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Market Oracle FREE Newsletter


Urgent Steps to Save U.S. Economy From Debt Collapse

Economics / US Debt Sep 20, 2010 - 09:04 AM GMT

By: Larry_Edelson


Diamond Rated - Best Financial Markets Analysis ArticleIn a few moments, I am going to release to you — and the general public — the broad brushstrokes of my …

10-Step Proposal To Save America From The Fatal Blows Of A Debt Collapse … And Give Control Of The U.S. Economy Back To The American People.

My Real Wealth members naturally received the draft proposal first, this past Friday, when the September issue of Real Wealth Report published.

But I consider the outline so important and timely — that I am taking the unprecedented step of releasing it to the general public in this column of Uncommon Wisdom.

Let’s review last week’s market action, in order to put everything into perspective:

arrow black Urgent: 10 Steps to Save America …  The Fed ramped up its messaging that it will do anything and everything in its power to try and turn the economy around, including printing trillions more dollars.

arrow black Urgent: 10 Steps to Save America …  Naturally, the value of the U.S. dollar plunged in international foreign exchange markets.

No real surprise there. After all, a much weaker dollar is part of the Fed’s strategy: To make our debt burden easier to bear by depreciating it, and paying it back in the future with cheaper dollars.

Also no surprise …

arrow black Urgent: 10 Steps to Save America …  Gold exploded to one new record high after another … on its way to at least $2,300 an ounce … with gold shares also soaring, up more than 6% in a single week.

Meanwhile …

arrow black Urgent: 10 Steps to Save America …  China started dumping its U.S. dollar holdings, worried over our dollar policy, and is now rumored to be aggressively buying euros and other currencies (as well as gold)

At the same time …

arrow black Urgent: 10 Steps to Save America …  According to a report from Gold Fields Mineral Services (GFMS), one of the world’s leading consultancies on minerals, foreign central banks are set to buy almost 15 tonnes of gold this year — more than 529,000 ounces.

Biggest buyers: China, India and Saudi Arabia.

Bottom line: While most investors are rightfully focused on the economic ills in the U.S. — they are missing the big picture:

The Beginning Of The End Of The World’s Dollar- And Debt-Based Monetary System

Fact: Throughout history there has never been a civilization that has managed to survive the levels of indebtedness now facing the U.S.

Every civilization, from the Roman Empire, to Byzantium, to the British Empire, and more — have either collapsed, waged wars to try and survive by plundering others’ resources, defaulted on either domestic debts, foreign debts, or both, and largely disappeared as a major player on the world stage.

Fact: The U.S. is now drowning in total Federal debts and liabilities of $136 TRILLION … pit against an estimated $74 trillion in total assets.

That means that even if we liquidated every penny of assets in this country:

We’d still be IN THE HOLE BY $62 TRILLION, or $199,845 for every man, woman and child in this country. More than $763,249 for each family.

Moreover, even at today’s historically low rates, the interest-bearing portion of our country’s official national debt is costing us more than $794 million per day, or $33 MILLION dollars per hour. More than $5 MILLION PER SECOND.

Does that sound like something we can escape from or even kick the can down the road?

The dollar- and debt-based monetary system is irretrievably broken.
The dollar- and debt-based monetary system is irretrievably broken.

Does it sound like something we can handle as a nation, without suffering a major loss of purchasing power in the dollars that we use as our medium of exchange? Hardly!

Ergo, I conclude that the dollar- and debt-based monetary system is irretrievably broken, and that its demise is the real reason behind the soaring price of gold.

So it’s now time for the U.S. to rise to the occasion … to rise above the mistakes of the past — and usher in a new era of monetary stability, based on five basic principles including …

1. Debt-free economic growth.

2. Honest money, where the value of the medium of exchange (a new currency) cannot be manipulated at will, and is not born from or backed by a debt-based system.

3. A non-discriminatory, indirect tax system, scrapping the existing Internal Revenue Service and its 71,684-page Code.

4. That eliminates the banking system’s current cushy advantages and power over the economy, and …

5. Where the power over the economy is back where it belongs — with the American people.

How to do it? My answer:

A debt-for-equity swap, whereby the domestic portion of the national debt and all current liabilities owed to U.S. citizens are fully monetized, then swapped for equity in a newly formed sovereign corporation that owns and controls the U.S. government.

Thus, eliminating the debt and making each and every American citizen an equal shareholder in the U.S.A.

Radical proposal? You bet it is!

But no matter how radical my proposal may sound …

A debt-for-equity swap embodies the full liberties the founding fathers of this great nation intended for us. And I believe we can get there, with the following 10-step process.

Note: Obviously, my proposals and the steps outlined below have been simplified. And they are still a work-in-progress. Nevertheless, I feel that the steps and ideas embodied below are far enough along at this time to unveil them.

Step 1. Freeze all domestic federal debt and payments on that debt. Make good on the IOUs now, in current dollars by freezing the domestic portion of the national debt, and all current non-military federal spending.

Even if Washington has what it takes to make deep spending cuts, what good would the cuts be when we’re racking up almost $5 million per second in interest expense?

The cuts would be effectively worthless. My argument: You cannot cut spending without cutting the existing mountain of crushing debts.

The answer is extreme, no doubt. But only by limiting spending to military needs, while cutting all other Federal spending to ZERO and simultaneously freezing the domestic portion of the national debt …

Will we be able to stop the train wreck dead in its tracks and be in a position to implement an entirely new system.

Step 2. Immediately put the government on a cash basis accounting system and a true, bullet proof PAYGO system that uses appropriately earmarked revenues to pay current Social Security, Medicare obligations, and the like, again, on a cash accounting basis.

Future contingent liabilities would be handled entirely on a PAYGO system. Simultaneously …

Step 3. Set up a national coupon holding bank which would be commissioned to handle the next phase of the American overhaul …

Step 4. Monetize 100% of the domestic federal debt. That’s right, print $1 (current dollars) worth of coupons for every dollar of existing domestic Federal debt, effectively monetizing the entire domestic debt, turning it into redeemable coupons.

The redeemable BEARER coupons would be held in a national coupon bank, and every American citizen would have — in their name — their coupons in a segregated account.

Put simply, Bill Gates or Warren Buffet would receive the same number of coupons as Joe the Plumber.

The Federal Reserve would be re-commissioned to secure and manage the coupon bank, but only from an administrative perspective. The Federal Reserve’s current role, managing the nation’s base money and credit conditions, often hijacking the people’s money, would effectively cease to exist. Next …

Step 5. Make each American citizen’s coupons convertible into …

A. 40% of a new currency to be issued AND distributed. The new currency would not be the dollar, tied to nothing but the whims of the marketplace. If it were, monetizing the debt would be naturally, very inflationary.

The new currency would be tied to a basket of freely traded commodities. The inflationary impact of monetizing the debt would therefore be virtually zero.

As the overall value of the basket of commodities rise or fall, the new currency’s purchasing power would likewise rise or fall, while virtually always maintaining equilibrium with what would amount to a benchmark cost of living index.

Moreover, each American citizen would also have …

B. A 60% equity stake in a newly formed corporation that owns the U.S. government, with dividend potential.

The other 40% equity would be held in the sovereign corporation as Treasury stock.

All revenues of the Federal government would be collected by the sovereign corporation on behalf of the American people … and all expenses would be paid by the corporation on a PAYGO basis.

In effect, the U.S. government would become an extension of a business owned by American citizens.

Who would run the sovereign corporation? Who would be its CEO? Who would run the various branches of government within the corporation?

My view: Volunteers, elected by the American citizen shareholders, all of whom have equal voting power. Campaigns would be financed out of the general Treasury of the corporation with equal funding for each candidate, but only authorized via a U.S. shareholder meeting.

Importantly, the sovereign corporation’s value would rise and fall with the GDP of the nation, which would be redenominated in terms of the new commodity-based currency.

In good times, profits would be set aside in the Treasury for a rainy day, with a portion distributed equally to all shareholders as a dividend. Likewise, everyone would feel the pain equally in times of contraction.

Step 6. Abolish the current tax system and enact a national sales tax. As part and parcel of the overhaul I propose, the current IRS tax code — and the social tinkering it’s been used for — be scrapped and revenue collection be made a department of the sovereign corporation … via a national sales tax.

All income and estate taxes would be eliminated. There have been several studies showing that a national sales tax of approximately 17% or less would adequately fund our entire government, including the military.

It's time to ditch the current tax system and enact a national sales tax..
It’s time to ditch the current tax system and enact a national sales tax.

Step 7. Pay off foreign holders of our debt at full value. We simply cannot welch on our foreign creditors. But by monetizing 100% of the domestic portion of our debt, we eliminate the domestic interest expense, allowing for full repayment of our foreign creditors on schedule, but in a new currency and in an amount equivalent to their full face value in dollar terms.

Once all foreign debt is paid off, and given the other changes I propose to the system, there should be no future need for foreign borrowings.

In addition, the sovereign corporation would, by new law, be forbidden from borrowing in foreign markets, even on a short-term basis, unless approved by a national shareholder referendum.

Step 8. Automatically increase the nation’s money supply annually to allow for inherent GDP growth (based on factors such as population growth, etc.)

All economies have inherent growth factors, mainly attributable to population growth, but also to immigration, productivity increases, and more.

Those inherent growth factors require almost continuous increases in the base money supply of a nation.

Under my proposals, and via its charter, the new sovereign corporation of the U.S. would be allowed to increase the base money of the nation each year by an amount equal to the expected inherent GDP growth of the country, but not a penny more.

Simultaneously …

Step 9. Limit spending to an appropriate percentage of GDP, by law. Running a budget deficit would be forbidden. Extraordinary spending items, in instances of a natural disaster such as Hurricane Katrina, would be funded by the nation’s revenues, the nation’s rainy day account, or, if necessary, new borrowings or equity raises, but only if approved by U.S. citizens.

Step 10. Work with the G20, IMF, and the United Nations to introduce a new international trade currency. As you know from my writings, I also believe that the global monetary system needs to be redrawn largely because it is based on a flawed dollar/debt model.

So as part and parcel of the revolution to “restructure” America’s finances, I believe it is also necessary to work toward a new international foreign exchange regime.

A monetary system that would effectively introduce a global firewall — a currency that would act as a filter and buffer, preventing fiscally irresponsible nations from impacting others, and preventing crises from becoming contagions.

The best way, in my opinion: An international trade currency, used for all international transactions. For sovereignty and domestic purposes, countries would keep their existing currencies.

A new international trade currency would help prevent sovereign debt crises.
A new international trade currency would help prevent sovereign debt crises.

But all international transactions would be exchanged through a new international currency, a firewall mechanism.

One such proposal already exists, though it’s being designed for corporate barter use. It’s the Trade Reference Currency, or Terra.

The Terra would introduce a reference currency that is fully backed by a dozen or so of the most important commodities and services in the global market, thereby providing an international standard of value that is inflation-resistant.

I propose we adapt the Terra initiative to make it a supra-national complementary currency, intended to work in parallel with the current international monetary system to provide an effective mechanism to buffer global imbalances and help prevent the breakout of financial contagions.

Other proposals include using the Special Drawing Rights (SDRs) that exist at the IMF.

Whatever the final shape or form, a new international trade currency is needed as a global firewall, but one that would also allow sovereign nations to either keep their existing currencies, or introduce new ones on a domestic level only.

What about the private credit markets? Since debt has been eliminated and prohibited at the Federal level.

Simple: The private credit markets would continue to exist. No economy can survive without them.

Corporations would still be allowed to issue debt and borrow money from the public. So would municipalities.

Individual investors would likewise be able to obtain credit for mortgages, school loans, small business investments, etc.

The banking system and other financial intermediaries, while still part of the private sector, they would simply be forced to make more prudent loans, run their businesses as businesses, and not look to the Federal Government as the lender of last resort, or for bailouts.

Securitization of loans, which have been a huge part of the problem to begin with, would — and should — cease to exist.

But as I said at the outset — and as we all know …

America faces a debt disaster of untold proportions, the fatal blows of which are now arriving.

The survival of the U.S. and our way of life, not to mention many of our liberties, are at stake, which is precisely what gold’s recent rally to new record highs is telling you.

Feel free to circulate this column to family and friends. Let’s get the word out there.

Until radical steps like the ones I’ve outline above are taken, be sure to keep a good portion of your investments in gold and other tangible asset markets.

Till next week …

Best wishes,


P.S. The September issue of Real Wealth Report, containing more details on my proposal — including all of my recommendations to protect and grow your wealth — is available via an annual membership of a mere $99.

Become a Real Wealth Report member now by clicking here.

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


c p
20 Sep 10, 15:55
a serious alternative

what are the oddz that BEN B will announce a plan to expand QE and include the purchases of assets like stocks and RE...

seems the talking heads greenspan...N. ferguson say no more stimulus spending with such a indebted population...but the latter says ben b will step up with more aggressive QE and i i believe it's possible. look what happened to bond market since fed announced it will be buyer of last resort

John Baker
21 Sep 10, 01:16
USA needs to get rid of expensive military complex spending and Ponzi Schemes

The author missed the point that military spending is a super huge drain on the US economy. In the name of God, why is American fighting wars, killing hundreds of thousands of Afghan, Iraqi, Pakistani, and other civilians when it can't solve or mind its own business at home?

First step is reduce at least 50% of military spending and get rid of elitist fantasy land agendas of trying to control the people by creating a sovereign corporation. It's another Ponzi Scheme suggested by the author of the article.

By pretending to make every American a shareholder of that sovereign corporation, it's nothing more than controlling them and enslaving them under a New World Order!

Shalom Hamou
21 Sep 10, 11:54
A Tract on Monetary Reform
Our economy is slowly dying, it is kept alive artificially. No one is proposing a solution because no one has the slightest idea of why it is happening and many have vested interest in the present system. However an objective observation of the phenomenon can help us understand it and provide us with an innovative solution. Of course we can't solve the problem with the tools that brought us there in the first place and we need a new ideology. ______________________________ - Do you feel that your ideology pushed you to make decisions that you wish you had not made? - Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to -- to exist, you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact. - You found a flaw in the reality...(!!!???) - Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak. - In other words, you found that your view of the world, your ideology, was not right, it was not working? - That is -- precisely. No, that's precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well. ______________________________ "" An Innovative Credit Free, Free Market, Post Crash Economy A Tract on Monetary Reform _______________________________
22 Sep 10, 16:01
Resurrection of World Economy--Myth or Reality?

The Stuff That Dreams Are Made OF

The guide for resurrecting the US and/or world economies as outlined above is very rational and well thought-out. However, there is plenty of past and current evidence that government economists, politicians, lobbyists, voters, etc.,would never accept or cooperate on implementing anything like this plan.

For a trivial US example, every four or six years or so we have had severe economic problems and crises, but the politicians “restored” apparent health to the economic system by throwing much borrowed money at the problem symptoms. These treatments not only stymied the healing process, but did serious and long term permanent damage to the underlying economic superstructure. And of course, given all these past problems and our current gigantic bad situation, people like Obama, Bernanke, and Geithner haven’t learned a thing! As long as they have smoke and mirrors, what need have they for rational thought and long term economic planning?

I fear that the US economy is now like the famed phoenix bird--it must be completely rendered to ash before it can rise again to reign for another thousand years (well-- thirty or forty years, anyway).

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