Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
Will the US Destroy the World? - Don’t Expect to Live Much Longer - 28th July 14
GDM and GDXJ Gold Stocks In-depth Look - 28th July 14
Stock Market One FINAL High? - 28th July 14
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14
Ukraine: What To Do When Economic Growth Is Gone - 24th July 14
Stock Market Clear and Present Danger Zone - 24th July 14
The Five Elements to Creating a Something-for-Nothing Society - 24th July 14
Instability is the New Normal? - 24th July 14
Israel's Suicide Bombers Over Gaza - 24th July 14
EUR-AUD Heads Into The Danger Zone - 24th July 14
Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand - 24th July 14
Ukraine MH17 Crisis - Best Remember Who Your Friends Are - 24th July 14
Three Reasons Why Gold Price and Gold Stocks Will Rise - 24th July 14
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Fed Impact on Stock Market Trend

Growth in U.S. National Debt

Interest-Rates / US Debt May 30, 2012 - 11:40 AM GMT

By: BATR

Interest-Rates

Best Financial Markets Analysis ArticleThe one inescapable drag on the economy and every American taxpayer or government dependant is the interest obligation paid on the national debt. Indebtedness is nothing new to this country, but the inability to service the public debt stretches over the last half century. This trend is so disturbing that politicians spend every waking hour avoiding the consequences of the ultimate outcome, the demise of the currency. The reserve currency status that has allowed for effortless deficit spending has a day of reckoning. The final collapse of the global empire and superpower will smell more of financial evaporation than of a military defeat.


A brief review of The National Debt: How Did We Get Here?, provides a valuable background.

"Historically, the debt generally increased because of wars and economic depressions. The debt was then reduced after the war or during more prosperous times. This trend was broken beginning about 1918, and definitely so by the end of WW2. The last time the debt was actually reduced was in 1957 when it declined by 0.82%."

What power on earth can reverse this ominous pattern of refusal to balance the books of federal spending? Do not look to the voodoo economics propagated by the free traders over at Redstates. "If the government stops accumulating debt today and dedicates oil from shale to paying off that existing debt, and if we produce just 8% of that oil and sell it on the global market, we can completely pay off our national debt with the proceeds." Stop and evaluate such hooey.

Putting the federal government into the oil fracking business and selling domestic resources on the world market is an obscene economic model. Also, the notion that Congress would go cold turkey and ban any budget that is not in balance is about as probable as closing all foreign military bases because of funding shortfalls. However, the rudimentary reason that the growth in federal debt continues to rise is directed by who owns the obligations.

In Who Owns the U.S. National Debt?, an outline of entities that provide the money that finances the debt is informative.

The largest part (40%) of the Debt Held by the Public is owed to foreign governments and investors. The next largest part (20%) is not really the public, but other government entities, like the Federal Reserve and state and local governments. Another $2.6 trillion (20%) is held by the public through mutual funds, private pension funds, savings bonds or individual Treasury notes. A wee bit is held by businesses, like banks and insurance companies. Here's the breakout:

Foreign - $4.5 trillion

Federal Reserve - $1.4 trillion

State and Local Government, including their Pension Funds - $708 billion

Mutual Funds - $636 billion

Private Pension Funds - $616 billion

Banks - $316 billion

Insurance Companies - $253 billion

Savings Bonds - $188 billion

Other - $1.2 trillion. (As of December 2010. Source: Treasury Bulletin, Ownership of Federal Securities, Table OFS-2)

Even under near zero interest rate returns, the trillions needed to satisfy the hungry appetite of spending continue to flow, even if the Federal Reserve needs to be a buyer of last resort. In a prosperous "main street" domestic economy, tax revenues would increase because the velocity on money expands. Yet taxation alone can never retire the national debt as long as the debt created money of central banking exists.

When the Federal Reserve buys T-bill securities with phony money of their own creation, the monetization function of that purchase, swells the liability. Each succeeding presidential administration expounds upon the previous expenditures. Push back for fiscal responsibility from Tea Party proponents, meets with hostility by the elite political class, and illustrates the resistance for eliminating the freewheeling spending practices.

The growth in the national debt is just the most obvious tally that gets attention. Even the CBO's 2011 Long-Term Budget Outlook promotes the tax more and spend less con game that is a focal point in the current election cycle.

Higher levels of debt imply higher interest payments on that debt, which would eventually require either higher taxes or a reduction in government benefits and services.

Rising debt would increasingly restrict policymakers' ability to use tax and spending policies to respond to unexpected challenges, such as economic downturns or financial crises. As a result, the effects of such developments on the economy and people's well-being could be worse.

Growing debt also would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government's ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates. Such a crisis would confront policymakers with extremely difficult choices. To restore investors' confidence, policymakers would probably need to enact spending cuts or tax increases more drastic and painful than those that would have been necessary had the adjustments come sooner.

In the article, Just who will pay the debt?, provides a stark analysis.

"In an era where governmental debt on all levels rises continually and out strips growth in population, the percentage of each citizen’s accrued share to sustain that debt, inevitably must increase. With the incurable appetite of ‘public servants’ to invent new programs, entitlements and agencies, the concept of limited government has long passed into memory. The aftereffect of unfair international trade has shackled the economy with permanent balance of payment shortfalls. The expansion of state and federal bureaucracies of all kinds, coupled with additions to local municipalities, has produced the only growth occupations, virtually immune to layoffs. Contrary to public myth and distortions, inflation in essential necessities has not departed, as the purchasing power of your money buys less."

The only way to resolve the bogus national debt, based upon the central banking counterfeit currency swindle, is to renounce the debt as illegitimate. Nothing else will stop or even slow down the rapid expansion and growth of the national debt clock from collapsing the economy and destroying the currency.

James Hall – May 30, 2012

Discuss or comment about this essay on the BATR Forum

http://www.batr.org

"Many seek to become a Syndicated Columnist, while the few strive to be a Vindicated Publisher"

© 2012 Copyright BATR - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014