In our economy, debt is an abstraction. There is no real "equation" that can determine insolvency. by Gene DeNardo
(libertarian)
Friday, June 24, 2011
Since the economic malaise began a few years ago, several nations have fallen victim to the debt disease. The euro is faltering and there is widespread fear that the dollar will follow suit or has already begun its decline. It is the general consensus that national debt is the cause of this currency valuation decline.
While it is true debt can be a limiting factor in a non fiction economy, one based on real value, government debt and debt in general plays an entirely different role in the fiat economy.
Economists widely predicted only recently with certainty that the point at which the federal debt equaled or exceeded the gross domestic product would guarantee economic implosion.
Of course, the warnings ceased or were adjusted when we arrived at that condition. Presently, the debt and the Gross Domestic Product both stand at somewhere beyond 12 or so trillion and although the economy is nothing to write home about, it still plods along; if you can refer to a 12 trillion dollar economy as plodding.
In fact, so much of the GDP is federal expenditures, using a ratio that includes both of those figures in the same equation to foretell anything is meaningless. If you can increase the GDP by increasing federal debt, how can the ratio of the two to each other tell us anything other than increasing government debt also increases the GDP?
We have also accepted the assertion that the debt payment will soon grow too large and government will be unable to make the payments. At present, about forty percent of the income tax revenue is required to fulfill our debt obligations. Since the income tax was never meant to actually fund the government but instead to fund government debt, obviously we have a long way to go before we lose that avenue of payment. We arent even half way there when it comes to income tax revenue.
The Fed also extracts an amount equivalent to income tax revenue, about one trillion dollars, in fees, royalties, other taxes, etc. So we are less than one fifth of the way of using up both of these two means that the state has at its disposal to pay for debt service. What is being fought over now in political circles, the debt ceiling, is nothing more than a random number that is periodically adjusted to compensate for higher debt.
But, wouldn't future debt payments that absorb an ever larger portion of government revenue restrict the ability of government to use those same funds for other purposes, eventually limiting the scope and power of the state?
The government, in collusion the Federal Reserve and the transnational banking cartel, possesses the force and ability to create endless money. And, it does just that. It creates whatever amount of money it believes is required to continue to grow and expand the state and subsidize its beneficiaries at an always increasing rate.
All of this new money passes through the hands of the selected traders, that elite group of multinational firms that the Fed exclusively does its business with, and a good percentage of it is reinvested by the traders in Treasury Securities. Treasury securities fund the government and increase the debt {which further grows the debt profit industry}, completing the cycle. Thus, the enablers of our economic system believe there is truly no need for real money. It is so much easier to control and distribute its substitute.
There is no combination of numbers, any ratio or equation, no calculation that can be used to determine the point of no return. As long as the ability to produce money is infinite, the amount of debt it will take to derail the coercive economic system can never be accurately calculated. It is impossible to foresee the combination of factors that would push a debt based economy over the brink. As long as debt is perceived as a viable investment vehicle, the cycle will continue.
This doesn't mean that some nation states wont fall prey to the debt predator. It is necessary to punish a few of the minor players in order to maintain the illusion that there are actual rules and limits to the system and to increase the perceived strength of the dominant currency{s}. If this werent the case, there would be no sense of order and average people might lose their faith in the system as a whole and abandon work which actually produces real value. It also reinforces the notion of dominate currencies and bestows upon an artificial value system a sense of relative value.
These nations, such as Greece and Ireland, are the sacrificial lambs of the system. They have done nothing the dominant states havent and arent doing right now; they just went about it in a manner not approved of by the decision makers, whom are always representatives of the countries that hold the dominant currencies.
These less fortunate states are allowed back in the game, as long as they agree to accept larger loans and higher interest rates, in other words, even greater debt. The demand the subordinate nations create for the dominant fiat currencies is very necessary for the success of the system. The worse shape the weaker economies are in, the higher their demand for a stronger currency.
While byproducts of this coercive financial system are volatility and instability, debt itself can never destroy the system. On the contrary, the foundation and lifeblood of the system is debt. Without debt, the status quo financial system is not a possibility. Without debt, it is impossible to sustain the primary benefactor; the elite creditor class.
As long as the state maintains its ability to produce money, the actual numeric amount of the federal debt is of little consequence. The debt amounts we are witness to today would have driven the most fanatical Keynesians to drink only decade or two ago. What we perceive as great debt today may seem trivial in a few more decades, if the debt glue can continue to keep the various pieces together.
Unrestricted monopoly money production is the license to create infinite amounts of debt with no intention of reimbursement. There is no magic numerical amount of debt that insures the downfall of debt based economies. Debt is institutionalized theft, the lifeblood of the coercive economy.
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