by Stefan B.
The very nature of currency changed in 1971. Before 1971, currency was backed by gold. Sure, the bankers were liars with a printing press gone mad, but someone, somewhere, could trade those dollars for gold. Those dollars were a receipt for gold. A warehouse slip, for gold. It makes perfect sense (to even a complete idiot) that you would not want to borrow (and spend) a lot of currency, if that currency were a receipt for gold. No sane person would ever borrow a lot of gold from somebody, and spend it foolishly, knowing that it would have to be re-earned, and paid back to the lender. However, since 1971, the currency has not been a receipt for gold. The currency has been only a receipt for debt issued by the treasury. Still, in the face of this reality, some people refuse to understand that since our currency is debt, and not gold, and it has been this way since 1971, that the only way to create new currency is to endlessly issue more and more debt. If this sounds like a ponzi scheme, that is because it is one.
I know that it is enough to make a sane person go cross-eyed, but you need to accept this basic reality if you are going to demand that the government treasury stop issuing new debt.
If there were less debt, there would be less currency. This is, by definition, deflation. Taken to its logical extreme, if there were no debt, there would be no currency.
Ben Bernanke is nick-named “Helicopter Ben” because he famously said that he would drop currency from helicopters before he allowed the economy to go into deflation.
Now, the best measure of a country’s economy is to look at that country’s gross domestic product (GDP).
Deflation is what happened in America during the Great Depression, from 1929 to 1933. However, during that part of the Great Depression, the currency was still a receipt for gold. Rather than the currency losing purchasing power, the economy (GDP) shrank. On the Debt-to-GDP chart below, you see an orange block representing the great depression. That “spike” at the very beginning of the orange block (1929 – 1933) is the economy (GDP) shrinking, while the federal debt level remained constant.
This time around, the currency is not a receipt for gold. The currency is a receipt for debt, and so deflation can actually destroy the currency.
Because, when currency is debt, a severe deflation, combined with massive federal debts, causes the GDP of a nation to shrink to a point where there is no possible mathematical way for the nation to meet its debt obligations. Indeed, the currency to pay it back does not even exist (this is all a massive ponzi scheme, remember?).
In simple terms, as the economy (GDP) deflates, the national debt does not shrink with it. The American government owes over $14 trillion dollars, and a lot of that debt is owed to foreigners, specifically China.
How exactly do you pay back more currency than was ever printed in the first place?
How is America going to repay $14 trillion if we experience deflation, and America’s GDP contracts to $5 trillion? Do you suppose that having a Debt-to-GDP of nearly 300% might just be a problem? The government’s own numbers predict this exact outcome. Just look at the chart.
So I ask you, what is a receipt for debt (again, it is not a receipt for gold anymore, but only a receipt for debt) actually worth, if the people who issued the receipt can not repay their debts? It is a fairly simple question. I would imagine that the receipt is worth exactly the paper it is written on.
Right now, America’s GDP and America’s debt are more or less equal (i.e. a roughly 100% Debt-to-GDP ratio). However, if you believe that our “economic recovery” is more baloney sandwich than steak dinner, then you already understand that our economy is doing poorly right now, and that our GDP is shrinking. We have a choice to make:
1. Take on more debt, create more currency, grow the GDP, and cause a hyperinflation by issuing QE_3 through QE_23, causing panic runs on the dollar.
or 2. Allow the economy to collapse into deflation, default on the debt, and watch the world economy completely disintegrate into defaults, stacked on top of law suits, stacked on top of panic bank runs, and ending in a panic run on the dollar.
This is how ponzi schemes end. Badly. Both options will be a disaster, but it is only in the second option that causes everyone with a mortgage to lose their home to foreclosure.
Now, there is also this other serious ethical problem here. Why is America’s GDP so big? When an American defense contractor creates a fancy $2 million satellite-guided missile, and the pentagon uses the fancy $2 million satellite-guided missile to blow an Afghan wedding party to smithereens, that action directly contributes $2 million to America’s GDP. The treasury issues the debt, and the Federal Reserve buys it, the government hands the freshly printed currency to Lockheed-Martin, GE, or some other defense contractor, and that contractor supplies the fancy $2 million satellite-guided missile to the pentagon. The pentagon tells the air-force to look for a large wedding party to bomb, and BAM-O! The GDP has grown by $2 million, and then we repeat the whole process in Iraq and Libya.
Why a wedding party? Well, simple, this kind of thing really pisses people off; not just brown people, either… I Imagine that anyone would feel pissed off if someone had bombed their wedding. The more pissed off they get, the more militant they become. The more militant they become, the more we can justify the need to borrow (print) the currency, to create the bombs, and blow up more wedding parties. As long as your GDP continues to grow, there will always be an excuse to borrow more currency into existence, and use it to manufacture more bombs, to blow up more wedding parties.
If you think about it, it is really something of a perpetual motion death machine. How do you think America got such a large military, and such a large debt, relative to every other nation on earth?
Ask youself what would happen to the American GDP if the American military came home today. In a fiat currency debt ponzi scheme, peace is not an option, economically speaking. It is bad for GDP. This is the world that you live in. America has the world’s largest GDP because America has the Pentagon, and an army private defense contractors willing to manufacture fancy $2 million satellite-guided missiles.
So if all this debt is being issued exclusively to run a vast world-wide military empire, the next obvious question is why does anyone want to buy American debt? Why do other countries agree to fund this nonsense?
First are foremost, if you are the leader of a foreign nation, and you do not do what you are supposed to do, you will likely die in a plane crash, and your replacement will do whatever it is that you would not agree to do.
Secondly, anyone wishing to purchase oil on the international market from OPEC, must do so in U.S. dollars. The Saudi Arabian royal family is a proverbial sack full of tyrannical shit-bags. So, after ending the gold standard in 1971, America made a deal with Saudi Arabia, as the largest oil producer in OPEC, and agreed to provide everything necessary to keep Saudi royal heads attached to Saudi royal necks, in exchange for OPEC agreeing to only sell oil in exchange for U.S. dollars. This reality creates an international demand for U.S. dollars, but only for so long as U.S. dollars are required in order to purchase oil from OPEC.
For now, the NWO-backed destabilization in the middle east has not spread to Saudi Arabia, yet. When it does, and the dollar-oil link is destroyed, nobody in the world will have a need for those dollars, or U.S. debt anymore. The rush for the exits will be biblical.
We are all in this mess together. ~SGTreport.com
Webster Tarpley@ 2:28 “…the dollar is now in this constant process of decline. If we have a default — I would warn against this default — the bankruptcy or default of the United States would lead to catastrophe on a world scale, and ultimately to something like [...] The answer to this, there is no answer to this, between deflationary crash, which is even worse, and hyperinflation.”
@ 3:52 “…[it] pushes the system towards hyperinflation, and that seems to be where we’re headed right now. However, there’s now the other thing on the horizon, which is the default, and this is now political. This is a political cabal that wants to institute, in effect, the bankruptcy or default of the United States. Let’s look and see what would happen if the United States defaults. The secret is, that the economic life of this planet depends, to a large degree, on the government of the United States, and on national governments around the world, but it works through a system of private central banks. Privately owned central banks, like the Fed, and “zombie banks.” Bankrupt institutions, hedge fund hyenas, and so on. If you have a default by the US treasury, which has never occurred in world history, that will truly be the end of the world, from a number of points of view, for this system. It will mean, for example, that treasury bills, treasury bonds, treasury notes, will all go down in price. The existing ones go down in price, and the interest rates will go up. That will mean that every central bank in the world, every one of these private central banks will find that its reserves, held in treasury bills, treasury bonds, will be devalued, so every central bank will be in big trouble. Some of them will default. We have to think about the possibility of panic runs. Panic runs on the Bank of England. Panic runs on the Federal Reserve. Panic runs on the Bank for International Settlements, and the International Monetary Fund. Panic run can be any bank, right. If you have, for example, members of the IMF, or the BIS, they put in money, they get shares, they get voting rights. Suppose those entities are going bankrupt, and they turn around and say, “no, we want our money now. Give us our cash, because we’re facing absolute bankruptcy.” The other thing that it will do, is simply to collapse credit markets all around the world. In other words, if you do this though, you better have an alternative system, because what you’re going to wake up to is not the singing tomorrows of a free market paradise. You’re going to wake up to mass chaos, and the threat of depopulation. In other words, hundreds of millions of deaths possible; maybe even more.”