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The National Debt Cannot Be Paid Off

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Published : March 04th, 2014
675 words - Reading time : 1 - 2 minutes
( 9 votes, 3.6/5 ) , 8 commentaries
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Category : Editorials

Government spending is out of control and, while most say they want spending cuts, people oppose cuts that impact them. Among those who get government money, there’s practically an unspoken, unbreakable pact to keep the money coming. But when I say that the national debt cannot be paid off, it’s not a political forecast; it’s a statement on the flawed nature of the dollar.

Astute observers call the dollar a fiat currency. Fiat means force. It’s true that we’re forced to use the dollar (e.g. by taxes on gold) but the dollar is also irredeemable. There’s no way to cash it in. The dollar is credit that is never repaid. Today’s dollar is a dishonored promise.

This was not always true. Before 1933, the dollar represented an obligation to pay 1/20 ounce of gold. People could deposit gold and get paper notes in receipt. Those notes circulated, and any bearer could redeem them for gold. Back then, $20 was not the gold price. It was the legal rate at which gold was deposited and redeemed.

In 1971, President Nixon changed the monetary system with the stroke of his pen, making the Fed no longer obligated to redeem dollars for gold. The consequences of using debt as if it were money were soon clear. Rising debt became a more serious problem than rising prices.

To understand debt, credit and the importance of redemption, consider Joe borrowing sugar from neighbor Sue. To pay Sue back, Joe goes to the store, buys sugar and hands it to Sue. Not only is Sue repaid; the debt goes out of existence—it is extinguished. Borrowing money used to be like borrowing sugar. The repayment of debt in gold-backed dollars settled the loan and wiped the debt clean.

Not anymore, since Nixon detached the dollar from gold. By making people pay with paper-only dollars, each debt is transferred, not cleared.

Suppose Sue owed Joe $1,000, then hands Joe ten $100 bills. Sue gets out of the debt loop. But now the Fed owes Joe the $1,000. What does Joe do? He deposits his cash in a bank. Now the bank owes Joe money, while the Fed owes the bank. What does the bank do? It buys a Treasury bond. Now the Treasury owes the bank. And so on.

By Nixon’s design, the system omits a crucial feature. The extinguisher of debt, gold, is not allowed to do its job. Debt can only be transferred from one party to another. It’s like a lump being pushed around under a rug. With no means of final payment, that lump is never put in the trash. Debt is never extinguished.

In fact, the debt must increase, because the interest is constantly accruing. Interest is added to the debt, as it can’t be paid off either. Total debt must grow by at least the interest. Debt actually increases faster than that, because the government craves what now passes for growth.

The rate of debt increase is proportional to the debt itself. It is not a fixed dollar amount, such as $100 billion a year. It is instead a percent of total debt. Mathematics has a term for this type of growth: an exponential function.

Exponential growth is not sustainable, according to credible scientists. Mainstream economists ignore this fact in the hope that that somehow growth can outpace debt, one year a time.

But exponentially rising debt is not sustainable because the capacity to service the debt is finite. Without a means of extinguishing debt, servicing is merely borrowing new money to pay off old debts. This is the equivalent of taking out a home equity loan to get money to pay the mortgage.

The U.S. debt is putting us in danger of economic catastrophe. Like Greece, which found no more buyers for their bonds, the U.S. relies on selling new bonds to pay interest and principal when due. The difference is that the whole world bids on U.S. Treasury bonds, for now. But eventually, market participants will realize that the American debt cannot be paid off.

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Keith Weiner is a technology entrepreneur and president of the Gold Standard Institute USA. He was the founder of DiamondWare, a Voice Over Internet Protocol software company, which he sold to Nortel in 2008. He is an Objectivist who has his PhD from the New Austrian School of Economics, with a focus on monetary science. Keith, who currently trades and analyzes precious metals and commodities, advocates a return to a proper gold standard and laissez-faire capitalism. He lives with his wife near Phoenix, Arizona.
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US debt is nominally very high, but as a fraction of GDP its not nearly as high as some other "well to do" western nations.

I don't think its right to compare Greek and US national debt. Greece can't print Euros and they certainly can't spread the debt burden to the rest of the trading world in the way the US can since it controls the global reserve currency.

The US owes money *to itself*. It controls the value of the currency this debt is denominated in. It also controls the interest rate paid on that debt. What are they worried about, really?

Rate :   2  7Rating :   -5
US is only "trying" to control the value of dollar; once it was petro-dollar; petrol was the anchor for USD, now it is the last resort; gold-dollar. That's why they are desperately trying to rig the gold market. On the other hand, US does not owe to herself; she owes to the FED; meaning the people of US owes to Rothschilds, and Rockefellers, and JP Morgans ...
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Of course the system is more complex. Debt is held in the form of treasuries outside the country but the Fed is the largest holder of US debt.

It operates under a charter granted to them by the U.S. Congress and the Treasury which can be taken away easily enough. The Rothchilds know full well how easy it is for their banks and money to be "nationalized" by government.

The US dollar can be controlled *downwards* (with the rest of the world following suit) making it easier to pay down the debts that were taken out 3, 10, 30 years ago. So long as US Treasuries remain "golden", it works.
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I understand. The problem is ... the folks in the congress are put there by the very folks I mentioned. After all, they have deprieved the printed money from it's basis; gold. They hold the gold and they print the worthless pieces of paper called dollar. In theory US Congress charter grant can be removed, and banks of the ruling families can be nationalized. But this can only be done "in theory", and mind you with no real implications because they will still be holding their gold. Solution is to remember the real source of "value" and rebuild/honour the labor<->production relation.
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England called on the Rothschilds to help fund not just one but TWO major wars. France Nationalized the Rothschild Bank based in their country in 1981 - not that long ago. They renamed it Compagnie Européenne de Banque. Not just a theory, it happens often enough.

Old money does its best to survive the political upheavals over time. They pull a few strings, sure, but are they really the puppeteers in this show?

If I called the shots I wouldn't be letting anybody take my stuff!

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"They pull a few strings, sure, but are they really the puppeteers in this show?"

I think they are. If not them, who in hell have the means and the motive to stage a horror show for so long? If the barons let French government nationalize one of their banks (I don't know how many they have) they sure knew better; who cares about a bank in France when you're running the charade in the whole of Europe (or the world for that matter)? Maybe they were trying to rid of it :)

Anyway; my point is: whoever have the motive (I care not who makes the law as long as I print the money) AND the means (FED, BIS, IMF, paper gold, real gold) are running the show and there is no way to modify the script from the inside. The solution is on the outside, not inside of the current (capitalist/imperialist) system.
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"world bids on U.S. Treasury bonds " with fiat , not with gold ,so the game is endles ?
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Endless? History has proven NOTHING is endless the USA Debt empire will end just like all the other empires before her. The perpetrators of the CON the private banking cartel will most likely be unscathed but the people will suffer of course. The USA empire will fail it's inevitable. Look how much we have changed since we won our independence from the UK empire? We are taxed more than the founding fathers were,there are more laws we must follow, they $hit on the Bill of Rights and the Constitution. Is it our government or the owners of our Debt?
It will be ugly but it WILL end.
We are a ZIT on the face of humanity and we will get popped.
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"They pull a few strings, sure, but are they really the puppeteers in this show?" I think they are. If not them, who in hell have the means and the motive to stage a horror show for so long? If the barons let French government nationalize one of their b  Read more
cem - 3/7/2014 at 8:55 AM GMT
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