Best of the Week
Most Popular
1.China Crash, Greece Collapse, Harbingers of Stock Market Apocalypse Forecast 2015? - Nadeem_Walayat
2.Gold Price Awaiting Outcome of Greece Crisis - Clive_Maund
3.Gold Price Peculiar 6 Month Cycles - Rambus_Chartology
4.Gold Price Just a Little Bit More - Bob_Loukas
5.8 Unprecedented Extremes Indicate a Stock Market Bubble in Trouble - EWI
6.Gold And Silver – Without Either, You Will Be Greeced - Michael_Noonan
7.Lies, Damned Lies and Statistics - James_Quinn
8.China Crash, Greece Crisis Harbingers of Stocks Bear Market? Video - Nadeem_Walayat
9.Gold and Silver Record Shorting - Zeal_LLC
10.Markets Big Deflationary Downwave Quick Reference Guide... - Clive_Maund
Last 5 days
Greece- What Happens When Economists Talk Politics - 29th July 15
The Gold - U.S. House Prices Ratio As A Valuation Indicator - 29th July 15
Will Crude Oil Price Decline Continue? -Video - 28th July 15
Gold & Silver Money Has Devolved Into Debt and Plastic - 28th July 15
Buy and "Own Gold Krugerrands" Says Money Expert Jim Grant, Very Bullish on Gold - 28th July 15
How to Protect Yourself from China's Crashing Stock Market - 28th July 15
Quantum Geopolitics - 28th July 15
Gold Mining Stocks to Weather the Storm - 28th July 15
Stock Market Bulls Beware! - 28th July 15
Will Chinese Stock Market Crash Affect the US? - 27th July 15
Crude Oil Price Under $48! - 27th July 15
Are We Seeing a Trend Reversal with U.S. Interest Rates? - 27th July 15
How to Know When the Gold Bear Market is Over - 27th July 15
Gold Bear Market Phase III - 27th July 15
Silver Bull Hammer Buy Signal - 27th July 15
Gold Cracks Support and Plunges to New Lows - How Low Will Price Go? - 27th July 15
Commodity Markets Breakdown Of 2015 Is Now A Fact - 26th July 15
Gold Price at a Five-Year Low: Here’s What to Do - 26th July 15
Stock Market Primary III Inflection Point - 26th July 15
Central Banks and Our Dysfunctional Gold Markets - 25th July 15
Gold And Silver - The US Dollar Does Not Exist, Part II - 25th July 15
How Wall Street Put Apple Stock in Animal House - 25th July 15
How to Trade Markets Using the Stochastic Oscillator - Video - 24th July 15
A Bond Market Crisis Is Coming... Here's What to Do - 24th July 15
Why There's Resistance to the Iran Nuclear Deal - 24th July 15
Absurd Gold Stock Levels - 24th July 15
Gold Mining Stocks Nearing Rebound - 24th July 15
Misperceptions Create Significant Bond Market Value - 24th July 15
Commodities Distressed Investing - 24th July 15
OPEC Shorts Are Driving Down the Crude Oil Price - 24th July 15
USD Index Rebounds - 24th July 15
If You’re Worried About a Tech Bubble, You’re Focusing on the Wrong Thing - 24th July 15
Gold Stocks Bear Market Bottom Buying Opportunity? - Video
The Stealth War on the United States - 23rd July 15
Commodity Prices, Gold and Silver Stocks Next Leg Down - 23rd July 15
The ‘Real’ Reason the Fed Wants to Raise Interest Rates - 23rd July 15
Crude Oil Price Slump is a Once in a Decade Opportunity to Make Money, Guaranteed - 23rd July 15
Gold Price Hits a 5-Year Low: How to Time the Next MAJOR Bottom - 22nd July 15
Silver and the Deflation Thesis - 22nd July 15
Gold Price Crash - Trend Forecast 2015, Gold Stocks Buying Opportunity? - 22nd July 15
The Three Reasons Behind Iran’s Resistance to the Nuclear Deal - 22nd July 15
Winning the Hunger Games - How to Choose Successful Agriculture Investments - 22nd July 15
Are Free Markets The Solution? - 22nd July 15
Gold Hammered “Unprecedented Attack” - 21st July 15
The Turkish Enigma - 21st July 15
Gold and Silver: The Final Capitulation Commences - 21st July 15
Greater Israel Setback from Iranian Nuclear Agreement - 21st July 15
U.S. Housing Market: Is the Roof About to Cave In (Again)? - 21st July 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stock Market Bubble in Trouble

Growth in U.S. National Debt

Interest-Rates / US Debt May 30, 2012 - 11:40 AM GMT

By: BATR

Interest-Rates

Best Financial Markets Analysis ArticleThe one inescapable drag on the economy and every American taxpayer or government dependant is the interest obligation paid on the national debt. Indebtedness is nothing new to this country, but the inability to service the public debt stretches over the last half century. This trend is so disturbing that politicians spend every waking hour avoiding the consequences of the ultimate outcome, the demise of the currency. The reserve currency status that has allowed for effortless deficit spending has a day of reckoning. The final collapse of the global empire and superpower will smell more of financial evaporation than of a military defeat.


A brief review of The National Debt: How Did We Get Here?, provides a valuable background.

"Historically, the debt generally increased because of wars and economic depressions. The debt was then reduced after the war or during more prosperous times. This trend was broken beginning about 1918, and definitely so by the end of WW2. The last time the debt was actually reduced was in 1957 when it declined by 0.82%."

What power on earth can reverse this ominous pattern of refusal to balance the books of federal spending? Do not look to the voodoo economics propagated by the free traders over at Redstates. "If the government stops accumulating debt today and dedicates oil from shale to paying off that existing debt, and if we produce just 8% of that oil and sell it on the global market, we can completely pay off our national debt with the proceeds." Stop and evaluate such hooey.

Putting the federal government into the oil fracking business and selling domestic resources on the world market is an obscene economic model. Also, the notion that Congress would go cold turkey and ban any budget that is not in balance is about as probable as closing all foreign military bases because of funding shortfalls. However, the rudimentary reason that the growth in federal debt continues to rise is directed by who owns the obligations.

In Who Owns the U.S. National Debt?, an outline of entities that provide the money that finances the debt is informative.

The largest part (40%) of the Debt Held by the Public is owed to foreign governments and investors. The next largest part (20%) is not really the public, but other government entities, like the Federal Reserve and state and local governments. Another $2.6 trillion (20%) is held by the public through mutual funds, private pension funds, savings bonds or individual Treasury notes. A wee bit is held by businesses, like banks and insurance companies. Here's the breakout:

Foreign - $4.5 trillion

Federal Reserve - $1.4 trillion

State and Local Government, including their Pension Funds - $708 billion

Mutual Funds - $636 billion

Private Pension Funds - $616 billion

Banks - $316 billion

Insurance Companies - $253 billion

Savings Bonds - $188 billion

Other - $1.2 trillion. (As of December 2010. Source: Treasury Bulletin, Ownership of Federal Securities, Table OFS-2)

Even under near zero interest rate returns, the trillions needed to satisfy the hungry appetite of spending continue to flow, even if the Federal Reserve needs to be a buyer of last resort. In a prosperous "main street" domestic economy, tax revenues would increase because the velocity on money expands. Yet taxation alone can never retire the national debt as long as the debt created money of central banking exists.

When the Federal Reserve buys T-bill securities with phony money of their own creation, the monetization function of that purchase, swells the liability. Each succeeding presidential administration expounds upon the previous expenditures. Push back for fiscal responsibility from Tea Party proponents, meets with hostility by the elite political class, and illustrates the resistance for eliminating the freewheeling spending practices.

The growth in the national debt is just the most obvious tally that gets attention. Even the CBO's 2011 Long-Term Budget Outlook promotes the tax more and spend less con game that is a focal point in the current election cycle.

Higher levels of debt imply higher interest payments on that debt, which would eventually require either higher taxes or a reduction in government benefits and services.

Rising debt would increasingly restrict policymakers' ability to use tax and spending policies to respond to unexpected challenges, such as economic downturns or financial crises. As a result, the effects of such developments on the economy and people's well-being could be worse.

Growing debt also would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government's ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates. Such a crisis would confront policymakers with extremely difficult choices. To restore investors' confidence, policymakers would probably need to enact spending cuts or tax increases more drastic and painful than those that would have been necessary had the adjustments come sooner.

In the article, Just who will pay the debt?, provides a stark analysis.

"In an era where governmental debt on all levels rises continually and out strips growth in population, the percentage of each citizen’s accrued share to sustain that debt, inevitably must increase. With the incurable appetite of ‘public servants’ to invent new programs, entitlements and agencies, the concept of limited government has long passed into memory. The aftereffect of unfair international trade has shackled the economy with permanent balance of payment shortfalls. The expansion of state and federal bureaucracies of all kinds, coupled with additions to local municipalities, has produced the only growth occupations, virtually immune to layoffs. Contrary to public myth and distortions, inflation in essential necessities has not departed, as the purchasing power of your money buys less."

The only way to resolve the bogus national debt, based upon the central banking counterfeit currency swindle, is to renounce the debt as illegitimate. Nothing else will stop or even slow down the rapid expansion and growth of the national debt clock from collapsing the economy and destroying the currency.

James Hall – May 30, 2012

Discuss or comment about this essay on the BATR Forum

http://www.batr.org

"Many seek to become a Syndicated Columnist, while the few strive to be a Vindicated Publisher"

© 2012 Copyright BATR - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History