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Last Updated:
Sunday, October 01, 2006 02:04:54 PM

Sunday, October 01, 2006

Inherent National Bankruptcy
by Jim Cater

Last Updated: Sunday, October 01, 2006 02:04:54 PM

Charles Ponzi (1882-1949)
Charles Ponzi (1882-1949)


e are all familiar with a Ponzi scheme. The basic principle is to promise investors that money put into control of the operators will return high interest on the principal invested. Unfortunately, the confidence game promises to pay more interest than the principal generates, if the scheme generates any interest or gain whatsoever. The scheme will last as long as more investors are found whose invested principal will pay for the inflated interest due and payable to earlier investors.

The Federal Reserve operates a Ponzi scheme. Congress can pay for federal expenses with funds collected from excises, imposts, and duties, but congress is never satisfied with this amount. The desire to buy votes from special interest groups, and financially assist politically connected friends (or is this redundant?) compels congress-critters to spend more, and this is identified as deficit spending. To finance this deficit, the Federal Reserve will create on their accounting books a line of credit equal in the amount of the bills, bonds, or notes the congress will authorize; i.e., the Fed receives the interest-bearing obligation on the full faith and credit of the United States and in return checks written by government agencies will be honored by the banking system. The accumulated deficits are identified as the national debt.

It must be observed the amount of money in circulation is increased by the amount of the principle (actually it is a line of credit for Congress that is generated) but the amount promised to be repaid is the principal and the interest. The interest is never created but it is promised to be repaid. It is impossible. The scheme will last only as long as more principle is generated to pay the interest. If purchasers of the new debt cannot be found, the scheme collapses. Astute purchasers will demand a higher rate of interest than inflation or they will suffer a loss of actual wealth.

If all of the “dollars” in the world were used to buy back the bills, bonds, and notes, a national debt would still exist---in the amount of all interest generated with accumulated compound interest since the FR was created ---but no “dollars” would exist outside of the Fed’s vaults to repay the debt. The Fed, as majority holder of federal debt, would have a claim on the wealth of the United States citizens, but the citizens have no money to pay the debt. Confiscation of all real assets pledged as collateral (the full faith and credit of the United States) would be in order. Foreclosures on Fannie Mae and Freddie Mac mortgages guaranteed by the federal government would put real estate under the control of the Fed. A feudal society with the Fed owners acquiring vast real estate would be created.

To make the scheme appear legitimate, the Fed sells a large percentage of new bills, bonds, and notes with the help of the U.S. Treasury to remove much of the currency generated by the scheme (multiplied by fractional reserves) from circulation. Japan and China hold debentures for approximately 25% of the total U.S. debt in a form that can only be sold to governments. How much of this debt holding has been required by financial and government policies to gain approval of trade status for the past 40 years is unknown. It should be apparent that if Japan and China attempt to sell the obligations to support their economy, it would precipitate a world wide tsunami. How much purchase of the US debt is required of various other nations to gain favorable trade status is unknown, but it ties all nations into a global economy. If one nation starts selling, the entire house of cards will fall. The recent invasion of Iraq is theorized by some sources as retaliation for an economic policy designed to remove the dollar as the international reserve currency for oil. Iran has more recently taken a similar action and Washington is again threatening hell-fire and brimstone.

At this time, the national debt exceeds $8 trillion. The Federal Reserve holds over 40% of the debt while foreign nations hold 23%. Ref. http://www.brillig.com/debt_clock/faq.html . Interest on the national debt for the past year has exceeded $350 billion dollars (4.4% interest). Ref. http://www.publicdebt.treas.gov/opd/opdint.htm. 40% of the interest is $140 billion for the Fed. Do you think the owners of the Fed made any profit ??

As many have written, the creation of money by deficit spending is the source of inflation. Those closest to the money printing press will live better than those further away, and the farmers, as a class, are the most distant from the new money. This new money is a subtle way the wealth of the nation is confiscated from the people, and the people are, for the greater part, completely unaware of their loss. Each year, 4% to 5% of assets held by the citizens and valued in dollars is removed by the government through inflation.

Some sources suggest the Fed has never been audited. That is not totally accurate. My 360 page copy of the 1996 Annual Report to Congress by the Board of Governors, (ref. http://www.federalreserve.gov/boarddocs/rptcongress/Annual96/annual.pdf , more recent years also available) obtained after several calls to D.C., contains considerable information on the financial status and revenue transfers of the banks, branches, and the system, including interest earned from holdings of national debt. It is audited and signed by Price Waterhouse, LLP, page 275. All federal government entities are audited by the GAO, are they not? It is also known that real estate owned by the Fed (including district branches) is subject to local property taxes and the tax bills can be verified at the county assessors office; real estate owned by the federal government is not subject to local property tax. The Kansas City Federal Reserve bank joined other local businesses a few years ago in a legal challenge to a state-wide property re-evaluation. Salaries of employees are, with few exceptions, set by the Fed with paychecks drawn on the Fed; they are not government civil service employees paid from the U.S. Treasury. The Fed also has their own private retirement program. The Fed is a privately owned, nationally incorporated for-profit business. The window-dressing of appointed governors is from a pre-approved Fed list.

No information is found that suggests an audit of specie holdings claimed as assets, nor is there any information as to who owns controlling stock (Class A). Class B stock is owned by the member district banks in amounts required by the Fed. Congressman McFadden went to his grave unsuccessful in his attempts (in the 1930's) to determine who owns the Fed. Congressman Larry McDonald was on flight KAL 007 that disappeared under mysterious conditions in 1983. Ref. http://www.disinfo.com/archive/pages/article/id1197/pg1/. McDonald was reportedly preparing legal action against the Fed.

When faced with litigation, the Fed can choose, for their benefit, the mantle of a government agency or that of a private business. An entity that can select the most advantageous identification is not controlled by the law; it is above the law.

How long will the Fed (and Congress) be able to continue the Ponzi scheme? A common measure of the solvency of a corporation is the ratio of profit to the cost of debt service. A company that makes 30 times what they must pay for interest on long term debt is much more stable than one with a ratio of 3. Every year the US debt service cost increases, and the increase is exponential. Interest on the national debt now consumes over 20% of the revenue collected by the federal government. By increasing the total size of the federal budget, the interest percentage appears less. How long ago was it that the entire budget was the size of the interest on the debt? It is only a matter of time before taxes will not be able to service the exponential growth of interest payments. National bankruptcy is inevitable. Of course, terrorists or some other scape-goat will be blamed for causing the problem just as the stock market collapse was blamed for causing the depression of the 30’s.

The Fed was pulling currency out of circulation in the late 1920’s and the stock market was the first to feel the impact with margin calls. Local banks were compelled to call notes that were normally rolled over from year to year to meet increased reserve requirements by the Fed and the stock market was the most liquid. When the economy appeared to be stabilizing from FDR pumping money into the economy with make-work projects, the Fed repeatedly tightened the money supply to remove gold-backed currency and deepen the depression. Votes from recipients of government largess were bought by a printing press while industrial employees were loosing productive jobs.. When the economy was expanded to pay for (the contrived) WW II, debt-bearing currency (with interest payable to the Fed) replaced the previous gold backed interest-free money. The Fed had installed their Ponzi scheme. Your grandfather who lost his farm during the depression probably never knew what hit him. (The practice of buying votes with public money extorted from taxpayers continues today with “social programs.” When local political bosses did the same thing with money extorted from businesses, it was declared illegal.)

Recently, the Fed was selling government debt at less than two percent. Was the government getting a bargain? Investors are avoiding stocks and bonds after scandals and bankruptcies have shaken faith in corporate securities. The funds had to be invested in something, and two percent, if inflation is not considered, is better than zero. In reality, congress does not care what interest rate is paid. Congress does not have to make a profit to stay in business---let the taxpayers pay whatever. However, interest earned by the Fed and financial institutes holding government debt is reduced.

Major capital investments by businesses are being deferred as production facilities are being located overseas to escape oppressive taxation levied upon employees and operations, in addition to avoiding government regulations, restrictions and fines for variances. Sophisticated business investors are postponing domestic investments but less astute consumers are picking up overpriced houses and running up a phenomenal statistical debt burden. The industrial tax base is being destroyed while the jobs to pay the increased consumer debt are being exported.

Mortgage interest rates has been at near record low and credit is readily available. If interest rates go up, the housing bubble would collapse. Money is looking for a safe investment and excess money (avoiding stocks and bonds) is pushing rates down. The Fed is currently pushing millions of dollars into circulation weekly by buying on the open market to make the economy look good yet the stock market and consumer buying is lethargic. You have noticed interests rates recently rising? The Fed is raising interest rates in anticipation that stocks and bonds will become profitable. A low interest rate is the result of skepticism by the public. If bond interest rates go up, the stock market would plunge and housing construction would plummet. Or are we currently seeing this happen?

Adjustable Rate Mortgages (ARMs) used for a significant portion of home loans are being made at 4% with nothing down even to applicants that were previously rejected. The loans are in essence rental of overpriced homes; if the rent becomes too high, the renter walks away. When the rate of inflation is considered, the lenders are losing money but the housing construction bubble makes the economy look good. Who is subsidizing the low rates? Some sources suggest foreign nations are using dollars received from U.S. imports rather than buy U.S. government debt. Others suggest the repossessed home will have a higher value due to inflation and that protects the lender; i.e., the lender become a landlord. If mortgages are eventually revised to reflect a profitable interest rate, Fannie Mae and Freddie Mac will become the largest holders of empty housing in the U.S. but those institutes are already facing legal problems that may devastate the economy. If interest rates were at a profitable level, housing construction and auto sales would collapse. But then again, 100% equity plus loans and interest only loans are speculating on the continuous rapid increase in real estate values to yield profit for the loans. The U.S. consumer has unprecedented levels of individual debt; the plastic and mortgages are maxed out. With more employment being off-shored, the high salaried jobs with the most perks are with government. The haves are in government and the have-nots are in service industries. The have-nots insist the government raise their minimum wage and governments willingly oblige, but then the governments and unions ratchet up the value of their members which burdens young black males with 25% unemployment rates. (Ref. study by Foundation for Economic Education, FEE).

The common belief is that congress establishes a national budget and calculates the federal deficit. The concept does not appear to be rational. A drunken sailor on shore leave with a credit card that will not be traceable will not restrict expenditures, and congress in no different. Control of deficit spending would appear to be controlled by the Fed; it is they who will or will not buy bills, bonds, or notes and honor checks on the U.S. account. It was reported that President Clinton was shocked to hear that a bunch of bankers would tell the government how much money could be spent. The size of the deficit must be closely controlled to minimize the visibility of inflation while paying interest to the Fed for the debt. Too much inflation allows people to see the confiscation of their fixed assets and leads to revolutions; too little inflation is unprofitable for financial lenders including the Fed and debt payments become a larger percentage of government budgets.

Whatever else is done, blame for the problem must be shifted to others. “Greedy corporations” are lambasted for off-shoring business operations by government spin-doctors and media but the obvious essential requirement of self-preservation of the business operation is ignored. The business operations are off-shored to avoid the oppressive burdens of government costs and regulations. Taxes ostensibly levied on employees such as income taxes, SS taxes, unemployment taxes, etc., are all treated as any other cost of goods sold---they are passed on to the next business in the chain of production until finally paid by the consumer at MetroMart. It is much easier to see a sales tax calculated at the cash register as an increase in the selling price of a commodity; it is more difficult to comprehend the subtlety of taxes on the labor of every individual who mined, manufactured, delivered, and stocked the merchandise as an increase in the price of the widget. The levy of any tax on business or employment, the fine/cost of any government regulation, or the financial burden of any law suit are all paid by the consumer. If the business does not take every step to reduce or eliminate those costs, that business will self-destruct and a source of goods will be eliminated. It is government that is driving businesses overseas and, in the process, is destroying their own tax base. The ability to pay for a bloated national budget is being destroyed while expenditures are being increased.

The subtle thing about off-shoring is the government can then charge an import tariff. To make it sound like something being done for the consumer, the government calls it “free trade” such as NAFTA and GATT. George Orwell surely coined the right phrase with “double speak.” NAFTA and GATT establish a tightly controlled clique of select insiders as cohorts with government who profit from a monopoly control of imports; it is definitely not free trade. The consumers get ripped off and businesses without political connections (i.e., those who do not make political contributions) are at a great economic disadvantage. Government spin doctors cannot allow the public to be aware of the ultimate self-destruction of the free enterprise system. We are witnessing the control of commerce being consolidated into the hands of a few individuals with government connections. Did I hear “fascism“?

Government employment and related contracts are far less susceptible to free-market concerns of termination or curtailment. The ability to extort money by taxation to pay for projects deemed essential removes the mandatory free market requirement to be cost effective. Government’s expectation to continue or expand projects while the tax base is being destroyed and revenues decrease while costs inflate is creating desperate tax collection in both states and in DC.

The economic affect of state legislators lamenting they cannot fund state obligations has not yet been fully felt. Educators in several states have filed court actions to demand more state money. Does that bring to mind welfare recipients lamenting they cannot live on the meager amounts they receive? The legislators of one state have approved a $400 million bond issue to fund current expenses in defiance of a state constitutional provision prohibiting such a practice. They gave the state a credit card. Do you know of anyone who was forced into bankruptcy because of credit card abuse? Several states have adopted similar practices. The accounting practice is identified as amortization of expenses and is the practice that drove WorldCom and Enron into bankruptcy.

The federal court system has recently announced severe cost reduction and personnel layoffs because of budgetary cutbacks. Loss of jobs in government and private business is nation-wide and dramatically affects state and national revenue collection. The lose of federal taxes will result in demands for more deficit spending. A government’s demand for revenue will seldom be hampered by existing laws, nor will collection procedures be hampered by due process. Even now, the IRS has declared more aggressive collection policies. Government’s collection of revenue is making John Gotti’s extortion from a reluctant patsy appear as mild mannered yet no court will insist the IRS identify the law that imposes an income tax (violations of IRC 7201 through 7217 does not identify an income tax. Sansone v United States, 380 US 343, 348). Anyone and everyone on the internet who suggests federal income tax collection may be improper is risking a court enforced injunction. Somehow the bureaucracy finds money to pay for military occupation in Bosnia, Afghanistan, and 100 other nations including Iraq while benefits for U.S. citizens, including veterans, are reduced or avoided. Government repeatedly threatens to reduce social security benefits if more money is not available and is now curtailing funds to the government pension plan. Benefits to citizens will suffer while special interests continue the federal boondoggles. Bureaucrats must protect their sources of political contributions. Nelson Rockefeller’s revelation to congress that he made $600 million but paid no income tax several years ago identifies who does not pay for government programs.

The economic rape of the public will be perpetuated as long as possible. Ever increasing deficits are necessary to pay the interest and make the economy look good. The increasing deficits will escalate the cost of debt service exponentially. Congress-critters will not complain of the system or threaten not to pay the interest---the Fed might not honor their pay checks. Congressmen George Hansen and Jim Traficant were set up for jail terms when they challenged the system too strongly. JFK was assassinated by the CIA after he started circulating interest-free United States Notes and vowed to get the U.S. out of the CIA’s war in Vietnam and also to destroy the CIA after he took the rap for the Bay of Pigs. (Ref. HIGH TREASON by Goden. Be sure to read the chapter on the digital analysis of the police's open microphone that located the sources of the Dallas gun shots as entered into evidence during the congressional rehearing of the Warren Commission report---they did not come from the book depository. Compare with PLAUSIBLE DENIAL by Mark Lane where a CIA memo discussing the assassination was documented to exist BEFORE the fact during a federal trial in Miami. The trial’s star witness was a member of the CIA hit group. The orchestrated cover-up led by the FBI is detailed in ACT OF TREASON by Mark North. See JFK: THE CIA, VIETNAM AND THE PLOT TO ASSASSINATE JFK by L. Fletcher Prouty for details on the Bay of Pigs and Nam---and much more.) The Fed, the CIA, and the FBI control the testicles of congress.

Deficit spending to pay for the interest is now sold to the public as the cost of a war. How long can the illusion be maintained?? Rampant inflation is already being seen in the price of fuel and the price of steel. It is not unrelated that fuel and steel are two prime essentials of the conflict in Iraq. Voluntary enlistment is collapsing; a draft would find our youth fleeing. How long before the citizens realize the government’s ravenous economic appetite will not be sated short of a complete economic collapse ?? But then again, the collapse is inherent by the design of the economic system; it is only a matter of time.

History is full of economic systems based upon the government’s ability to confiscate the wealth of the citizens that inevitably result in self-destruction. Run-away inflation always precedes the collapse of a fiat currency.


Source: http://usa-the-republic.com/index.html

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