Saturday, 6 August 2011

U.S. has been technically in default since at least 1971. Debt-ceiling battle is a hoax.

A debt that can never be paid no matter how many times it is raised.

The high-stakes battle over raising the national debt ceiling, a battle that reduced the credibility of the White House and Congress to ever-new lows in the eyes of the public, was actually little more than a huge charade, a complete hoax.

The fact is the central government in Washington has been technically in default since at least 1971.

Almost 40 years ago exactly (August 1971), President Richard Nixon … unilaterally closed the “gold window” and repudiated America’s iron-clad promise in effect since the post-World War II Bretton Woods Agreement to redeem the dollar in gold to foreigners at the price of $35 per ounce. In taking this action, Nixon (who claimed it was only a “temporary” measure) essentially admitted America was broke and could not pay its creditors in real money. From now on, you’ll just have to take worthless fiat currency, foreigners.

Since 1971, the national debt has skyrocketed from $400 billion to more than $14 trillion. Federal spending has exploded from $200 billion per year to almost $4 trillion.

Obviously, once the dollar’s final link to gold was severed, there was no longer any restraint on the central government from spending recklessly and printing paper dollars to pay its bills. That’s why we are where we are today.

The fact is that the easiest way for governments to default on their debts is to debase the currency. That’s called “monetizing” the debt, printing money, QE3, or whatever the contemporary label might be. In the days of yore when monarchs ruled the world, it was called “coin-clipping.”

It works like this: Suppose you owe $1,000 on your credit card. If the government inflates the currency by 25 percent next year — thus devaluing the dollar — your nominal debt remains $1,000, but the real debt is reduced to just $750 because the dollar is worth less. Politicians and central bankers love to debase the currency.

They do it every day and you pay for it because prices then go up for everything you buy, from gasoline to groceries.

Inflation may be a hidden tax, but it is an insidious tax that eventually destroys any nation that uses it to pay down its debts. Think Weimar Germany or post-World War II China or more recent examples such as Argentina and Zimbabwe.

America is headed for hyper-inflation because there is no way a $14 trillion debt can be paid. Instead of doing the honest thing and simply repudiating the debt (the equivalent of a family declaring bankruptcy) and starting over with a sound monetary system and a central government that no longer maintains an empire abroad and a welfare state at home, the politicians and banksters will just continue printing money and destroying the value of your savings, retirement accounts and everything else you’ve worked all your lives for.

Written by Andrew Russo, Salinas California

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