little credit to Congress and the American public who would have impeached McCain if all he did was strut around like General Patton wanting to kill something. But I also must wonder what our current Congress will do should Obama decide to do something stupid with Iran?

Maybe they meant down to 60% of the current debt or reducing it 40%? Either way the numbers IMO are too huge to deal with, and as you say, they would also need to lop off Obama's $6.4 trillion in debt as well.

It must be nice to be president of the USA today in which they can arbitrarily commit the nation to more and more debt with zero need to pay off any debt...

 

My point was not to raise a certain amount of cash. My point is even if we were to ask for a measly $50 from every adult citizen, there would be a revolution! IMO 50% won't even pay it, 25% will pay it pissing and moaning, and 25% will just say okay.

I can buy the idea that millions of people live pay check to pay check with no savings, etc. and they struggle in this economy so coming up with $1500 would be tough. But I can't buy the idea that every adult American cannot prioritize their spending in order to provide $50 to the government on July 4th.

And this is what pisses me off in my July 4th scenario is that IMO millions of so-called Americans would rather buy non-essentials than give $50 to their government...and this sucks big time...