The Debt Ceiling: Slaves to Debt?

[Phatscotty]

It seems as if we have no choice but to raise the debt ceiling. I mean, if we don't raise it the world will collapse? WTF?

If we do not have a choice, then we are slaves to the debt.

[got tonkaed]

It honestly is a pretty strange scenario. I am not as up to date about the recent issue, but countries operate at pretty massive amounts of debt and it is no new concept. Before a lot of the economic problems a few years back it also seemed fairly acceptable, countries like Japan were operating at pretty large losses, but were not having their economies contracting, so it was seen as beneficial.

I do not think you can run the debt up forever, though it is pretty clear you can run the debt up to almost forever. I think a state may actually need to operate with some level of debt, almost as if it was a person with a credit score. Clearly for a state that would need to have equity in the case of environmental or financial emergency, having a higher credit score would be of an obvious benefit. The US seemingly shouldn't be in that group but perhaps it is.

[radiojake]

It seems as if we have no choice but to raise the debt ceiling. I mean, if we don't raise it the world will collapse? WTF?

If we do not have a choice, then we are slaves to the debt.

Do you have a mortgage or credit card? Just curious

[DJPatrick]

get Tonkaed wrote "the US seemingly shouldn't be in that group but perhaps it is"...
ReallY??? the US is the biggest debtor nation in the world...the US has got along for the past 30 years because of it's cash flow earning banks, businesses and govt money while it was moving around...Now the shiite has hit the fan and there's not much cash flowing so pps are starting to ask for their loans back...the US hasn't got it folks...China bailed them out a few months ago coz it couldn't afford to have it's largest consumer go belly up...looks like the US printing presses will be running hot for a while yet but unless you actually start producing something rather than consuming everything, the notes become more and more worthless...The 10million mark German banknotes during the depression were a good starting point for WW2...

[spurgistan]

Until the global bond market stops expressing a desire for dollars, or we start actually seeing inflation in the United States, it's hard for me to agree with that guy. Yeah, we're the biggest debtor in the world, on a net basis. But, you mighta realized, we also have a pretty big economy. Not that I don't agree that we need to really get after our patterns of consumption. It's just that there are more immediate problems. Like, you know, 10% unemployment. Cutting spending (which I assume you're after) is counterproductive to those ends. Silly Lafferist rhetoric aside (which is where Laffer belongs. Did you not notice that he's named Laffer, people?!)

Also, the US circa 2010 is different than the Weimar Republic circa 1932.

In relation to the OP, there are a lot of things we are dependent on. Breathing, for instance. Are we slaves to oxygen? Simply on a taming-the-rhetoric tangent.

Also, gottonkaed sighting?! I thought you'd gotten too cool for us!

Yeah, two interrobangs in one post. Sue me.

[BigBallinStalin]

Until the global bond market stops expressing a desire for dollars, or we start actually seeing inflation in the United States, it's hard for me to agree with that guy. Yeah, we're the biggest debtor in the world, on a net basis. But, you mighta realized, we also have a pretty big economy. Not that I don't agree that we need to really get after our patterns of consumption. It's just that there are more immediate problems. Like, you know, 10% unemployment. Cutting spending (which I assume you're after) is counterproductive to those ends. Silly Lafferist rhetoric aside (which is where Laffer belongs. Did you not notice that he's named Laffer, people?!)

Also, the US circa 2010 is different than the Weimar Republic circa 1932.

In relation to the OP, there are a lot of things we are dependent on. Breathing, for instance. Are we slaves to oxygen? Simply on a taming-the-rhetoric tangent.

Also, gottonkaed sighting?! I thought you'd gotten too cool for us!

Yeah, two interrobangs in one post. Sue me.

The market is considering and have taken steps towards using other currencies for international exchanges. Check out CHina and Russia's recent bilateral trade agreements for using yuan to rubles instead of one or the other relying on USD and the other converting with their currency's USD exchange rate. Also, with the devaluation of the USD, the incentives to continue using such a currency decrease, and it also increases the incentives for the other countries to devalue their currencies (as seen in Brazil as of most recently, and the Eurozone). There are good chances that countries will continue to engage in this economic "war."


We have seen inflation in the US for decades, it's just managed by the Fed, who tries to avoid deflation (which would actually be great for consumers). Our purchasing power over the past 100 years has decreased by 95%. The problem with nations in debt is that they have no surplus to pull funds from, so they simply print the money. This route inevitably leads to further and further inflation--which hits consumers the hardest, and cannot be indefinitely relied upon.


Here's something you're overlooking: Cutting government spending isn't counterproductive towards alleviating unemployment. Whenever the government puts something into economy, it must take something else from it. This is seen in the continued and recently massive devaluation of the USD to prop up failing businesses. Also, you're assuming that the government is better at providing jobs through spending your money compared to the market providing such jobs.

[BigBallinStalin]

It honestly is a pretty strange scenario. I am not as up to date about the recent issue, but countries operate at pretty massive amounts of debt and it is no new concept. Before a lot of the economic problems a few years back it also seemed fairly acceptable, countries like Japan were operating at pretty large losses, but were not having their economies contracting, so it was seen as beneficial.

I do not think you can run the debt up forever, though it is pretty clear you can run the debt up to almost forever. I think a state may actually need to operate with some level of debt, almost as if it was a person with a credit score. Clearly for a state that would need to have equity in the case of environmental or financial emergency, having a higher credit score would be of an obvious benefit. The US seemingly shouldn't be in that group but perhaps it is.

The problem with such a deficit is that like I said with spurgistan, the only solution to provide further funds is to print more money, which causes inflation thus devaluing the USD which means everyone's paycheck buys less and that their savings are worth less. This isn't good for most Americans.

Also, the Fed lowers interest rates, which increases the incentives for people to spend, instead of saving (which is more important, especially when trying to service one's debt).

It's a backwards system towards alleviating the US's economic woes, and over the long-run has caused (and will cause) more problems than having a stricter monetary policy coupled with a surplus.

[Phatscotty]

It seems as if we have no choice but to raise the debt ceiling. I mean, if we don't raise it the world will collapse? WTF?

If we do not have a choice, then we are slaves to the debt.

Do you have a mortgage or credit card? Just curious

Nope, NOPE!

I carry 0 debt.

[clapper011]

It seems as if we have no choice but to raise the debt ceiling. I mean, if we don't raise it the world will collapse? WTF?

If we do not have a choice, then we are slaves to the debt.

we want what we can not afford, there for many go into debt so they can have those material things.

[Titanic]

It seems as if we have no choice but to raise the debt ceiling. I mean, if we don't raise it the world will collapse? WTF?

If we do not have a choice, then we are slaves to the debt.

Do you have a mortgage or credit card? Just curious

Nope, NOPE!

I carry 0 debt.

You are a massive anomaly amonst the population then. The public have an even greater debt then the state when you add in all types of debt that they have.

[patches70]

Since we have a debt based currency, the very act of creating dollars means creating debt. In fact we cannot get out of debt because to do so would me to destroy the currency completely. So few in the US understand how money is created and even fewer understand what money really is.

This system benefits only one party, the usurer. Until one day this is addressed it will only mean more pain to come.

We can keep printing money for as long as we want. Until the time comes when we can't anymore. That time will be when people stop accepting dollars as payment for goods or services. Until that happens we can print to our hearts content and keep on destroying the currency.

To the usurer a National Debt is a national blessing for them.

The saddest thing of all is that very few even know what the original purpose of money was for and to what end it was invented for.

[patches70]

The public have an even greater debt then the state when you add in all types of debt that they have.

Oh, HELL no. The US credit card debt today stands at around 800 billion.

The Federal deficit for 2011 alone is over 1.3 TRILLION.
The National Debt stands at over 14 TRILLION.
The unfunded liabilities to the Federal Government for SS, Medicare and Medicaid stands at over 100 TRILLION.

There is no way in hell that private debt exceeds that of the Federal Government. There has been a number of hit pieces in the mainstream media of late trying to blame all this mess on the citizens. The banks make WAY more money loaning to the Federal Government than they do loaning to private individuals.

[Phatscotty]

It seems as if we have no choice but to raise the debt ceiling. I mean, if we don't raise it the world will collapse? WTF?

If we do not have a choice, then we are slaves to the debt.

Do you have a mortgage or credit card? Just curious

Nope, NOPE!

I carry 0 debt.

You are a massive anomaly amonst the population then. The public have an even greater debt then the state when you add in all types of debt that they have.

I see where you are coming from, but it us "supposedly" common knowledge to liquidate debt during recession. It is however different this time because we are just tripling and quadrupling our debt.....It's the same way I feel about real estate right now. There is not a free market, so nobody knows what the hell is gonna happen, or how to plan or prepare.

I used to have a credit card with a 400 limit, but the annual fee was 60$. Even though they told me there was no annual fee (the only card I'd sign up for) I found out the next year there was an annual fee and it was simply waved the first year, so I told them to wave my account as well.

btw, welcome back! been a minute

[BigBallinStalin]

Since we have a debt based currency, the very act of creating dollars means creating debt. In fact we cannot get out of debt because to do so would me to destroy the currency completely.

How so?

[Phatscotty]

Since we have a debt based currency, the very act of creating dollars means creating debt. In fact we cannot get out of debt because to do so would me to destroy the currency completely.

How so?

Hehe. Patches has his hands full with this one.

I think it's because we are borrowing it from the Fed.

[patches70]

Since we have a debt based currency, the very act of creating dollars means creating debt. In fact we cannot get out of debt because to do so would me to destroy the currency completely.

How so?

When a $1 is printed, it is printed because the Federal Government created a Bond. The Fed buys the bond and gives the government $1. The Government promises to pay back that $1 plus interest. So, later, when the Government pays back the $1, where does the money for the interest come from?

Every dollar printed must be returned to the central bank and also the interest promised. If we turned in every single dollar ever printed we would still owe the interest and since all the currency has been turned in there would be no currency left to pay the interest. That is what it means "to pay back the debt is to destroy the currency", because if we paid back the debt there would be no currency left, not even to pay the interest on all those bonds.

Once you start to understand the absurdity of the system the sooner you realize that it is a scam. A system that only the central banks make out in the end and we citizens will be taxed until the umpteenth generation until every penny of interest is payed somehow.

[BigBallinStalin]

I see what you're saying, but what about the effects of fractional reserve banking? Given that, it's possible to pay for the money borrowed plus interest since money isn't just supplied through the Fed but through other banks as well.

Also, couldn't the government just readjust the interest rates on its loans for the sake of "national interests" or "national security"? Really, what's to stop the highest enforcer of contracts from doing what it wants in times that it deems as dire?

[BigBallinStalin]

It seems as if we have no choice but to raise the debt ceiling. I mean, if we don't raise it the world will collapse? WTF?

If we do not have a choice, then we are slaves to the debt.

Slaves? More like indentured servants. =) Just give it time, and maybe the debt gets paid off...

[Phatscotty]

It seems as if we have no choice but to raise the debt ceiling. I mean, if we don't raise it the world will collapse? WTF?

If we do not have a choice, then we are slaves to the debt.

Slaves? More like indentured servants. =) Just give it time, and maybe the debt gets paid off...

I don't know exactly that it needs to be paid off, but it needs to be balanced, relative to our economy.

However, it is worth noting, the last time the debt was fully paid off, we named that period the Jacksonian era, and the era of good feelings.

[patches70]

I see what you're saying, but what about the effects of fractional reserve banking? Given that, it's possible to pay for the money borrowed plus interest since money isn't just supplied through the Fed but through other banks as well.

Fractional reserve banking is a serious problem. All the money has to be paid back even though it was created out of thin air and doesn't even exist. Our system gets by with only having about 10% of actual Federal Reserve notes in circulation as opposed to how many dollars are on the books. Either way, every penny has to be paid back eventually and there will NEVER be enough actually currency to pay it all back. Fractional reserve banking is a practice rooted in fraud when you look at the history of the practice.

Also, couldn't the government just readjust the interest rates on its loans for the sake of "national interests" or "national security"? Really, what's to stop the highest enforcer of contracts from doing what it wants in times that it deems as dire?

The government does, we are doing it right now. I predicted several years ago that the government would turn to inflation to pay back the debt. That is what is going on now. The problem with that is that it destroys the value of the currency and pisses everyone who bought bonds from from. Inflation is a hidden tax, and one of the most devastating ones, especially to the middle and lower income brackets.

The Government could also default and just say "screw you, we ain't paying you back for those bonds you bought". The Federal Reserve would not like that very much, nor would all the nations who bought our bonds as they are now out all that money. It destroys the credit of the United States, and though this kind of thing is not unheard of, it is devastating to the economy of any nation that does this sort of thing. We would turn into a third world country overnight. Our entire economy would collapse as would the economies of the world and open up the door for totalitarian countries like China to step in and take over the world economy. Not that they are not already working to that goal now as it stands.

The government also readjusts rates as well, they do it all the time. If the rates of return turn out to be too little then no one will buy the bonds in the first place and the government can't get any money. They can only adjust but so much and we are already at about the lowest we can go in relation to the returns on our bonds. Inflation can be a serious problem as well especially for long term bonds unless the inflation is accounted for in the bond. Why would someone tie up $100 in a bond and when it matures the money they get back is worth less than their original investment because of inflation? Most of our bonds are short term and when it comes time to pay those back we just take out more bonds. It is like a private individual getting a new credit card to pay off an older one and keeps on doing that.

A bond is a "promise to pay". So is a dollar bill for that matter, "a promise to pay". If we go around defaulting on our promises what does that do for us in the long run?

I wrote a whole thesis on the history and practices of central banks starting with the goldsmiths in the 1100's all the way until today. Also, what money is, what it was supposed to be used for and what is is in practice today and how far away from the original intent it has come. I also speculate what is in store for us and how we can actually fix the problem without all this defaulting sort of thing.
http://www.sixandfourum.com/index.php/topic,1262.0.html

In the history of the United States the power over the creation of our money has changed hands at least 8 times between central banks and the people. Currently the power resides with the central banks to create our currency. They have had this power since 1913 and since then our currency has been slowly and surely dwindled down to a 95% loss of value.

[patches70]

I see what you're saying, but what about the effects of fractional reserve banking? Given that, it's possible to pay for the money borrowed plus interest since money isn't just supplied through the Fed but through other banks as well.

The bolded part, if a bank is practicing fractional reserve lending then it is part of The Fed.

The Fed is a cartel, a banking cartel, and just about every single bank in the united states is a member in some fashion and every bank falls under the jurisdiction and oversight from The Fed. Be it through the printing press or fractional reserve lending, it is all created by The Fed and it all has to be paid back to The Fed.

The fractional reserve lending practice is fascinating. If you were to try and do it yourself you would be arrested for fraud.

Here, see why you would be arrested.

Say you had $100. Your neighbor comes over and asks you for a $1000 loan. You have $100 but you say "Sure, I will give you a loan of $1000 as long as you pay it back plus interest (10%) within 1 month". He agrees. You'll be his bank account and credit it $1000. One month later he pays you back $1100.
You started with $100, end up one month later with $1100. You charged only 10% interest, but do you see now your actual rate of return? You made 11X your money charging only 10% interest! You can see how profitable this is for the banks. you can also see the fraud associated with it as well.....

[BigBallinStalin]

It seems as if we have no choice but to raise the debt ceiling. I mean, if we don't raise it the world will collapse? WTF?

If we do not have a choice, then we are slaves to the debt.

Slaves? More like indentured servants. =) Just give it time, and maybe the debt gets paid off...

I don't know exactly that it needs to be paid off, but it needs to be balanced, relative to our economy.

However, it is worth noting, the last time the debt was fully paid off, we named that period the Jacksonian era, and the era of good feelings.

Well, you don't have to go back that far.

What's interesting to note is how the US up to the 70s was this giant creditor nation but from then on has largely become a huge debtor.

[BigBallinStalin]

I see what you're saying, but what about the effects of fractional reserve banking? Given that, it's possible to pay for the money borrowed plus interest since money isn't just supplied through the Fed but through other banks as well.

The bolded part, if a bank is practicing fractional reserve lending then it is part of The Fed.

The Fed is a cartel, a banking cartel, and just about every single bank in the united states is a member in some fashion and every bank falls under the jurisdiction and oversight from The Fed. Be it through the printing press or fractional reserve lending, it is all created by The Fed and it all has to be paid back to The Fed.

The fractional reserve lending practice is fascinating. If you were to try and do it yourself you would be arrested for fraud.

Here, see why you would be arrested.

Say you had $100. Your neighbor comes over and asks you for a $1000 loan. You have $100 but you say "Sure, I will give you a loan of $1000 as long as you pay it back plus interest (10%) within 1 month". He agrees. You'll be his bank account and credit it $1000. One month later he pays you back $1100.
You started with $100, end up one month later with $1100. You charged only 10% interest, but do you see now your actual rate of return? You made 11X your money charging only 10% interest! You can see how profitable this is for the banks. you can also see the fraud associated with it as well.....

This is new information to me.

Thanks for sharing everything so far. I've learned a good bit, and eventually may refute some parts but also put other bits to good use. Thanks for expanding my knowledge, and for providing something for me to challenge through my own education. I'll read your post in that forum as well.

[patches70]

This is new information to me.

Thanks for sharing everything so far. I've learned a good bit, and eventually may refute some parts but also put other bits to good use. Thanks for expanding my knowledge, and for providing something for me to challenge through my own education. I'll read your post in that forum as well.

No problem man, I encourage every person to look into how the central banks are running things. Almost every single country in the world has one and they all run the same way, using a debt based currency. When more understand how it all works then maybe we can finally have the will and knowledge to come up with a better system. They don't teach any of this in regular schooling, you have to actually seek this knowledge out or take specific courses on it. That is why so many don't understand how our system really works.

Remember, for a bank to even be allowed to practice fractional reserve lending, it must be backed by The Fed. A loan shark practices 100% reserve banking. That is, if he wants to loan you $100 he actually has to put at risk $100 of his actual money. He can't make it up out of thin air. I suppose that is why a loan shark will break your legs if you don't pay him back....

Today's banks only need to have 10% of actual money compared to the loans they make. For every dollar in deposits a bank has, it can loan out $10. And all that loaned money is just created out of thin air. It doesn't actually exist, they just credit someone's bank account. The banks would be screwed (or, maybe the depositors actually) if everyone came in and wanted to clean out their bank account. The bank would not have near enough money to pay everyone.

Fractional reserve banking has other problems. The only people who get the full value of that newly created money is the bank making the loan and the person they actually make the loan to. The Market bases prices on how much money is in circulation. Joe Bob goes down and gets a loan to buy concrete. The bank through fractional reserve lending creates 90% of the loan out of thin air and Joe Bob spends the money on concrete. For Joe Bob he gets a bag of concrete for $5 a bag. He spends all his newly loaned money and the Market notices all this new money coming into the system and adjusts prices accordingly. This means that the next guy, Billy May, who wants to by concrete, has to pay $6 a bag, because the Market sees there is more money chasing the same amount of goods, thus the price of the goods increases. Inflation is not rising prices but is increased money supply. Fractional reserve banking increases the money supply dramatically and quickly.

[Phatscotty]

It seems as if we have no choice but to raise the debt ceiling. I mean, if we don't raise it the world will collapse? WTF?

If we do not have a choice, then we are slaves to the debt.

Slaves? More like indentured servants. =) Just give it time, and maybe the debt gets paid off...

I don't know exactly that it needs to be paid off, but it needs to be balanced, relative to our economy.

However, it is worth noting, the last time the debt was fully paid off, we named that period the Jacksonian era, and the era of good feelings.

Well, you don't have to go back that far.

What's interesting to note is how the US up to the 70s was this giant creditor nation but from then on has largely become a huge debtor.

Nixon, Bretton woods, China, closing of the Gold window....