Debt Ceiling Hocus-Pocus Illusions

Raising the debt ceiling means printing more money (electronically).  After the debt ceiling is raised the Department of  Treasury will print up some new government notes, bonds and bills and sell them to the Federal Reserve. The Federal Reserve will then create  some new money and give it to the US Treasury. All this does is dilute the existing currency and weaken the value of the dollar. Businessmen  pay close attention to the actions of the government in regard to creating new money. The second the debt ceiling is raised, they raise prices to compensate for the diluted currency. Raising the debt ceiling will accomplish nothing in the long term except put government deeper into a debt they can not pay back.

Something that is accomplished very well by raising the debt ceiling is that the privately owned Federal Reserve Bank would profit more from the additional interest that is owed to by the the Federal Government. Every time the Federal Reserve lends money to the US Treasury it has to be paid back with interest. That additional interest does not exist yet in the entire monetary system.  It forces the US Treasury to come back in the future and borrow more money in order to pay the debt back.

Here is an illustration to explain how the Federal Reserve works.

1-In 1913 the privately owned Federal Reserve Bank issues the first Federal Reserve Notes to the US Treasury for $1,000 (amount is figurative).

2-The US Treasury now owes the Fed Res  Interest + Principal.  So the US Treasury is now indebted for $1,200.

3-The US Treasury owes $1,200 but only $1,000 exists. The additional $200 has not been created yet.

4-The US Treasury now has no choice they must go back to the Fed Res and borrow $200. The Fed Res creates the new money and backs it up with additional debt.

5-The US Treasury now owes $1,400.  Same problem. Only $1,200 exists. More money most be borrowed.

Today- The US Treasury owes 14.5 Trillion. That amount of money does not exist. The US Treasury needs to borrow more to pay back that interest. Which will only increase the total debt owed next year. What we have here is a dog trying to catch its own tail and running in circles.

Please read the following article for more details on now Factional Banking works:

I have heard some interesting remarks from politicians and political-economists that the people of this country do no understand what is at stake if the debt ceiling is not raised. They don’t give the American people enough credit. We understand very well that we are mixed up in a Federal Reserve Ponzi scheme. The national debt is a bottomless pit that is mathematically impossible to ever pay back. At no time is there enough money in existence to pay back the national debt entirely.

Very few people actually grasp what the number Trillion means. Here is something that we can relate to:

Million Seconds       ~  11 Days

Billion Seconds         ~ 31 Years

Trillion Seconds       ~ 31,000 YEARS !!!


(Note: Permission to reprint and link with credit to Bill Tsafa is hereby granted)

About Bill Tsafa

Swordman, Gunman, Scholar, Accountant, Patriot
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15 Responses to Debt Ceiling Hocus-Pocus Illusions

  1. Vernon Etzel says:

    Excellent Bill! Sounds like you’re getting behind monetary reform. What do you think of Bill Still’s new book “No More National Debt”?

  2. Bill Tsafa says:

    I have not read that book Veron. My understanding of money and banking comes from my Accounting background and my study of history.

    The Federal Reserve system did correct a lot of problems that existed earlier. Gold backed money had its own problems because the mining companies could control the markets or the Government could control the mining companies. The current system would work well if the Federal Government had maintained a more balanced budget over the last 98 years.

    The way it is suppose to work, is that if a person or a company wants to borrow money, the local bank takes some asset as collateral to back the new money they create. Our money is backed by real assets through mortgaging. The problem is that when the Federal Government borrows money, they don’t put up any assets as collateral, so they can keep coming back for more and more.

    Debt based money creation is the cure for inflation because at any time the total debt plus principal exceeds the total money in existence. The only way to pay it back is with continuous national growth. When the government becomes such a large part of the overall all economy and monetary system, there is no way to get a large enough rate of growth in the private sector to keep up with debt as it grows due due to interest.

    Most people can not follow everything I just said. So we (accountants) just tell them that debt is bad and we need smaller government. When we say no more debt… what we really mean is no more money printing because that dilutes the money supply and we (accountants) tell our clients to raise their prices to compensate.

    I explain to people that they price of oil has not gone up over the last 60 years. All that has happened is that the dollar has lost its value relative to oil. Same goes for housing and most other things.

  3. Andrew Shemo says:

    I think the whole debate over the debt ceiling isn’t focused on the proper points. We should be having discussions as to what exactly the role of the federal government should be. If we can touch on those points, while making good arguments, I think the chips will fall in place.

    fwiw, I don’t think allowing the government to print its own money will solve anything. True, they’d be able to print money without first incurring debt, but they wouldn’t be able to control inflation and you can bet any amount of money that they’ll continue their reckless spending. on a similar note, the congress has the power to “coin” money. The people who advocate fiat currency, whether controlled by a central bank or the government, can never articulate how “coining” money means to print ink on paper.

  4. Bill Tsafa says:

    Andrew, you are 100% correct. If the Fed Govt was allowed to print their own interest free money, they would quickly run in hyper-inflation issues. The would print money with no end and business people would respond by raisin their prices. This is something that a lot of Federal Reserve Haters do not understand.

    The Federal Reserve should be audited so we all know what is going on with it. I don’t think we can do away with the debt based monetary system. it is the only system that uses Fiat money and can control inflation. Without it we would have to use a barter system. The long term answer is that the Government needs to be shrunk. Entitlement programs like Social Security should be transferred to the states. Soc Sec should work in a similar manor as Workers Compensation at the state level. Over time it should be phased out altogether.

  5. Bill Tsafa says:

    Coined money is Fiat money too. Even gold coins are Fiat money, because you can not eat it. You an not turn gold in a unit of energy or labor. Gold as currency takes on the exact same role as paper as currency.

  6. Andrew Shemo says:

    I disagree with keeping around a central bank or a fiat currency. However, I will agree that it would be difficult to introduce any type of new system into our country at the current point in time because the entire world, as far as I know, uses fiat currency and central banking. I think someone else that needs to be seriously address is fractional-reserve banking. That, in and of itself is a system of fraud and allows for banks to flood the markets with loans without first holding enough physical assets to backup that credit they just allocated.

    And as for your statements on government insurance: there’s no constitutional authority in either federal or state constitutions to allow the government to steal my money to pay for someone’s retirement.

  7. Bill Tsafa says:

    I agree with you that Government run retirement is unconstitutional, even though the Supreme Court erroneously upheld it when it was challenged in the 1930′s. The issue with Social Security now is that the Federal Govt has been taking money out of people pay checks since the 1930′s to support this, so they can’t just cancel the system. People will want their “entitlements”. This the problem with social welfare systems that bread dependance. It has to be phased out. The way to phase it out is to transfer it to the states and let them do away with it over time.

  8. Andrew Shemo says:

    I think a more palatable solution to social security would be to stop issuing social security cards and to say that if you were born on or after XXXX, you will not receive any benefits. That way, the system will be phased out over time when the last person still receiving social security benefits passes on.

  9. Bill Tsafa says:

    Andrew, that year would probably have to be 1993. Everybody born before that has had Soc Sec taxes withheld from their paycheck. It would take 80 to 100 years to phase out Soc Sec benefits. The Federal Government can not just walk away from it because they have collected Social Security taxes from most people over the age of 18.

    If on the other hand they shift the responsibility to the States in a manor similar to Unemployment Benefits, the Fed Government will be able to cut itself out of the Retirement Planning business much faster.

  10. Andrew Shemo says:

    I don’t see how taking the burden off the federal government and placing it on the states is going to change much of anything. The federal government taxes at a much higher rate and has a lot more revenue coming in, due to the amount of people in the entire country compared to the individual states.

    I was born in 1986, so I’m 25, and I’d gladly sign a paper over that says they can keep every penny they took from me so long as they stop taxing me with the understanding that retirement will be entirely up to me.

    I think the cut off should be something like maybe anyone born in or after 1971 isn’t going to get social security and they don’t have to pay into it anymore.

  11. Bill Tsafa says:

    Andrew, the majority of people born in 1986 have been working for at least five years and have had FICA and MED deducted from their paycheck for the purpose of paying into the Unconstitutional Federal Retirement Program. Most of those people are not going to take the noble position that you are willing to take and just forget about that money they had sucked out of their paychecks. They will want it back.

    No politician is going to commit political suicide and push a bill along the lines of what you suggested. It will not have popular support. Shifting the Retirement program to the states because the states can run it better will have a higher chance of passing. Once it is in the States hands, the States can run it as they wish and phase it out. The phase out process would happen at different rates in different states rather then all at once. Govt run retirement will die faster this way without too much attention. If they tried pass a bill that would terminate Soc Sec for people who have already paid into it, there would be riots in Washington. The plan I suggested is more subtle and accomplishes the same goal.

  12. Bill Tsafa says:

    …just so I am clear. I was not implying that the States could actually run a Govt retirement program any better. Govt Retirement is a failure from conception. Shifting it to the states a means to phase it out.

  13. Bill Tsafa says:

    The following question was asked of me relative to this article:

    “Does this increase amount to more or less than the lowering of our credit rating (due to the threat of and extended argument over a possible default) will cost us in higher interest rates on the debt ? ”

    My answer:

    The Federal Government is borrowing from the Federal Reserve Bank, which is a private corporatio­n under the control of the Federal Government­ (we think).

    The Federal Government has enough influence to pressure the Federal Reserve Bank to set the interest rate to whatever it wants. They could have it set to ZERO. So in reality a credit rating for the Federal Government means nothing, because they print their own money. The question comes down to how much money are they allowed to print.

    The problem with setting the inflation rate to zero is that they will be creating new money without the additional debt burden. That that debt burden is the only thing that controls inflation. So if they issue more money without a debt burden, businesses will immediatel­y respond by raising prices to compensate­. Business want to raise prices just fast as the Fed Reserve is printing new money. That way they maintain relative prices. Gas prices do not move much. What you really see is a fluctuatio­n in the value of the dollar. The fluctuatio­n is more obvious in internatio­nal trade.

    So the short answer is that they could do away with interest rates altogether­. The Federal Government is really just borrowing from itself. Put another way… they are just “printing money”. The system is designed to control that printing of new money. The whole purpose of the elaborate debt system and accumulati­ng interest is to control the inflation that would naturally occurs when you print new money.

  14. Bill Tsafa says:

    Deal Reached to extend deficit by 2.4 Trillion.

    Let the money printing begin !!!

    Everyone..­. time to raise prices !!!

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