The U.S. Government is being funded by a Shell Game
by Shattered Paradigm
Originally posted January 11, 2010
MOST AMERICANS HAVE NO IDEA JUST HOW bleak the economic future of the United States is. In 2009, the U.S. government was forced to borrow a much, much larger amount of money than ever before. So who did they get that money from? Did they borrow it from China and Japan like they have in so many other years? Actually, no. In 2009, the Federal Reserve bought approximately 80 percent of all U.S. debt. But weren’t they also the ones selling it? Yes, they were. It is called a shell game and it is now what is being used to fund the United States government.
But have you seen headlines about this in any mainstream media outlet? No. However, the fact that the Federal Reserve is now buying approximately 80 percent of U.S. government debt was recently admitted on CNBC, where on January 8th anchor Erin Burnett mentioned the 80 percent figure and used the term “Ponzi scheme” to describe the current state of affairs. So what is wrong with the Federal Reserve buying up so much of the U.S. government debt?
Well, the truth is that it is wrong on so many levels it is hard to even know where to begin. First of all, when the Federal Reserve buys U.S. government debt, that does not leave us in a situation where we “owe the money to ourselves”. The Federal Reserve is not “us”. The United States does not “own” the Federal Reserve and it never has. The Federal Reserve is a private central bank that is owned and operated for profit by a group of elite international bankers (many of which are not even Americans).
Secondly, this action by the Federal Reserve represents extreme market manipulation. Normally what would happen is that interest rates on U.S. treasuries would rise until there were enough buyers to meet the supply. But the Federal Reserve is not letting that happen. Instead they are swooping in and “buying” any treasuries that have not been sold at extremely low interest rates.
In this way, the Federal Reserve is keeping interest rates at ridiculously low levels. You see, if interest rates on treasuries started to skyrocket, that would immediately cause interest rates on everything else throughout the U.S. economy to fly through the roof. If interest rates did skyrocket, there would be a massive cascade of mortgage defaults and personal bankruptcies and it would be an absolute death blow to the U.S. economy.
So instead of letting the free market have its way, the U.S. government and the Federal Reserve are manipulating the markets in an effort to keep interest rates artificially low. But they can’t do it forever. And they are making the long-term economic problems of the United States far worse.
By flooding the U.S. financial system with cheap dollars, the U.S. government and the Federal Reserve may be able to prop up the U.S. economy for the moment, but they are also ensuring the death of the U.S. dollar. When you put more dollars into the system, the value of each existing dollar decreases. When you put gobs of new dollars into the system, the value of each existing dollar will ulitmately end up dramatically decreasing.
The dollars that you are holding right now are never going to have more value than they do today. Someday when you wake up and a loaf of bread costs ten dollars, you can thank the Bush administration, the Obama administration and (most of all) the Federal Reserve for shoving the U.S. economy into the toilet.
At this point, nothing can save the U.S. dollar. Use them while they can still buy you something. Because the day is coming soon when it may be cheaper to use dollars as toilet paper than to actually use them to buy toilet paper.
According to CNBC, the Federal Reserve bought approximately 80 percent of the U.S. Treasury securities issued in 2009. In other words, the Federal Reserve has been gobbling up the massive tsunami of U.S. government debt that has been created over the past year. This is absolutely unprecedented, and it is yet another clear indication that the U.S. financial system is on the verge of a major economic collapse.
When the U.S. government need to borrow more money (which happens a lot) they go over to the Federal Reserve and they ask them for some more green pieces of paper called Federal Reserve Notes. The Federal Reserve swaps these green pieces of paper for pink pieces of paper called U.S. Treasury bonds. Now normally the Federal Reserve takes these U.S. Treasury bonds and they sell them all to other buyers.
But in 2009 there were not nearly enough buyers. So in 2009 the Federal Reserve sold itself about 80 percent of this debt. So why is it a Ponzi scheme? Well, basically the Federal Reserve is creating money out of nothing, loaning it to the U.S. government and then collecting interest on the loan. That is nice work if you can get it.
But also, this intervention by the Federal Reserve is keeping interest rates on U.S. Treasury bonds artificially low. In a true “free market” situation, the interest rates on U.S. treasuries would rise to reflect the rapidly declining economic situation in this nation.
Due to the massive explosion in the size of the U.S. government debt and due to the very weak U.S. economy, interest rates on U.S. treasuries should have shot through the roof by now. Rational investors would normally require an increased return for the increased risk that U.S. treasuries now represent. But that is not happening. Instead when there are no buyers for U.S. treasuries at current interest rates, the Federal Reserve just steps in and buys up all the excess bonds that need to be purchased. But in a normal free market situation, interest rates would rise on U.S. treasuries until they would be attractive enough for investors to buy them all. However, that would create some huge problems. If the U.S. government was not able to borrow all of the money it wanted to at artificially low interest rates, the results would be absolutely disastrous.
Much higher interest rates on U.S. government debt would cause the U.S. federal budget deficit to absolutely explode. Interest rates on everything else throughout the economy would also skyrocket. As mortgage rates climbed dramatically, the housing market would completely collapse. The U.S. economy would be totally in flames.
But for now (and this situation cannot last forever) the Federal Reserve is keeping interest rates artificially low by lending the U.S. government as much money as it wants at extremely low interest rates. Of course the Federal Reserve is making an insane amount of money out of the arrangement, so it is working out quite nicely for them as well. But by essentially “printing” a flood of cheap money for the U.S. government to borrow, the Federal Reserve is ultimately going to end up destroying the value of the U.S. dollar.
Every fiat currency throughout history has always ended up losing its value, and that is exactly what is going to happen this time too. The only way to protect the buying power of your money is to put it into something that will hold value (like gold or silver). Your dollars are never going to be worth more than they are today.
The actions taken by the U.S. government and the Federal Reserve have guaranteed the demise of the U.S. dollar. At this point it is unavoidable. It is only a matter of how soon it will happen and how bad it will be as things play out. You better get ready.