The following is from an article by Ellen Brown, an author and contributor to www.globalresearch.com. She acts like she's bringing some sanity to the situation, but is actually bringing some insanity. My comments are in green.
"The notion that the federal debt is too large to be repaid and that we are imposing that monster burden on our grandchildren is another red herring. The federal debt has not been paid off since the days of Andrew Jackson, and it does not need to be paid off. It is just rolled over from year to year, providing the “full faith and credit” that alone backs the money supply of the nation. The only real danger posed by a growing federal debt is an exponentially growing interest burden; but so far, that danger has not materialized either. Interest on the federal debt has actually gone down since 2006 -- from $406 billion to $383 billion -- because interest rates have been lowered by the Fed to very low levels.
They can’t be lowered much further, however, so the interest burden will increase if the federal debt continues to grow. But there is a solution to that too. The government can just mandate that the Federal Reserve buy the government’s debt, and that the Fed not sell the bonds to private lenders. The Federal Reserve rebates its profits to the government after deducting its costs, making the money nearly interest-free.
Anyone from the Government Accountability Office on down will tell you that that little detail of interest is a huge deal, and will swallow us whole as we borrow like lunatics and can't really pay the interest now when it's absurdly low. The interest rates required to get people to buy our scary debt are already going up at almost every auction. It is a debt snowball.
All the fear-mongering about the economy collapsing when the Chinese and other investors stop buying our debt is yet another red herring. The Fed can buy the debt itself – as it has been stealthily doing. That is actually a better alternative than selling the debt to foreigners, since it means we really will owe the debt only to ourselves, as Roosevelt was assured by his advisors when he agreed to the deficit approach in the 1930s; and this debt-turned-into-dollars will be nearly interest-free.
This owe it to ourselves argument you hear a lot, and it's idiotic. One, the money to lend to the government has to come from somewhere, so it is taken from some productive use and used for this instead. Two, it still has to be repaid. Three, the government has to pay enough interest for someone to want to lend money. As the debt level goes out of control, the interest rate, and the principal the rate is paid on increases. The alternative is to force you to lend them money without paying you. That takes all that money from productive use, and at any rate, do we want them just taking it?
Better yet would be to either nationalize or abolish the Fed and fund the government directly with Greenbacks as President Lincoln did. What the Fed does the Treasury Department can do, for the cost of administration. There would be no shareholders or bondholders to siphon earnings, which could be recycled into public accounts to fund national, state and local budgets at zero or near-zero interest rates. Eliminating debt service payments would allow state and federal income taxes to be slashed; and the public managers of this money, rather than hiding behind a veil of secrecy, would be opening their books for all to see.
I'm no fan of the Fed and its recent track record, but there was a reason it was established. Without a separate entity, politicians can directly control the printing of money. Could that possibly work out ok? We would literally be relying on the honesty and judgment of politicians to not print money like crazy and kill us with inflation. See the problem? "Nationalized" anything is a disaster. That's why all over the world countries are always denationalizing things.
A final red herring is the threatened bankruptcy of Social Security. Social Security cannot actually go bankrupt, because it is a pay-as-you-go system. Today’s social security taxes pay today’s recipients; and if necessary, the tax can be raised. As Washington economist Dean Baker wrote when President Bush unleashed the campaign to privatize Social Security in 2005:
Social Security went broke this year. It has zero dollars and zero cents. Starting now it takes in less than it pays out. That's why Obama is proposing increasing the age while also increasing the Social Security tax. Duh. Also, when you raise the tax rate, it slows down the economy, so you can't just keep raising the tax. At any rate this ignores the demographic problem that really snuffs out Social Security. There will be far, far too many people collecting benefits relative to the number of workers. Hasn't this stupid author ever heard of that?
“The most recent projections show that the program, with no changes whatsoever, can pay all benefits through the year 2042. Even after 2042, Social Security would always be able to pay a higher benefit (adjusted for inflation) than what current retirees receive, although the payment would only be about 73 percent of scheduled benefits.”
Read the Social Security trustees report. Newsflash! Broke this year! 2042 is a made up, nonsensical number. Do a little homework Ellen. Social Security has zero dollars, zero cents, costs more than it takes in. The year 2042 or 2082 or 2562 has nothing to do with anything.
This is always and forever the problem with socialist programs. They get more and more expensive. Politicians raid the funds. More and more is promised. Actually providing what people paid so much for eventually, after ten or twenty or forty years, becomes impossible. Most countries in Europe have had to continually raise taxes, cut benefits, and import workers for just this reason. Otherwise, their systems would have collapsed many times. Even having done these things, they are mostly headed towards collapse anyway.
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