DEBT! Every major economy in this world is facing this problem. The USA is in $15 trillion of debt, and it’s increasing at a dangerously rapid pace. The entire Euro-crisis was caused due to toxic amounts of debt which the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) had accumulated. And much of the debt has been accumulated in these countries because the system itself is faulty.
A government needs a steady supply of money in order to carry out its daily functions, pay the bureaucrats, maintain and upgrade the military, etc. Part of the costs is paid through taxes and tariffs. For the remaining costs, the government either borrows from the public or from its central bank. Here is where the problem arises. The central bank prints money for the government, but doesn’t hand it over directly. Instead, the government prints bonds and deposits them in the central bank as collateral, and the bank then lends the money at a particular rate of interest. Since all the money that is in circulation has been printed by the bank and loaned to the government, it means that the government owes the bank more money than what currently exists.
Let us simplify the problem a little further. The government of a tiny country wants to borrow $1000 from its central bank. The bank lends it at an interest rate of 5% per annum. If the government wants to borrow it for just one year, it will have to repay $1050 at the end of the year. But wait! The extra $50 was not created by the bank. Even if the government repays the entire $1000, it would still owe the bank an extra $50. Assuming that the entire country’s money supply is only the $1000 which the government borrowed from the bank, it means that after the repayment of the last dollar in circulation, the government owes the bank an additional $50. In order to pay off that $50, the government will have to take another loan from the central bank, thus amplifying the problem. Generally, governments pay off just the interest every year. Thus, as the principal is extended every year, the interest payments also increase, while the debt is never repaid.
Common sense tells us: if the government can issue a bond worth $1000 and swap it with the central bank in return for a loan of $1000 at some rate of interest, why can’t the government simply print the $1000 it wants? But according to orthodox economic thought, this is blasphemy. The central bank is a private bank in most countries, but if it were an arm of the government, there would not be much of a problem. In this case, the central bank (or the “national” bank) printing money is almost equivalent to the government itself directly printing it. However, the leading economists of the age would cause a large ruckus if any step were to be taken to nationalize a central bank. The entire world condemned Hungary when they nationalized their central bank a few months back. This is because a central bank is generally owned by large banks, and lending to the government is very profitable. For example, the Federal Reserve of the USA is not at all “Federal” in even the least sense. That is, the Fed is generally seen to be a wing of the US Government, but it is not. Although the Chairman of the Fed is appointed by the President, the Board of Governors is vetted by the giant Wall-Street Banks. This makes it impossible for the Congress to direct the Fed’s policies, since the Board of Governors follow what their masters dictate.
During the American Civil War, President Abraham Lincoln went to the bankers for funds, but they demanded very high rates of interest. Instead, he went to the Congress and got its permission to print currency directly. Thus, the United States Note, or “greenback” as it was called popularly, was born. The issue of around $400 million greenbacks ensured that the Federal Government was not burdened by debt like the Confederate States. For this reason, he was assassinated, probably by powerful banking interests. President John F Kennedy, who too wanted to remove the USA from debt-slavery by printing currency directly, was also assassinated.
Today, as the debt of the USA increases to unsustainable levels, is there any way the world can hope for a better future? There is one man who can probably save the entire world – Republican Presidential candidate Congressman Dr. Ron Paul. If Ron Paul wins, he will end the Fed and break the debt-slavery.
VIVE LA REVOLUTION !