Oct 142010
 

Guest post by Evander Diarmand

The federal government of the United States is, through a practice of perpetual borrowing, on the verge of financial collapse. This is widely decried in media and among citizens to varying degrees but little is done to waylay the rampant expenditure of borrowed funds. These loans, derived from foreign states and from the banks of the Federal Reserve Board, are currently the primary source of revenue for the federal state. The United States Constitution establishes no clear limit on the purposes for which the federal state may incur such debt nor does it limit the extent thereof. Consequently, the congress has taken advantage of the omission to further its political aims both variously and collectively. This self-perpetuating debt—both a threat to the national security and to the integrity of the federated union—has been a common feature in American politics for decades; to the extent that citizens widely accept it as typical. Despite its ubiquity and the number of people employed by debt-funded government bureaus and agencies, this practice is onerous. It is the primary threat to the republic today and must be stopped even if drastic action is required.

Financial management is widely regarded by contemporary society as drudgery—it is a necessary task but bland and thankless. Most people avoid the subject and procrastinate when they face financial difficulties. The general atmosphere of distaste for accounting is amplified enormously in the public spheres of society: several American states ignored the problem and are on the verge of bankruptcy. By many accounts, attaining solvency for these states cannot be postponed. In the federal government, even this eleventh-hour urgency is nonexistent because the federal government derives its funds in a manner all together obscure; a manner which is certainly extra-legal for any single state to attempt. The federal government did not acquire this ability accidentally. The entire history of central government in America, when examined broadly, is a series of legislation and court decisions which have gradually allowed more varied sources of revenue for the central authority and fewer restrictions thereon. The Articles of Confederation famously established the most restrictive rules for revenue generation and it is widely agreed the founders drafted the US Constitution primarily to remedy this perceived flaw. Under the Constitution, the federal apparatus has grown rapidly as court precedent has become increasingly liberal in judgments addressing federal revenue. The twentieth century has seen the greatest expansion of federal sources of revenue while the infrequent judicial impediments have been superseded either by legislation or constitutional amendment. The federal state, its appetite for money apparently insatiable, has perfected the skill of marketing even the most outrageous proposals for generating revenue—some egregiously unconstitutional—to the American populace.

What is the aim of the congress that they must constantly seek new sources of revenue? The answer is simple: Power. And they never have enough. It is likely not a conscious decision to dominate American society or undermine the republic but rather a collective understanding among federal officials that having power is preferable to sharing it. Power, for a congressman, is in controlling the purse. The more revenue they collect, the more control and popularity they can maintain throughout the various states. For instance, taxation of the states or the people never decreases. This means the federal government increasingly controls the collective income and expenditure of the American people simply because so much of our currency goes through their hands. What they collect is held until the congress finds a political motivation to redistribute it. Obviously, those who benefit from this redistribution will lend aid politicians who willing to enact it. When enough congressmen find it politically advantageous to subsidize an industry, agency, or a state, they make pacts with congressmen (often of the “opposition”) who wish to spend it to further their own careers.* Thus, the money is returned to the economy and artificially adheres to certain regions or economic sectors. This is the nature of the modern tyranny. It is a political culture of patronage, inherently plutocratic: because federal revenue is seemingly endless, begging for a share of that revenue has become a lucrative profession for the silver-tongued** and political power has gravitated to the center rather than being diffused throughout the union. Unsatisfied with controlling the money of the American states and their citizens, the federal government has in recent decades turned to borrowing as their principal monetary leverage.

This represents a terrible danger because, today, congress distributes far more than it collects to a degree unimaginable to most Americans. The imbalance is so severe that borrowing has replaced taxation as the primary source of revenue. Our current political system as it is practiced today can only continue if the government borrows endlessly. This has created a paradox: taxation’s only purpose in this system is the payment of interest on federal debt. To elaborate, the federal government has become so gluttonous for revenue that it borrows against the debt itself and struggles to pay off the interest at all. Raising taxes will only delude congressmen into believing they can maintain charade while lowering them will only deepen the debt. Their hunger for revenue has drained the Treasury, Social Security, and anywhere else money sat unused or in trust. They have borrowed from nations around the world and from the Federal Reserve so much for so long that the books would be incomprehensible to even the most talented accountant. It is dangerous because, if for no other reason, it deludes Americans into believing loans and income are the same thing.

The real danger, however, is the source of the borrowed money. Because the federal government is borrowing against debt (and therefore the American people’s money itself) it has created the possibility of catastrophic “foreclosure.” China (among many others states) and the banks of the Federal Reserve essentially own the federal government. And its net worth does not even come close to what it owes. These are some of the most powerful entities on earth and they have the potential to subjugate our federal government. Further, the economy of our nation, far from recovering after the 2007 decline, is in danger of descending into deepest stagflation. The congress’s heedless borrowing compelled the Federal Reserve to perform the greatest feat of illusion in human history: they have separated currency from any kind of value whatsoever and in so doing have been an example for power-hungry governments worldwide. Their monetary policy defies explanation and justification. When the congress needs money, the Federal Reserve quite literally creates it out of nothing and lends it to our government. These loans are borrowed against debt and must be repaid with interest despite being imaginary money. Income tax exists for no other reason than to prevent the federal government from being sucked into this monetary singularity. All the while, the Federal Reserve buys up more and more of our government with money that never existed.

This is not a clever piece of rhetoric meant to generate support for a party, and ideology, or a philosophy—the situation is truly dire. The US Constitution is consistently ignored and power no long derives from the states or the people. Powers now derives solely from money in the most direct literal sense. Our ideals and the republic created to maintain them are already gone. Elimination of the federal government’s unlimited power to collect and spend revenue is not a risk or gamble; it is a necessity if this union is to survive at all. Financial collapse is imminent—perhaps even with our lifetimes—if we continue to tinker with our tax code and limit ourselves to small spending cuts. Politicians and lobbyists caused the problem and are therefore incapable of solving it.

What is necessary for our prosperity and our security is inevitably painful: the largely idle but extremely expensive bureaucracy must be dismantled; the military empire must end; the power of congress to borrow must be severely limited; and the Constitution must be reinstated and amended to outlaw borrowing and new federal spending during a deficit. Most importantly, we must wrest control of our currency from the hands of the Federal Reserve. The downward spiral must be stopped—partisan elections, regulations, and lobbying will accomplish nothing unless we resign ourselves to the truth. Unfortunately, there is no happy ending. It is too late to solve this problem without damage to our economy and political infrastructure; this is the price of delay. We must accept that we will not always be rich, that we will not always be powerful, and that politics is poison. All we can do now is save our country.

*Believe me, none of them actually wants to prevent the spending all together.

** i.e. those who aren’t politicians.

  3 Responses to “Federal Debt: Frequently Asked Questions”

  1. Too true.

    But name me a (Western) guvmint that ain’t in the same boat?

  2. You are right in your assessment. What you prescribe will have to be extra-congressional action, because no (current) politician will stick his neck out for the necessary remedy, including such an amendment to the Constitution. Constitutional convention, anyone?

  3. Emotive stuff above. The proportion of GDP grabbed by the U.S. government is nowhere near the level that some European governments grab, so taxes and government spending in the U.S. would have to rise a long way before the sky falls in.

    As to the national debt being too high, it is nowhere near the level it was at post WWII. However, I agree that national debts are daft, and could do with reducing or even abolishing.

    As to creating money out of thin air, think about this. The average household is currently deleveraging and saving – that is, trying to save up money. Not a bad idea in view of the recent debt binge. Now where does this money come from? There is only one possible place: the U.S. government and Fed. The latter is the only entity that “makes dollars”. And if they don’t “make and supply dollars” for households to save, then households just won’t spend, and that means continued unemployment.
    Creating money out of thin air in a recession makes sense, as Keynes and Milton Freidman pointed out. Conversely, raising taxes, and reining in and “unprinting” or extinguishing money in an inflationary boom makes sense.

    But that’s all way above the head of the average Congressman (particularly Republican Congressmen).

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