The U.S. national debt now stands at over $10 trillion. If Social Security and Medicare liabilities were accounted for (as they would have to be if the U.S. Government were a private corporation), then the real debt would be in excess of $100 trillion. And yet, in response to sweeping economic failures—caused by the Federal Reserve’s manipulation of monetary policy—the federal government’s response is to spend even more money that it doesn’t have. Where does it get this new money? From the printing press, of course!
Clearly, this system is not sustainable. In fact, “the system”—the global “U.S. Dollar Standard”—isn’t failing, it has already failed. The country and the world is currently engaged in the greatest mass-delusion in all of human history, as the hard truth—that the United States government and its people are bankrupt—is just too much to handle. But the longer we take to admit reality, the worse things will be. In fact, the misplaced “Hope” that “Yes, We Can” get out of this mess and return to the way things were is enabling a massive redistribution of wealth as the power elite engage in a “run on the state.”
Where Does Money Come From?
One thing that must be understood is that virtually every single dollar in circulation, both in greenback and electronic form, was created out of debt. Once upon a time, dollars were theoretically backed by gold, and thus the only way for the Federal Reserve to create new dollars (at least in theory) was for it to have a corresponding store of gold. In reality, the Fed created way more paper dollars than it had gold backing them, and this is what led to the gradual abolition of the gold standard. Since then, every new dollar created has been backed by nothing more than the promise of someone to repay it. Where would this someone get the dollar to repay the one the Fed created for him? With more new dollars also created by the Fed, of course!
It doesn’t take a Nobel prize winning economist to realize that this system has been doomed from Day One, although at least one living Nobel laureate—John Nash, the subject of the movie A Beautiful Mind—has come around to the pro-gold standard view. After all, if (almost) every dollar in circulation is based on debt, then the system demands that people remain in debt. If everyone were debt free, then the money supply be shrunk to its pre-Fed era levels, and as we all know, deflation (shrinking of the monetary base) is the greatest of all evils.
Or at least that’s what Ben Bernanke and most mainstream economists think. In reality, deflation is a good thing, but that’s neither here nor there. The point is that the only way for the federal government to make good on its obligations—to say nothing of bailing out all of these dysfunctional firms—is to go deeper and deeper into debt, thus instructing the Fed to print more and more money. The inevitable result of this is hyperinflation and the erosion of the dollar’s value to zero. This will probably happen sooner than any of us are expecting and with little warning. But there is still something we can do.
The Inevitable Demise of the Dollar
The dollar still has value today because people are willing to accept it in exchange for real goods and services. This is primarily due to the slight of hand the government employed over the first 58 years of the Fed’s existence, gradually removing the dollar’s tie to gold. Secondarily, people accept U.S. dollars because they have to by law. This is the meaning behind “legal tender.” And thirdly, people accept U.S. dollars because the U.S. government accepts them in payment for taxes.
But as the inflationary effects of the Fed’s hyper-aggressive expansion of the money supply begin to be felt, and as foreign creditors race to dump their dollars on the world market, people—even in America—will become less and less accepting of the dollar. The currency will lose essentially all value once it is no longer stable enough to plan even short-term purchases. You’ve undoubtedly heard stories about inter-war Germany in which stores would have to adjust prices several times a day to adjust for inflation. Barter becomes the new money during an economic environment such as this. “But that couldn’t happen here.”
Time To Take Our Monetary Medicine
The only way for the federal government to avoid this fate is to come clean right now and admit that it is bankrupt. Then, just like any insolvent corporation, it could begin liquidating its assets and dividing them up among its stakeholders, pro-rata.
After abolishing the Fed and cutting off all monetary expansion, the first step of the liquidation process would be to refund (a) all of the FICA taxes paid by living individuals who have not yet begun to collect Social Security and Medicare, and (b) the difference between the value of FICA taxes paid and benefits received by current retirees. These payments would be made in the form of dollar-denominated vouchers for claims on government property and would signal the end of the Ponzi scheme known as the welfare state.
Secondly, all outstanding federal debt obligations (bonds, bills, and notes) would be redeemed at face value using a similar voucher program. These vouchers would effectively expand the money supply, but given that they would dramatically reduce the long-term obligations of the now-defunct federal government, it’s not clear how much of an inflationary effect they would have.
Third, all federal government property—lands, buildings, businesses, government agencies (which would be privatized via sale), military weaponry, etc.—would be auctioned off. State governments, which would pick up the slack in the federal government’s demise, would be some of the primary purchasers of these assets.
Fourth, all remaining dollars would be redeemed for the gold and silver held by the Fed and Treasury. This monster known as the federal government would be no more, and if (and only if!) they wanted a new federal government, the states could voluntarily set one up—just as the first federal government was initially created.
This may seem like a radical proposal, but what’s the alternative? If you think the ship can be righted, you’re living in a fantasy world. We have been conditioned to look at the federal government like Big Brother, but in reality, it is a lazy, mooching friend we let stay on the couch one night but then moved in and ate us out of house and home. We don’t need and probably can’t afford friends like that, and the federal government is no exception.
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