Will the National Debt Destroy America?
Thomas Jefferson warned,
"If the American people ever allow private banks to control the
issue of their currency, first by inflation, then by deflation, the
banks...will deprive the people of all property until their children wake-up
homeless on the continent their fathers conquered."
Debt is nothing new to the United States. The American
Revolutionary War led to our first national debts and the War of 1812 further
expanded that government debt to approximately $75 million. In 1835, President
Andrew Jackson who strongly opposed a national bank and ensured its collapse by
vetoing the renewal of its charter, reduced the debt of the United States to
close to a zero balance.
America again grew its debt because of the
said of the situation...
"The money powers prey upon the nation in times
of peace and conspire against it in times of adversity. It is more despotic
than a monarchy, more insolent than autocracy, and more selfish than
bureaucracy. It denounces as public enemies, all who question its methods or
throw light upon its crimes. I have two great enemies, the Southern Army in
front of me and the Bankers in the rear. Of the two, the one at my rear is my
greatest foe.. corporations have been enthroned and an era of corruption in
high places will follow, and the money powers of the country will endeavor to
prolong its reign by working upon the prejudices of the people until the wealth
is aggregated in the hands of a few, and the Republic is
Lincoln's words were prophetically true. The debt was
just $65 million in 1860, but passed $1 billion in 1863 and had reached $2.7
billion following the war. International bankers funded both sides of Civil War
ensuring the perpetual debt of either side who won the war.
following 47 years America returned to the practice of running surpluses and
paid off 55% of the US national debt. World War I pushed America into another
$25.5 billion by its conclusion. That was again followed by 11 consecutive
surpluses and saw the debt reduced by 36%.
Then, there was the Panic of 1907 where the stock market fell
nearly 50% from its peak in 1906, the economy was in recession, and there were
numerous runs on banks and trust companies. Complete ruin of the national
economy was averted when J.P. Morgan stepped in by organizing a team of bank
and trust executives who redirected money between banks, secured further
international lines of credit, and bought plummeting stocks of healthy
It was a classic
Hegelian Dialectic where
Morgan created a mood in America with his manufactured crisis to believe that a
central bank would prevent such a panic from occurring again and thus became
receptive to a central bank. The solution was
pressure for the United States Congress to accept the proposal by a group of
international bankers to pass the Federal Reserve Act in 1913.
Federal Reserve definitely caused the Great Depression by contracting the
amount of money in circulation by one third from 1929 to 1933. - Milton
John Maynard Keynes' economic ideas
were first presented in The General Theory of Employment, Interest and Money,
published in 1936. Keynesian economics argues that private sector decisions
sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates
active policy responses by the public sector, including monetary policy actions
by the central bank and fiscal policy actions by the government to stabilize
output over the business cycle.
Keynes' ideas influenced Franklin D.
Roosevelt's view that insufficient buying-power caused the Depression. During
his presidency, Roosevelt adopted some aspects of Keynesian economics,
especially after 1937, when, in the depths of the Depression, the United States
suffered from recession yet again following fiscal contraction.
Social programs enacted during the Great Depression and the buildup
and involvement in World War II during the F.D. Roosevelt and Truman
presidencies in the 1930s and '40s caused the largest increase - a sixteenfold
increase in the gross public debt. When Roosevelt took office in 1933, the
national debt was almost $20 billion; a sum equal to 20 percent of the U.S.
gross domestic product (GDP). During its first term, the Roosevelt
administration ran large annual deficits between 2 and 5 percent of GDP.
On April 5, 1933, President
Roosevelt signed Presidential Executive Order 6102, to provide relief in the
existing national emergency in banking. All persons were then required to
deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or
agency thereof or to any member bank of the Federal Reserve System all gold
coin, gold bullion, and gold certificates now owned by them or coming into
their ownership on or before April 28, 1933. With Roosevelts signature,
America suffered it's first monetary default; gold as legal money disappeared
in the United States, paving the way for the government to engage in
near-unconstrained debasement of the
By 1936, the national debt had increased to $33.7 billion
or approximately 40 percent of GDP. In the war years from 1941 to 1945, the
national debt increased by more than 500 percent as Roosevelt financed much of
the war expenditures by government borrowing. By the end of the war in 1945,
the national debt had increased to $258 billion and was equal to approximately
120 percent of GDP.
To many, the true success of Keynesian policy can be
seen at the onset of World War II, which provided a kick to the world economy,
removed uncertainty, and forced the rebuilding of destroyed capital. Keynesian
ideas became almost official in social-democratic Europe after the war and in
the U.S. in the 1960s.
The Keynesian debt bubble expanded again with the
Eisenhower administration launching the biggest public works projectthe
interstate highway systemand the KennedyJohnson administration
spending large sums on sending a man to the moon and the escalating Vietnam
War. The corresponding economic growth and prosperity during this time led most
economists and central economic planners to embrace the
Keynesian idea that capitalism works best when spenders
cause healthy growth in market demands and thereby generate profits and jobs
for the community. In their view, it was the role of government fiscal policy
to spend when private industry was not, thus making sure that the total demand
for goods and services provided profit opportunities to encourage business
firms to hire all workers who wanted a job.
On June 4, 1963, a little
known attempt was made to strip the Federal Reserve Bank of its power to loan
money to the government at interest. On that day President John F. Kennedy
Executive Order No. 11110 that returned to the U.S.
government the power to issue currency, without going through the Federal
Reserve. Mr. Kennedy's order gave the Treasury the power "to issue silver
certificates against any silver bullion, silver, or standard silver dollars in
the Treasury." This meant that for every ounce of silver in the U.S. Treasury's
vault, the government could introduce new money into circulation. In all,
Kennedy brought nearly $4.3 billion in U.S. notes into circulation.
enough of these silver certificates were to come into circulation they would
have eliminated the demand for Federal Reserve notes and put the Federal
Reserve Bank of New York out of business. This is because the silver
certificates are backed by silver and the Federal Reserve notes are not backed
by anything. Executive Order 11110 could have prevented the national debt from
reaching its current level, because it would have given the gevernment the
ability to repay its debt without going to the Federal Reserve and being
charged interest in order to create the new money. Executive Order 11110 gave
the U.S. the ability to once again Constitutionally create its own money backed
After Mr. Kennedy was assassinated just five months later, no more
silver certificates were issued. Perhaps the assassination of JFK was a warning
to future presidents who would think to eliminate the U.S. debt by eliminating
the Federal Reserve's control over the creation of money. Mr. Kennedy
challenged the government of money by challenging the two most successful
vehicles that have ever been used to drive up debt - war and the creation of
money by a privately-owned central bank.
In 1971, Republican US
President Richard Nixon proclaimed "we are all Keynesians now".
Perfect Keynesian Storm
Bretton Woods agreement of 1944, currencies were fixed
against each other and the dollar still could be redeemed by foreign
governments at $35 an ounce. For about 20 years after World War II ended, the
arrangement seemed to work. However, in order to pay for the vast expansion of
government welfare programs associated with Lyndon Johnsons Great Society
and the escalating Vietnam War, the Federal Reserve System aggressively
expanded the supply of money, which not only depreciated the currency at home
but also flooded the rest of the world with dollars. Frances government,
under Charles de Gaulle, recognized the situation at hand and began to redeem
its dollars in U.S. gold, which was stuck at its 1933 price. By mid-1971 U.S.
gold reserves were disappearing quickly, leading President Nixon to again
default by closing the gold window and imposing wage and price controls. While
some price controls were lifted within the year, oil and gasoline controls
remained through the decade, causing untold havoc in the economy.
households suffering from high unemployment, decreasing market values for their
homes, large credit card
debt, and shrinking pension funds are not likely to to buy significant more
goods and services. Businesses and entrepreneurs facing declining or at most
not rapidly rising market demands are not investing significantly in new plant
and equipment. Facing their own financial crises, foreigners such as China
appear unlikely to spend more dollars to buy more U.S..produced goods. Property
and sales tax revenues are declining in state governments resulting in local
and state governments to cut spending on public services and reducing purchases
from domestically located firms. That leaves only the Federal government who
can borrow more money from its crony Federal Reserve with their power to print
unlimited money who can afford to buy significant additional products to
stimulate American market demand.
Gross government debt quadrupled during the
Reagan and Bush presidencies from 1980 to 1992, and between 1992 and 2000 rose
from $3 trillion to $3.4 trillion in 2000. During the presidency of George W.
Bush, the gross public debt increased from $5.7 trillion in January 2001 to
$10.7 trillion by December 2008. Under President Barack Obama, the USA debt
increased from $10.7 trillion to $14.2 trillion by February 2011.
America's debt continues to skyrocket out of control and Washington continues
to borrow more and more money that further increases America's debt, one is
forced to ask, will any American leader have the courage to say "no" to the
Federal Reserve and international bankers and bring America back to financial
sanity? And, if so, is he/she willing to pay the ultimate price for doing so?
What is the
The Debt Ceiling
From the founding of the
United States through 1917, based on its power granted by Article I Section 8
of the United States Constitution, Congress authorized each individual debt
issuance separately. Congress modified the method by which it authorizes
government debt in the
Second Liberty Bond Act of 1917, in order to provide more
flexibility to finance the United States' involvement in World War I. Under
this act Congress established an aggregate limit, or "ceiling," on the total
amount of bonds that could be issued.
Debt Acts passed in 1939 and 1941 essentially created the modern debt
limit, in which an aggregate limit was applied to nearly all federal debt. The
Treasury was authorized by Congress to issue such debt as was needed to fund
government operations (as authorized by each federal budget) as long as the
total debt (excepting some small special classes) does not exceed a stated
ceiling. Since 1979, the House of Representatives has pretty much automatically
raised the debt ceiling when passing a budget. The Debt Limit has been raised
about a hundred times since 1940, when it was $49 billion - about five days
worth of federal spending now.
In December 2009, President Obama
exceeded the debt ceiling for the first time in the history, resulting in
Congress increasing the U.S. debt ceiling to $14.294 trillion in February 2010.
This fueled a debt ceiling crisis where conservative members of Congress,
pushed by a growing Tea Party movement, demanded that government live within
its means. Progressives warned the more conservative branch of government that
unless they raised the debt ceiling, many bad things would happen and the U.S.
economy could tumble into even worse shape.
In August 2011, the passage
of the Budget Control Act of 2011 was signed into law after the United States
was threatened by an unprecedented U.S. sovereign default on or about August
3rd. This raised the debt limit initially by $900 billion and eventually by
another $1.21.5 trillion.
Apparently, the "change we can believe
in" memo didn't make it from Pennsylvania Avenue to Wall Street. Following the
debt deal, the stock market plunged 512 points, its worst one-day drop since
Going back to at least the presidency of
Bill Clinton and perhaps earlier, the government has misled
the American people about the true national debt. The U.S. Treasury, the
Whitehouse, Congressmen, and the media has kept the true figures away from the
population because the problem is enormously worse than most Americans
understand. The $14.5 trillion debt is just the tip of the iceberg. When you
add up all the promises that have been made for spending obligations like
Social Security, Medicare and Medicaid benefits, combined with defense
expenditures, and you subtract all the taxes that we expect to collect, the
difference is $211 trillion. That's our true indebtedness.
For the first
time ever on August 5, 2011 the credit rating agency, Standard & Poor's,
lowered its credit rating of U.S. sovereign debt one notch to "AA+", with a
Will the National
Debt Destroy America?
I believe, yes. The destruction will leave
some people surviving the best they can, but the structure of our society will
be changed dramatically.
This much is certain. No nation can spend its
way into prosperity and no debt will go unpaid. Our debt problem will continue
to spiral out of control with an increasing burden of debt service (interest on
the debt), rising interest rates for all Americans, and a progressive tax
increase that would make Karl Marx ecstatic.
America had better batten
down the hatches because the worst is yet to come. Forecasters have predicted
inflation and perhaps hyperinflation, store shelves either empty or stocked
with products beyond the affordability of most, massive job losses (as if it
couldn't already be bad), local and state government defaults, partial federal
government shutdowns, and perhaps even martial law imposed when Americans take
their frustration to the streets of America. If you haven't started preparing
for the worst, you may not have much time left to get prepared. When the
austerity measures planned by the progressives hit America's main street, it
will be too late.
Written by Vic Bilson
Following the The Money Trail
© Copyright 2011 Jeremiah Project