The Irrelevance of the Debt Ceiling

I had posted this article before, but it was deleted sometime ago. Being that its a matter of importance, I am reposting it.

Over the news we have been hearing about the idea of congress raising the debt ceiling. it has been pointed out that if it is not raised, then many entitlements will not be paid. on the flip side if the debt ceiling is to be raised even higher to cover the cost of all the programs that were promised, then there will be no way to meet that debt no matter what you raise taxes to. Indeed both of these options present some very serious problems.

If government entitlements and are not paid, and other contracts are not honored, then there is a very high chance that riots will indeed ensue when peoples dependency on receiving government checks is severed. however if the debt is raised to meet those contracts and entitlements for the coming year, then the amount of resulting debt extension will make the consequences for the following year more dire. Qe2 will not suffice as it still results in more government debt that we the people are bound as citizens to pay. Monetizing the debt (increasing the money supply to meet the debt), will only result in even greater damage for reasons to numerous to name.

Yet as serious as this problem sounds, it is at this point irrelevant. The amount of unfunded debt from 2010 going into this year (which is far more than merely raising the debt ceiling can cover) remains a problem that I have not even seen the news address yet (for more information on the exact amount and to whom it is owed, go to treasurydirect.gov/govt/reports/pd/pd.htm and for the exact breakdown, go to treasurydirect.gov/govt/reports/pd/feddebt/feddebt_dec10.pdf ). what you must keep in mind is that the number 4,624,007 is not expressed in the dollar amount, but rather in the millions, meaning that the real rolled over debt is 4,624,007,000,000 – 4.6 trillion.

Politicians on the hill have grown complacent to this number. After all, the same number at the end of 2008 was 4.3 trillion. So if we can continue to carry over debt from one year into the next without a catastrophe, why should they pay it any notice? Given this simple way of looking at things, it would seem like the debt can be allowed to simply continue to go up.

Yet here is the part that no politician wants to mention – how the debts were funded, and how were they rolled over. Heck, your average US subject would never even bother to go to treasurydirect.gov/govt/reports/pd/pd_sbredemptionsissuesbyseries.xls , and find out how this happens. This oversight of tracking how the debt is funded is what will cause the catastrophe. If you want a real jaw dropper as to the impending danger of what is happening, I encourage you to open the link. The amount of bonds outstanding (the money received by the government for the sale of the bonds), is not nearly enough to meet the debt rolled over from 2010 into 2011, let alone to fund this year’s budget. This is why the raising of the debt ceiling is irrelevant.  The outstanding debt was 4.6 trillion – the amount of bonds it had to back it was only about 2.2 trillion, meaning that for the first time, we have 2.4 trillion dollars of debt, and absolutely no way to answer it.

In 2008 people like Peter Schiff, Gerald Celente, and Ron Paul warned of this danger. Yet so blind are most people to the nation’s economy, they laughed at them. The three people I just mentioned attempted to break the problem down into laymans terms knowing that most people would be lost if they dug into the specifics – and because people attack what they do not understand, they mocked them. The sad reality is that people missed the point of their arguments completely, and what is coming very soon is the result.

Yet those 3 (amongst many others) made 1 last warning knowing that the spending of government would not slow – and that was the danger of monetizing the debt. Monetizing the debt would mean that the FED would simply print the money into existence. outside of running the very high risk of creating hyperinflation, there is of course another danger.

The Federal Reserve is not a government entity. it is a private banking institution owned by people who have little to do with our government. their sole responsibility was to create a stable economic platform via central control of the money supply, pretty much rendering the US Treasury a pointless entity. The FED failed miserably as the continued to fund debt, hoping the growth in the US economy would pay off and make their banking practices pay off – the opposite occurred as the FED printed more and more money while the US started producing less (percentage wise). As stated in a previous article, the money exists only on balance sheets, with only 10% or less in fiat currency (what we call the dollar).

What most people do not get is that the US Treasury does not print the money, or control its supply – the FED does.  The FED can print the money in the name of the US treasury to cover it – but how can they distribute it? In other words, the fed cannot print the money into existence on the balance sheets of the US treasury, by replacing the uncovered 2.3+ trillion with a 0. All they can do is print more money, and use it to buy the government securities thus placing the debt to 0. Being that the FED is a private bank, they will not make themselves liable for such an amount, and if they do, then they will in turn lose money – something no bank likes.

So the idea of raising the debt ceiling (yet again) is like adding one floor to many to a wooden building and continuing to add roofs as you go. You can only add so many floors, raising the roof with each one until the sheer weight of it causes it to collapse.

So the question that will exist before the year is out to midway of 2012, is what will happen when the government becomes insolvent? it will not be able to honor most of its contracts, or pay its entitlement to the people it promised it to. with the amount dependency so many people have developed off of government, what will happen when they no longer get what they are used to getting? The government will still of course have some money – just not nearly as much as they are used to.

Many different scenarios occur as a result of this. I will leave it to the reader to determine which one to follow. my advice? Learn to trade, learn to defend yourself, learn how to produce necessities. If you’re not friends with your neighbors, either start trying, or be ready to move to a place you will not be alone. whether things will get that bad is problematic as no one really knows what to do about this. at the very least, a major depression will occur that will dwarf anything we have ever known – sadly, that is a best case scenario.

We are now in unchartered waters so to speak, and what worries me the most is how no news outlet is bothering to bring this up. The fact that there are not nearly enough securities being purchased from our Treasury to cover what they have spent already is worrisome enough. even more troubling is how they seem to not even notice it, and seem to see the debt ceiling as the most pressing issue. This means that they either are not aware of this problem, that they have no answer for it, or simply do not know what to do about it. either way the governments size has caused its end as it is, and in the future, people will be able to look back at this, and remember that big government is not the answer to the problem, but rather the cause of it.

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Trackbacks/Pingbacks

  1. Bernanke Blunders as Congress Haggles | Entertainment Online - July 23, 2011

    [...] unfortunately overlooked the massive amounts of carryover debt from last year’s spending (see http://peacefreedomprosperity.com/5403/the-irrelevance-of-the-debt-ceiling/ ). Minus all that rollover debt, Toomey would have been correct. Yet the debt is there, and is [...]

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