I promised I would write a piece that explains why the “we owe it to ourselves” explanation of our national debt is pure hogwash. The thought process is that since “we owe it to ourselves” who cares how much total debt we have because it just doesn’t matter. If we defaulted, we would only be defaulting on ourselves so no harm no foul. This fallacy can be taken apart from several different angles so let’s explore a few of them.
From one angle, let’s look at this from a balance sheet perspective. If we “owe” something but that “something” is also an asset then they just cancel each other out right? Well yes, sort of but you also must look at this from a “quality” standpoint. If we owe “too much” and the debt becomes unpayable from a practical or mathematical standpoint then just how “good” is the asset (Treasury bond) that we claim on our balance sheet? One must also remember that for the debt markets to actually function correctly they must also be funded by foreigners. What has happened is that we have gone from a fully functional debt market where there was global demand to one where the lender of last resort (the Fed) has become the lender of ONLY resort. This concept of “we owe it to ourselves” was the not the case in the past but new debt paper is no longer being accumulated by foreigners on any scale that would clear the market. Were it not for the Fed’s purchases, Treasury securities would be at only a fraction of current prices and yields would be at record highs.
From another perspective, do we really “owe it to ourselves?” No, we owe China alone over $3 trillion followed by the Japanese and other foreigners. We owe nearly half of our “funded” (on the books) debt to foreigners which is a danger. I say a “danger” because China could very easily on their own turn our debt markets upside down in destruction. They could simply sell a large chunk of their holdings to break prices and jack interest rates up. “But they would never do this,” you say because they would be shooting their own holdings in the foot? Well, yes they would be but…think about the wars of the past. Have you ever heard the saying, “The spoils of war go to the winners?” This had to do with the “winners” securing the “losers” gold hoard. Isn’t this exactly what’s happening right now? Isn’t China importing gold at a rate that would eclipse purported U.S. holdings in less than 5 years start to finish? I have news for you and have said this before; we ARE at war, economic war. We have been at economic war for several years and we are losing miserably. The Chinese will “carry us” in this prizefight until there is no more gold to be had. The “knockout” will come once they are “failed to deliver” upon at which time they won’t care one with what their Treasury holdings are worth. In fact, they probably made the decision many years ago that these holdings were not worth anything of value other than an avenue to bankrupt us and a lever to pull when the time was right. That “time” will be when they are told there is no more gold forthcoming. This is a war that they will win (have won) without even firing a shot.
Switching gears, the Fed has built up a balance sheet over $4 trillion…which we “owe to ourselves” because it is the “Federal” reserve. Sorry to burst your bubble but the “Fed” is a private institution privately owned I believe by 13 families mostly of European background. We “pay interest” to them which in turn partly gets refunded back to the Treasury but that is not the point. Forget about the “dollars,” this arrangement is about the “control.” “Control” of interest rates, control of the money supply, inside information of which way the wind will blow next etc. Mayer Rothschild himself said that he didn’t care who the king was or which party was in power, he only wanted control of the “issuance” of money and from there he could control everything …which is exactly how and why the Federal Reserve was chartered in the first place.
Another angle which is forgotten is that when debt is created the “interest” that must be paid in the future does not yet even exist. The only way that the future interest can ever be paid is if more money is created…and the way our system creates new money is by…issuing more debt. This is the problem, in order to survive, our debt based system must by definition continue to expand (by issuing more debt) because the interest to pay past debt must be created by issuing new debt. The easiest way to explain this is that debt can never be “paid off” because there is not and never can be enough money to pay it off.
I guess from a common sense standpoint, even if we did “owe it to ourselves” and “we” as a nation were (are) bankrupt then what is it actually worth? The question “why does it matter?” is easy to answer. If the debt burden is too high and unsustainable then its (Treasury debt) “price” or value must also be “low” or not worth much. If this is the case then what is considered an “asset” (dollars which are owed) is also of little value. If you believe that the debt “doesn’t matter” then the flip side is that neither do the “dollars” which is why the Chinese are on loading all of the western gold that they can. They understand that gold is no one’s liability and the most “pure” of all monies (assets). All other “monies” (dollars, euros, yen etc.) are liabilities of someone, somewhere…except gold and silver. I will tell you that it absolutely does matter if “we owe it to ourselves,” not so much from the “owing” point of view but what it is exactly that we are “owed” and whether or not is has any value. Dollars “have value” because it is perceived that Treasury securities have value. Whenever the “perception” changes and one or the other is no longer perceived to have value…neither will the other because both dollars themselves and treasuries are tied at the hip. In other words you cannot have one without the other.
On a totally different subject and one of ‘lore, yesterday was Groundhog Day. I have a more trustworthy indicator and one that is sanctioned by Mother Nature herself. Rather than watching some “squirrelly” thing pop in and out of its borough, I think that it’s better to just brush your horse. If while brushing, if some of the “furry” hair comes off then you can bet that warmer weather is just around the corner. Here in south Texas even though it was 77 degrees yesterday, Principe’ is not losing any hair yet at all and still looks like a 1,200 pound “baby chick.” I think that it’s safe to say that we will have “another 6 weeks of winter”…or at least that’s what Mother Nature is forecasting.
I don’t mean to cut & paste & hopefully I don’t appear condescending, but you are spot on in this paragraph, in that it is a flippin’ ponzi scheme (sorry I added the ponzi scheme part):
Another angle which is forgotten is that when debt is created the “interest” that must be paid in the future does not yet even exist. The only way that the future interest can ever be paid is if more money is created…and the way our system creates new money is by…issuing more debt. This is the problem, in order to survive, our debt based system must by definition continue to expand (by issuing more debt) because the interest to pay past debt must be created by issuing new debt. The easiest way to explain this is that debt can never be “paid off” because there is not and never can be enough money to pay it off.
This paragraph is awesome Bill. Great great explanation of the “macro-view” of this farce of a system. If I could only translate it as well, as you write it, to the people i care about to get out of the way of this train wreck.
btw my dog’s coat agree with your horse on the weather. Just wish the darn dogs could have telegraphed the economy to me 10 or so years ago.
thanks SG
Whenever I hear, regarding government bonds, that “we owe it to ourselves” I am reminded of Murray Rothbard’s reply which went something like “One must be very careful to distinguish between who the ‘we’ and the ‘ourselves’ are in that statement lest people draw the logical conclusion that the Jews of Nazi Germany committed suicide.”
yes correct.
So why continue to pay ? The bankers have a shoe in on ALL loans they make ! All they have to do is stop lending and then start foreclosing on ALL debts!-meaning they now own everything that had a debt by having a license to counterfeit ! So we #1 keep getting fleeced by continuing to pay this fraudulent scheme ! OR #2 we declare ALL out of thin air debt NULL AND VOID because of FRAUD ! And we ALL keep everything we have so called debt on! MOST people don’t get this part Every car boat house machine tool farm has already been paid for by the fraudulent paper so no one looses !! WE sure as hell cant give to the banksters (let them steal it)!AND IT DOESENT MATTER IF YOU WANT TO JUST REDUCE THE DEBT ITS STILL UNPAYABLE! So when we void the FRAUD This will be the ultimate FRESH start for everyone ! Share this if you want THE solution to the WORLDS problems! if not everything will continue to get worse until we HONEST DEBT FREE MONEY /and GOLD AND SILVER ! And there is plenty of gold and silver just Divide the paper money by the gold /silver and you have the value of them NO MATTER WHAT IT COMES TO per OZ !! Then we would be happy to work for SAY A DIME A day ! Because NOW a dime will buy what a $100 did before the reset!! THINK ABOUT IT !
WE OWE TO THE SUPER RICH WHO OWN THE FED. THAT MEANS ALL THE BANKS ACROSS THE WORLD THAT MEAN THE U.S. DOLLAR .THEY OWN THE F. COUNTIES AN THERE DOLLARS .THE SUPER RICH ARE GOING TO CALAPPS THE WORLD E. IT CALLED A RESET OF THE WORLD.
Jim, FRAUD voids everything in law GET IT?
So why continue to pay ? The bankers have a shoe in on ALL loans they make ! All they have to do is stop lending and then start foreclosing on ALL debts!-meaning they now own everything that had a debt by having a license to counterfeit ! So we #1 keep getting fleeced by continuing to pay this fraudulent scheme ! OR #2 we declare ALL out of thin air debt NULL AND VOID because of FRAUD ! And we ALL keep everything we have so called debt on! MOST people don’t get this part Every car boat house machine tool farm has already been paid for by the fraudulent paper! so no one looses !! WE sure as hell cant give it to the banksters (let them steal it)!AND IT DOESENT MATTER IF YOU WANT TO JUST REDUCE THE DEBT ITS STILL UNPAYABLE! So when we void the FRAUD This will be the ultimate FRESH start for everyone ! Share this if you want THE solution to the WORLDS problems! if not everything will continue to get worse until we have HONEST DEBT FREE MONEY /and GOLD AND SILVER ! And there is plenty of gold and silver just Divide the paper money (FRN) by the gold /silver and you have the value of them NO MATTER WHAT IT COMES TO per OZ !! Then we would be happy to work for SAY A SILVER DOLLAR A day ! Because NOW a REAL DOLLAR will buy what a $100 did before the reset!! THINK ABOUT IT
Bill thanks again! One cannot be serious in thinking that they owe money which was not created by them to themselves! That in it self is the most horse manure I have heard in years. So people really believe we owe a debt instrument called dollars to ourselves? WOW! The only thing I owe to myself is the make sure my family is protected and I can provide for them. As far as any debt goes, whoever feels they owe it, let them pay it. One must be very careful when they say we, because I never voted for any of these cryptocrats in my life. So whatever they create is theirs to pay and from where I am, it looks like HELL to pay!
Colloiin’s “Why do we continue to pay?” Is a VERY good question. Those of us who do pay [through the nose] could shut it all down by just refusing to pay [anymore]. What to they do with the money [our money] we do pay? They use it to pay people not to work – because that usage buys them votes.
When the black people said, “enough” they used a tool called, “civil disobedience” to bring the injustices being done to them to National attention. If those of us who are being discriminated against (differential treatment is Unconstitutional) used this tool, i.e. refused to pay our taxes in masse, we could shut this government down over night. All we would need to do would be to refuse to pay. We demand our Constitutional rights to EQUAL treatment under the law. It is UNCONSTITUTIONAL for the majority to vote away the rights of the individual in this country. The individual is sovereign according to every tenant in The Constitution. The Political Class does not like that rule of law when it comes to the sovereign individuals earnings. Applying the rule of law of equal treatment when it comes to a man’s earnings would, in affect, neuter the Social Democrat / the Political Class.
As far as money we owe to ourselves is concerned… there is Social Security. Imagine when the Government fails to make good on those promises, i.e. fails to come up with the money they promised to those who paid into the system / “ourselves.” Of course they have already spent these funds and thus they no longer exist. So if one wonders: “What does it matter because we owe the money to ourselves?” Imagine untold millions of old people who have had the only line of defense left to them to avoid starvation reneged on. If you picture that scenario in your mind’s eye you will get a very clear picture of why it does matter what we “owe to ourselves.”
good one Don Paul!
Bill When not IF the government defaults on social security and welfare we will have total pandemonium in the streets that is where this debt system is taking us because its unsustainable if we just wait for that day we will have banks throwing people out in the streets ! If we void the debt we all are suddenly debt free ! And on that same dreadful day we would have things we can sell to survive like our house car ect. instead of the bank taking EVERYTHING and tossing you in the street with NOTHING BECAUSE WE LET THEM STEAL IT BY PRINTING FUNNY MONEY
Reading the creature from Jekyll island book and now have a better understanding of the dynamics in regards to the fed. They are not for America , they are an international banking cartel that rules the world. It’s the biggest scam in history. They create money out of nothing , lend it to the government so politicians can remain in power without taxing the population for the real cost of spending, they have the corp banks in their hand due to allowing them to create money out of nothing with fractional reserve banking, then they collect billions in interest income and make loans to countries to buy off their politicians and get them do far in debt they are submissive . Oh they love supplying loans to both sides of wars that’s their bread and butter. They have so much money and control I think the goal is to bring down the USA , make Americans suffer so they give up their sovereignty and have the IMF or world bank issue a new world order. First is bring down USA to its knees, how else can it be explained? Andrew Jackson knew, even Woodrow Wilson knew he was duped into signing onto the fed. Unless congress passes a law to end the fed we are screwed . Maybe Americans will wake up during the collapse and demand sound money, that’s my hope. But 99% of population think fed is part of the us govt or don’t even know what money is , where it comes from and who the fed is anyway . We are screwed
we are.
WINNERS NEVER QUIT AND QUITERS NEVER WIN !