Has China Begun Dumping U.S. Treasuries?

Has China decided that now is the time to start dumping U.S. Treasuries?  The Treasury Department announced on Tuesday that foreign holdings of U.S. Treasury securities fell by $53 billion in December, which is an all-time record decline for one month.  China alone reduced its holdings by $34.2 billion.  So is this because the U.S. doesn’t need to borrow as much money anymore?  Of course not.  In fact, the Obama administration just released a new budget which calls for a record 1.56 trillion dollar budget deficit.  Obama has publicly stated that the U.S. will be running trillion dollar deficits for the foreseeable future.  No, China is not getting rid of U.S. Treasuries because the U.S. doesn’t need to borrow anymore.  The U.S. needs to borrow from China (and from everyone else) more than ever.

So what is going on?

The truth is that China recognizes that the long-term prognosis for U.S. Treasuries is really bad.  The U.S. government had piled up the biggest mountain of debt in the history of the world, and when the U.S. dollar eventually collapses (and it will) the Chinese could end up holding a trillion dollars of worthless paper.

So they are slowly starting to slide towards the door, hoping that everyone else does not suddenly catch on that the party is over.

The Chinese know that the great U.S. economy is slowly spiralling into the toilet.  Everyone is so focused on the financial disaster in Greece right now, but Michael Pento, a senior market strategist with Delta Global Advisors, says that the financial situation in the United States is “worse than Greece”.

The Chinese don’t want to be the ones left standing when this bizarre game of musical chairs is over.  In fact, it is just not U.S. Treasuries that the Chinese are getting rid of.  There are reports that the Chinese government has ordered its reserve managers to dump all “riskier securities” and to hold on to only U.S. Treasuries and U.S. agency debt that comes with an implicit or an explicit U.S. government guarantee.

But as we have seen, the Chinese government is also reducing the size of their U.S. Treasury holdings.

For years, there have been financial analysts that have been warning of this day.  They have been warning that when the Chinese and other foreign governments start dumping Treasuries it will send interest rates skyrocketing through the roof and it will crash the U.S. economy.

Well, China is starting to dump Treasuries and the U.S. government is borrowing more money than ever, but interest rates are staying somewhat stable.

So what is happening?

Well, as we have covered previously, the truth is that the Federal Reserve is soaking up the excess borrowing.  Some analysts refer to this as “printing money”, but it is more like “printing debt”.  In fact, the Fed “bought” the vast majority of new U.S. Treasuries issued in 2009.

So that is how the U.S. government can continue to borrow obscene amounts of money when the rest of the world won’t lend it to us.  But this can’t continue forever and it is obviously a recipe for hyperinflation in the long-term.

Meanwhile, the Chinese are trying to make a smooth move towards the “exit” sign.  Whether they will be able to successfully pull it off is another matter.

Extreme Food Storage

Economic Warning! 4 Signs That U.S. Financial Authorities Plan To Reduce The Money Supply, Tighten Credit And Hoard Cash

More than ever before in U.S. history, American society absolutely relies on credit in order to function.  In fact, if you cut off all sources of credit to U.S. businesses, most of them would go out of business fairly quickly.  The truth is that when the money supply expands and credit flows freely, the U.S. economy usually hums along pretty good.  But when the money supply contracts and the financial powers tighten credit, it almost always means that an economic slowdown is coming.  That is why recent signals by the Federal Reserve and the major banks in the U.S. are so alarming.

But why would the financial authorities want to contract the money supply and tighten credit just when the U.S. economy is showing some signs of life?

Well, the truth is that nobody can read their minds.  In the long run, the massive size of the U.S. national debt is going to force a massive increase in the size of the U.S. money supply and will eventually lead to hyperinflation.

However, in the short term U.S. financial powers may see this as a chance to further consolidate their power.  There are rumors that they still desire much greater “consolidation” in the banking industry.

So how would this “consolidation” be achieved?

Well, a massive “second wave” of mortgages is scheduled to reset over the next two to three years.  If credit is tight and the U.S. economy is struggling, then another huge wave of mortgage defaults could potentially destroy hundreds of small to mid-size banks across the United States.

The big banks would be in prime position to come in and buy many of them up for a song.

You see, this is very similar to what happened during the Great Depression.

During the Great Depression, the financial powers reduced the money supply, tightened credit and hoarded cash.  The U.S. economy seized up and suddenly nobody had any money.  Those who did have money (the financial powers) were in many cases able to come in and buy assets up for pennies on the dollar.

Not that we are expecting an extended deflationary depression this time.  Instead, it is perhaps likely that they are planning a “consolidation phase” before they really blow out the dollar.

In any event, a reduction in the money supply, the tightening of credit and the hoarding of cash by banks is really bad news for the average American because there will be less jobs and less opportunity as the economy slows down.

The following are 4 signs that this is exactly what we are about to see….

#1) The Federal Reserve is in talks with money-market mutual funds on agreements to help drain as much as 1 trillion dollars from the financial system.  The Federal Reserve is reportedly seeking to “withdraw” some of the record monetary stimulus pumped into the U.S. economy to fight the recession.  But when you withdraw stimulus money from the system, what happens?  That’s right – the opposite of stimulus.

#2) There are persistent rumors that Federal Reserve policy makers are plotting a course for a series of interest rate hikes.  Federal Reserve Chairman Ben Bernanke says that the Federal Reserve may raise the discount rate “before long” as part of the “normalization” of Fed lending.  By raising that rate, Bernanke says that the central bank “will be able to put significant upward pressure on all short-term interest rates”.  When the Federal Reserve raises rates, this has a ripple effect throughout the entire economy.  Higher rates mean that credit will tighten and loans will be more expensive for individuals and businesses.  In turn, this will cause the U.S. economy to slow down.

#3) Recent data suggests that there has been a substantial drop in the “real” M3 money supply, and every time that this has happened in the past it has resulted in a drop in economic activity.  In fact, this contraction in the money supply has some economic analysts now saying that it is not a matter of “if” we will have a “double-dip” recession, but of “when” it will occur.

#4) There are also signs that the major U.S. banks are now hoarding cash.  In fact, the biggest banks in the U.S. cut their collective small business lending balance by another $1 billion in November 2009.  That drop was the seventh monthly decline in a row.

So what does all of this mean?

It means that the collapse of the U.S. dollar will be put off for a little while but that the U.S. economy is in for some hard times ahead.

More people are going to lose their jobs and more people are going to lose their homes.

Eventually though, after this apparent “consolidation phase” is over, the U.S. government and the financial powers will swoop in with another round of bailouts and another round of “stimulus packages” to save the day.  Once again they will be hailed as heroes and saviors.

And this current “consolidation phase” does not change the long term forecast at all.  Eventually the U.S. dollar will collapse and the United States will experience hyperinflation in one form or another.

Just not yet.

14 Fun Facts About The U.S. Government’s Massive Debt Problem

The U.S. government is currently creating one of the most colossal monuments in the history of the world.  It is the U.S. national debt, and it threatens to literally destroy the American way of life.  For decades now, this generation has been recklessly spending the money of future generations and has been convinced that they have been getting away with it.  Americans have been enjoying an obscenely high standard of living, but the party is almost over and the day of reckoning is fast approaching.  It has been a great party, but it was fueled by the biggest mountain of debt in the history of the world.  As many of us know, it can be extremely fun running up a huge credit card bill, but it can be even more painful to pay it off.  Now our national “credit card bills” are starting to arrive and nobody really seems to know what to do.  The U.S. national debt will forever be a lasting reminder of the greed and recklessness of this generation.  The truth is that the United States is NOT the “richest and most powerful nation” in the world.  Rather, we are a spoiled, bloated, greedy nation that has run up a debt so big that words simply do not do it justice.

In fact, the U.S. national debt is so bizarre that it is hard to know whether to laugh about it or cry about it.  For today at least, we will have some fun with it.  The following are 14 fun facts about the U.S. government’s massive debt problem….

#1) As of December 1st, 2009, the official debt of the United States government was approximately 12.1 trillion dollars.

#2) To pay this 12.1 trillion dollar debt would require approximately $40,000 from every single person living in the United States.

#3) Now the U.S. Congress has approved an increase in the U.S. government debt cap to 14.3 trillion dollars.  to pay this increase off would require approximately $6,000 more from every man, woman and child in the United States.

#4) The U.S. government’s debt ceiling has been raised six times since the beginning of 2006.

#5) So how hard is it to spend a trillion dollars?  If you spent one dollar every second, you would have spent a million dollars in twelve days.  At that same rate, it would take you 32 years to spend a billion dollars.  But it would take you more than 31,000 years to spend a trillion dollars.

#6) When Ronald Reagan took office, the U.S. national debt was only about 1 trillion dollars.

#7) The U.S. national debt has more than doubled since the year 2000.

#8) Barack Obama’s most recently proposed budget anticipates $5.08 trillion in deficits over the next 5 years.

#9) The U.S. national debt on January 1st, 1791 was just $75 million dollars. Today, the U.S. national debt rises by that amount about once an hour.

#10) The U.S. national debt rises at an average of approximately $3.8 billion per day.

#11) In 2010, the U.S. government is projected to issue almost as much new debt as the rest of the governments of the world combined.

#12) The U.S. government has such a voracious appetite for debt that the rest of the world simply doesn’t have enough money to lend us.  So now the Federal Reserve is buying most U.S. debt, and the only reason they can do that is because they basically create the money to lend us out of thin air.

#13) A trillion $10 bills, if they were taped end to end, would wrap around the globe more than 380 times.  That amount of money would still not be enough to pay off the U.S. national debt.

#14) As if all of the above was not bad enough, according to the 2008 Financial Report of the United States Government, which is an official United States government report, the total liabilities of the United States government, including future social security and medicare payments that the U.S. government is already committed to pay out, now exceed 65 TRILLION dollars.

Mountain House Sale

Are We On The Verge Of An Economic War With Russia And China?

Has our exploding national debt become an economic weapon of mass destruction in the hands of the Russians and the Chinese? Have increasing tensions between East and West put us on the verge of an economic war with those two superpowers? Those who are convinced that the Russians and Chinese would never work together to collapse the U.S. economy should really consider what former U.S. Treasury Secretary Henry Paulson is saying in his new book. Paulson’s new book is entitled “On The Brink“, and in it he claims that the Russians contacted the Chinese in 2008 and proposed that both nations dump their Fannie Mae and Freddie Mac bonds at the same time in a bid to force a bailout of the largest U.S. mortgage-finance companies by the U.S. government.  Fortunately, China declined to go along with Russia’s proposal at the time, but this revelation just underscores the economic danger that the United States has gotten itself into.

You see, if the Chinese and the Russians had done that, it would have set off mass panic in the financial markets.  It would have been an unmitigated economic disaster.

Due to our greed and our reckless spending, we have gotten ourselves into a situation where China and Russia have a tremendous amount of leverage on us.

Near the end of 2009, China owned U.S. Treasuries worth approximately $789 billion, and Russia owned U.S. Treasuries worth approximately $128 billion.

If China and Russia decided to dump their Treasuries in unison it could literally devastate the U.S. economy.  Already the Federal Reserve is having to “purchase” the vast majority of all new U.S. Treasuries.  The talking heads on the cable networks claim that this kind of “Ponzi scheme” by the Fed cannot continue indefinitely, but the U.S. government is continuing to spend recklessly and nobody else is stepping up to buy our new debt.  So what would happen if China and Russia suddenly decided to dump nearly a trillion in U.S. Treasuries on the market?

Don’t think that it can’t happen.

Already, the Chinese government has reportedly ordered its reserve managers to dump all “riskier securities” and to hold on to only U.S. Treasuries and U.S. agency debt that comes with an implicit or an explicit U.S. government guarantee.

So is this a prelude to even more dumping to come?

The truth is that tensions between the United States and China are escalating rapidly….

*Barack Obama recently promised to get “tough on trade” with China, and the Chinese government responded to that notion very angrily.

*Senior Chinese military officers have suggested that the Chinese government should sell some U.S. bonds to punish the U.S. government for the latest round of arms sales to Taiwan.

*Barack Obama has attempted to pressure Chinese President Hu Jintao to raise the value of the Yuan, but the Chinese are not giving an inch.  In fact, there are reports that the Chinese regard Obama as weak.

*The Chinese government is reportedly extremely upset that the White House has announced that Obama will meet with the Dalai Lama in the next few weeks.

The vast majority of the American people have no idea what is going on, but the truth is that the Chinese people, and especially the Chinese military and the Chinese government, are very pissed at us.  Just consider the following quotes….

Luo Yuan, a researcher at the Chinese Academy of Military Sciences:

“Our retaliation should not be restricted to merely military matters, and we should adopt a strategic package of counter-punches covering politics, military affairs, diplomacy and economics to treat both the symptoms and root cause of this disease.”

Chinese Major-General Yang Yi:

“This time China must punish the U.S.”

Huang Xiangyang, a commentator in the China Daily newspaper:

“When someone spits on you, you have to get back.”

Nationalism is surging right now in China, and attitudes toward the West and toward the United States are taking a turn for the worse.

In facat, one new poll taken in China recently has revealed that more than half of Chinese citizens now believe that China and America are heading for a new cold war.

But China was so weak a few decades ago.

How could this happen?

That sad thing is that we have done this to ourselves.

It was us who allowed the Chinese to artificially keep their currency so low for so long.

It was us who struck highly imbalanced trade agreements with them.

It was us who allowed our corporations to shut down factories in the U.S. and open them up in China.

It was us who insisted on “free trade” with China even as the human rights abuses over there continued to get worse.

It was us who kept running out to the big box stores to keep buying cheap Chinese-made products when we could have bought more American-made products.

It was us who kept voting for politicians who promoted “globalism” and “free trade agreements” when we should have known that globalism would ultimately have some very painful consequences.

It was us who kept giving China access to advanced military technology and allowed Chinese generals to sleep over at the White House.

It was us who kept pumping money into China and then asking them for loans when we knew all along that they were one of our biggest strategic enemies.

It was us that has allowed China to become the second-largest economy and the number one exporter in the entire world.

If it was not for the stupidity of the United States, the biggest Communist nation on earth, China, would not be an economic and military powerhouse today.

But it is.

And we did it.

In addition, most analysts in the United States seriously underestimate Russia.

Russia (not Saudi Arabia) is now the number one oil exporter in the world.  Their economy has been humming like a machine for most of the past decade, and they are rapidly modernizing and expanding their military.  Russia has made it known that they intend to play a major role in world affairs and that they do not intend to be pushed around by someone like Barack Obama.

The sad thing is that the majority of economic talking heads on the cable channels are still convinced that Russia and China will never use the economic time bombs that we have put into their hands.

They are convinced that they would be “shooting themselves in the feet” by taking us down.

While that may be true, the truth is that there comes a time when other matters become much more important than losing money on some investments.

For both Russia and China, the United States is still the number one strategic enemy out there.  They do not look at the United States as a true friend.  If it comes to a point where it suits their purposes to pull the trigger on an economic war with us, then that is exactly what they will do.

For more on the potential for economic war with Russia and China, check out the excellent video below….

Will This Generation Of Young Americans Be Able To Make It In Hard Times?

Our recent article entitled “A Record Number Of Young Americans Are Unemployed – Are They Just Lazy Or Are There Simply No Jobs Available?” has generated some absolutely outstanding comments.  We have held back on publishing the best of those comments until now because we wanted to feature them all in one place.  The truth is that this economic downturn is having a disproportionate impact on young Americans.  So why is this?  Well, that is what we want to explore.  In today’s economic climate, it can be very difficult to get that first job.  In fact, in some areas of the U.S. today it is close to impossible to get a great job even if you have tons of experience.  But there are some young Americans who are making it out there and who are doing very well despite what the economy is doing.

Certainly when you talk about any very large group of people there are going to be exceptions.  There are some young adults in America today who are absolutely shining examples of what it means to be a hard working American.  But are they the exceptions or are they the rule?

Some would argue that we have raised a generation that is spoiled, lazy and who expect everything in life to just be handed to them.  Of course one could very easily say that is now true of the American people in general.

The American people have had it so good for so long that most of them have no conception of what it means to suffer.  This is especially true of our young people unfortunately.  But now hard times are coming.

Will our young people be able to make it?

Will we be able to make it?

The following are four excellent comments that were left by readers of this website.  They all make excellent points and they all touched us on an emotional level.  Especially Brian’s story.  Never give up Brian.

After reading the comments below, we encourage you to add your own comments at the end of the article.  Do you think that Americans (especially young Americans) are going to be able to make it through the tough times that are ahead, or are we in really, really big trouble?

****

Annie:

I can definitely see many people having temper tantrums. I see it on a small scale now.

I managed a retail establishment last year that is seasonal. All of the employees that the owner hired that were under 40 I had to fire. The first half were lazy obsessively texting internet surfing junkies or illegal aliens I had to fire. Oh boy did they think I was a bitch, but I got the job done, on time and under budget.

The 2 best employees I had was a 40 year old white man and a 65 year old Columbia woman. The man was a class A employee. He made slightly over minimum wage but he was grateful to have a job. Worked anytime I asked him. If I were to call him, he’d be on the next bus to show up for work. Wanted to work, needed to work. Stellar employee. Anytime I get a call in regard to a reference to him, I gave him high accolades.

The Columbian woman, same thing. Showed up on time, dressed professional, spoke professionally on the phone and interact with the customers like a class act.

The Nintendo generation (boy that’s a good one) is full of lazy, obese, low IQ brain dead people. There are few good young people out there, but they are far and few between. When I go to a retail store, I purposely try to pick a register that has a baby boomer working it. If I happen to get a younger man/woman, it’s a joke. They rarely make eye contact and mumble intelligible. I leave the register and don’t even know what they said.

Just to screw with them sometimes I mumble something stupid like I’m being beamed up to Mars after I leave here to see if they’re really paying attention.

The entitlement mentality is the worst. All of these kids want a $100K job or something close. Those days are over unless you get a cushy government job. I’ve been in and out of work for the last 3 years. It’s been rough for me. I’ve worked minimum wage jobs, scavenged for cans and bottles to sell for money, held garage sales, etc…to put food on the table. Many people would think they’re too good to do what I do.

Recent College Graduate:

I recently graduated with a BBA in finance from prestigious university. I wanted to comment of this article because I can completely identify with the subject, in fact, when I saw the picture I laughed to myself and was like that’s me, kinda sad huh. I now live with parents and have no intention of looking for a job. I have been highly motivated my entire life and was well on my way to getting a job in a hedge fund or private equity firm within the oil and gas industry. However a couple months before graduation, something snapped and I became very depressed and lost almost all motivation. I think its because I really woke up the the reality that the the path that the US is on economically speaking is unsustainable. I don’t feel like there is any money to be made anymore. Of course in the short term I could be making about $75,000 a year (typical starting pay for classmates of mine), however I don’t see a point. The dollar will most likely be gone in the next two years and honestly we are on the verge of social and political chaos…I think the best use of my time presently is to prepare myself and get my family prepared for what lies ahead. So from the horses mouth so to speak, as a 22 year old college graduate, that is my opinion.

Brand:

Many recent college grads move back home for two reasons.

First, the education system has become absolutely addicted to debt. Look at the cost of tuition over the last three decades, and then look at the number of loans issued by Sallie Mae. As soon as demand went through the roof, the universities started doubling and tripling tuition rates, while offering in-house consultation on how to maximize student loans. Twenty years ago, most college students didn’t graduate $40-60,000 in the debt.

Second, it’s a tough job market. If you’ve got a tuition payment to make, and you can’t get a job, then it’s reasonable to move back in with mom and dad for a while. That’s what family is for. They have every right to expect you to pull your weight, including doing chores and getting a part-time job to help pay for food and utilities. Of course, when mom and dad get old, they have the right to live at *your* place for a while, at least until they require permanent care.

I don’t dispute that there are a lot of lazy punks out there. I also happen to think that kids go $40-60,000 into debt while majoring in dead-end subjects that offer no chance of repaying their loans. But there are also plenty of responsible young people who get stuck between a rock and a hard place, and there’s nothing wrong with taking a little family help as long as it’s appreciated and repaid in kind.

Just my two cents.

Brian:

I am 31 year old male, but everyone says I look 17-20. I had a son at 18 and never had the money to go to an expensive college to get a degree and got turned down for a federal grant/loan, but I did save and go to community college for paramedic. The above article really bothered me because for years I have been put down by older adults, Friend of court, and places I applied to for work for taking care of my grandparents who have been married almost 60 years, and my mother who has MS. My grandmother has never had a license and my grandfather has had emphysema for 20 years and is on oxygen, and my mother uses a wheel chair or a walker on her good days. (the bad are spent crying in pain in bed, sleeping, or bed ridden for days, sometimes weeks at a time.) FOC says I don’t send enough directly to her and taking care of my family is not a “real” job since I do not pay federal tax’s or get paid a weekly check they can commandeer(that’s a whole other story, I guess they didn’t get the memo that woman are to pass men as family “breadwinners” this year or next.), other older adults say I need to look out for myself and get a real job, and the jobs I do apply for,(to work nights or part time) also say it is not a job and therefore I have a huge employment gap on my resume. I have lived on and off between my grandparents and mothers in Michigan my whole life. I stayed with grandparents because my mom waitress-ed full time at night when I was younger.I do not care what they say, I love my family and will help them no matter what, until they pass or they can afford a home nurse. On the nights and weekends that I don’t have my son, I sit home and reading and learning programming and web design. I am willing to work hard anywhere for any (legal) pay. Everyone complains about everyone else and thinks it is so easy to get a job until it happens to them. I glad I don’t care about money and I do not have anything worth anything, so it can’t be taken away. Maybe all the people who were doing the complaining on the board up there should give me and people like me a chance. We might just be the most kind, loyal, hard working person you ever had working with or for. I just would like to let you know, Not being able to financially support myself makes me feel like a loser and maybe I am just a burden on my family and it would be better of if I just”went away”. If it would not hurt my son and family so much, I would be gone.

Survive After Collapse

Quotes About The Federal Reserve And Central Banking

Our last post, “It Is Now Mathematically Impossible To Pay Off The U.S. National Debt“, has created a ton of controversy and has generated over 100 comments so far.  Much of the discussion has been about the role of the Federal Reserve and how they create money and debt.  The truth is that the Federal Reserve system is a very complex subject that is very difficult to get a handle on.  One thing that the Federal Reserve is NOT is a government agency.  In fact, it is about as “federal” as Federal Express.  It is a private central bank designed to make money for the people who created it.  In fact, the Federal Reserve was the culmination of an effort by the international banking elite to force a permanent private central bank on the American people that began all the way back during the days of our Founding Fathers. 

But don’t just take our word for it. The following are famous quotes about the Federal Reserve and central banking from past presidents, congressmen and other notable historical figures….  

“Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States.”
-Sen. Barry Goldwater

It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
-Henry Ford

“The regional Federal Reserve banks are not government agencies. …but are independent, privately owned and locally controlled corporations.”
-Lewis vs. United States, 680 F. 2d 1239 9th Circuit 1982

“The Federal Reserve banks are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this nation is run by the International bankers.”
-Congressman Louis T. McFadden

“The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government of the U.S. since the days of Andrew Jackson.”
-Franklin Delano Roosevelt

“As soon as Mr. Roosevelt took office, the Federal Reserve began to buy government securities at the rate of ten million dollars a week for 10 weeks, and created one hundred million dollars in new [checkbook] currency, which alleviated the critical famine of money and credit, and the factories started hiring people again.”
-Eustace Mullins

“This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President [Wilson} signs this bill, the invisible government of the monetary power will be legalized….the worst legislative crime of the ages is perpetrated by this banking and currency bill.”
-Charles A. Lindbergh, Sr. , 1913

“When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.”
-Putting it simply, Boston Federal Reserve Bank

“We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it.”
-Congressman Louis T. McFadden in 1932

“The few who understand the system, will either be so interested from it’s profits or so dependent on it’s favors, that there will be no opposition from that class.”
-Rothschild Brothers of London, 1863

“While boasting of our noble deeds were careful to conceal the ugly fact that by an iniquitous money system we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery.”
-Horace Greeley

“The Federal Reserve bank buys government bonds without one penny…”
-Congressman Wright Patman, Congressional Record, Sept 30, 1941

“…the increase in the assets of the Federal Reserve banks from 143 million dollars in 1913 to 45 billion dollars in 1949 went directly to the private stockholders of the [federal reserve] banks.”
-Eustace Mullins

“The financial system has been turned over to the Federal Reserve Board. That Board administers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money”
-Charles A. Lindbergh Sr., 1923

“Bankers own the earth. Take it away from them, but leave them the power to create money and control credit, and with a flick of a pen they will create enough to buy it back.”
-Sir Josiah Stamp, former President, Bank of England

“All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation.”
-John Adams

“Whoever controls the volume of money in any country is absolute master of all industry and commerce.”
-James A. Garfield, President of the United States

“A great industrial nation is controlled by it’s system of credit. Our system of credit is concentrated in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the world–no longer a government of free opinion, no longer a government by conviction and vote of the majority, but a government by the opinion and duress of small groups of dominant men.”
-President Woodrow Wilson

“History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it’s issuance.”
-James Madison

“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs.”
-Thomas Jefferson

“The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, and more selfish than bureaucracy. It denounces as public enemies all who question its methods or throw light upon its crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe.”
-Abraham Lincoln

“Give me control of a nation’s money and I care not who makes it’s laws”
-Mayer Amschel Bauer Rothschild

Are you starting to get the picture?

The Federal Reserve is at the center of a controversy over central banking that has been around since the very beginning of the United States.  But unfortunately, the Federal Reserve system is so incredibly complex and the American people of today are so uneducated that the vast majority of people out there simply do not even understand enough about what is going on to get upset about anything.

But that is changing.  An increasing number of people are starting to wake up.  Instead of thinking that “we’ll get this debt under control if we could just get the right person in the White House”, more Americans than ever are realizing that it is the Federal Reserve that is the root of our debt problem.

As always, we welcome you to leave a comment with your opinion about the Federal Reserve.  We read every single comment that gets left on this site, and we actually learn a lot from reading them.

We also encourage you to follow us on our daily news website, The Most Important News, which features the best collection of alternative news stories that you will find anywhere.

It Is Now Mathematically Impossible To Pay Off The U.S. National Debt

A lot of people are very upset about the rapidly increasing U.S. national debt these days and they are  demanding a solution. What they don’t realize is that there simply is not a solution under the current U.S. financial system. It is now mathematically impossible for the U.S. government to pay off the U.S. national debt. You see, the truth is that the U.S. government now owes more dollars than actually exist. If the U.S. government went out today and took every single penny from every single American bank, business and taxpayer, they still would not be able to pay off the national debt. And if they did that, obviously American society would stop functioning because nobody would have any money to buy or sell anything.

And the U.S. government would still be massively in debt.

So why doesn’t the U.S. government just fire up the printing presses and print a bunch of money to pay off the debt?

Well, for one very simple reason.

That is not the way our system works.

You see, for more dollars to enter the system, the U.S. government has to go into more debt.

The U.S. government does not issue U.S. currency – the Federal Reserve does.

The Federal Reserve is a private bank owned and operated for profit by a very powerful group of elite international bankers.

If you will pull a dollar bill out and take a look at it, you will notice that it says “Federal Reserve Note” at the top.

It belongs to the Federal Reserve.

The U.S. government cannot simply go out and create new money whenever it wants under our current system.

Instead, it must get it from the Federal Reserve.

So, when the U.S. government needs to borrow more money (which happens a lot these days) it goes over to the Federal Reserve and asks them for some more green pieces of paper called Federal Reserve Notes.   

The Federal Reserve swaps these green pieces of paper for pink pieces of paper called U.S. Treasury bonds. The Federal Reserve either sells these U.S. Treasury bonds or they keep the bonds for themselves (which happens a lot these days).

So that is how the U.S. government gets more green pieces of paper called “U.S. dollars” to put into circulation. But by doing so, they get themselves into even more debt which they will owe even more interest on.

So every time the U.S. government does this, the national debt gets even bigger and the interest on that debt gets even bigger.

Are you starting to get the picture?

As you read this, the U.S. national debt is approximately 12 trillion dollars, although it is going up so rapidly that it is really hard to pin down an exact figure.

So how much money actually exists in the United States today?

Well, there are several ways to measure this.

The “M0” money supply is the total of all physical bills and currency, plus the money on hand in bank vaults and all of the deposits those banks have at reserve banks.  As of mid-2009, the Federal Reserve said that this amount was about 908 billion dollars.

The “M1” money supply includes all of the currency in the “M0” money supply, along with all of the money held in checking accounts and other checkable accounts at banks, as well as all money contained in travelers’ checks.  According to the Federal Reserve, this totaled approximately 1.7 trillion dollars in December 2009, but not all of this money actually “exists” as we will see in a moment.

The “M2” money supply includes everything in the “M1” money supply plus most other savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).  According to the Federal Reserve, this totaled approximately 8.5 trillion dollars in December 2009, but once again, not all of this money actually “exists” as we will see in a moment.

The “M3” money supply includes everything in the “M2” money supply plus all other CDs (large time deposits and institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.  The Federal Reserve does not keep track of M3 anymore, but according to ShadowStats.com it is currently somewhere in the neighborhood of 14 trillion dollars.  But again, not all of this “money” actually “exists” either.

So why doesn’t it exist?

It is because our financial system is based on something called fractional reserve banking.

When you go over to your local bank and deposit $100, they do not keep your $100 in the bank.  Instead, they keep only a small fraction of your money there at the bank and they lend out the rest to someone else.  Then, if that person deposits the money that was just borrowed at the same bank, that bank can loan out most of that money once again.  In this way, the amount of “money” quickly gets multiplied.  But in reality, only $100 actually exists.  The system works because we do not all run down to the bank and demand all of our money at the same time.

According to the New York Federal Reserve Bank, fractional reserve banking can be explained this way….

If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+…=$1,000).”

So much of the “money” out there today is basically made up out of thin air.

In fact, most banks have no reserve requirements at all on savings deposits, CDs and certain kinds of money market accounts.  Primarily, reserve requirements apply only to “transactions deposits” – essentially checking accounts.

The truth is that banks are freer today to dramatically “multiply” the amounts deposited with them than ever before.  But all of this “multiplied” money is only on paper – it doesn’t actually exist.

The point is that the broadest measures of the money supply (M2 and M3) vastly overstate how much “real money” actually exists in the system. 

So if the U.S. government went out today and demanded every single dollar from all banks, businesses and individuals in the United States it would not be able to collect 14 trillion dollars (M3) or even 8.5 trillion dollars (M2) because those amounts are based on fractional reserve banking.

So the bottom line is this….

#1) If all money owned by all American banks, businesses and individuals was gathered up today and sent to the U.S. government, there would not be enough to pay off the U.S. national debt.

#2) The only way to create more money is to go into even more debt which makes the problem even worse.

You see, this is what the whole Federal Reserve System was designed to do.  It was designed to slowly drain the massive wealth of the American people and transfer it to the elite international bankers.

It is a game that is designed so that the U.S. government cannot win.  As soon as they create more money by borrowing it, the U.S. government owes more than what was created because of interest.

If you owe more money than ever was created you can never pay it back.

That means perpetual debt for as long as the system exists.

It is a system designed to force the U.S. government into ever-increasing amounts of debt because there is no escape.

We could solve this problem by shutting down the Federal Reserve and restoring the power to issue U.S. currency to the U.S. Congress (which is what the U.S. Constitution calls for).  But the politicians in Washington D.C. are not about to do that.

So unless you are willing to fundamentally change the current system, you might as well quit complaining about the U.S. national debt because it is now mathematically impossible to pay it off.

***UPDATE***

It has been suggested that the same dollar can be used to pay off debt over and over – this is theoretically true as long as the dollar remains in the system.

For example, if the U.S. government gives China a dollar to pay off a debt, there is a good chance that the U.S. government will be able to acquire that dollar again and use it to pay off another debt.

However, this is not true when debt is retired with the Federal Reserve.  In that case, money is actually removed from the system.  In fact, because of the “money multiplier”, when debt is retired with the Federal Reserve it can remove ten times that amount of money (and actually more, but let’s not get too technical) from the system.

You see, fractional reserve banking works both ways.  When $100 is introduced into the system, it can theoretically create $1000 as the example in the article above demonstrates.  However, when that $100 is removed, it can have the opposite impact.

And considering the fact that the Federal Reserve “purchased” the vast majority of new U.S. government debt last year, we have got a real mess on our hands.

Even if a way could be figured out how to pay off all the debt we owe to foreign nations (such as China, Japan, etc.) it would still be mathematically impossible to pay off the debt that we owe to the Federal Reserve which is exploding so fast that it is hard to even keep track of.

Of course we could repudiate that debt and shut down the Federal Reserve, but very few in Washington D.C. have any interest in doing that.

It has also been suggested that instead of just using dollars to pay off the U.S. national debt, we could use the assets of the U.S. government to pay it off.

That is rather extreme, but let us consider that for a moment.

That total value of all physical assets in the United States, both publicly and privately owned, is somewhere in the neighborhood of 45 to 50 trillion dollars.  Of course the idea of the U.S. government “owning” every single asset of the American people is repugnant to our entire way of life, but let’s assume that for a moment.

According to the 2008 Financial Report of the United States Government, which is an official United States government report, the total liabilities of the United States government, including future social security and medicare payments that the U.S. government is already committed to pay out, now exceed 65 TRILLION dollars.  This amount is more than the entire GDP of the whole world.

In fact, there are other authors who have written that the actual figure for the future liabilities of the U.S. government should be much higher, but let’s be conservative and go with 65 trillion for now.

So, if the U.S. government took control of all physical assets in the United States and sold them off, it could not even make enough money to pay for everything that the U.S. government is already on the hook for.

Ouch.

If you have not read the 2008 Financial Report of the United States Government, you really should.  Actually the 2009 report should be available very soon if it isn’t already.  If anyone knows if it is available, please let us know. 

The truth is that the U.S. government is in much bigger financial trouble than we have been led to believe. 

For example, according to the report (which remember is an official U.S. government report) the real U.S. budget deficit for 2008 was not 455 billion dollars.  It was actually 5.1 trillion dollars.

So why the difference?

The CBO’s 455 billion figure is based on cash accounting, while the 5.1 trillion figure in the 2008 Financial Report of the United States Government is based on GAAP accounting. GAAP accounting is what is used by all the major firms on Wall Street and it is regarded as a much more accurate reflection of financial reality.

So needless to say, the United States is in a financial mess of unprecedented magnitude.

So what should we do?  Does anyone have any suggestions?

***UPDATE 2***

We have received a lot of great comments on this article.  Trying to understand the U.S. financial system (even after studying it for years) can be very difficult at times.  In fact, it can almost seem like playing 3 dimensional chess.

Several readers have correctly pointed out that when the U.S. money supply is expanded by the Federal Reserve, the interest that is to be paid on that new debt is not created. 

So where does the money to pay that interest come from?  Well, eventually the money supply has to be expanded some more.  But that creates even more debt.

That brings us to the next point.

Several readers have insisted that the Federal Reserve is not privately owned and that since it returns “most” of the profits it makes to the U.S. government that we should not be concerned about the debt owed to it.

The truth is that what you have with the Federal Reserve is layers of ownership.  The following was originally posted on the Federal Reserve’s website….

“The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations – possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.”

So Federal Reserve “stock” is owned by member banks.  So who owns the member banks?  Well, when you sift through additional layers of ownership, you will ultimately find that people like the Rothschilds, the Rockefellers and the Queen of England have very large ownership interests in the big banks.  But there are so many layers of ownership that they are able to disguise themselves well. 

You see, these people are not stupid.  They did not become the richest people in the world by being morons.  It was the banking elite of the world who designed the Federal Reserve and it is the banking elite of the world who benefit the most from the Federal Reserve today.  In the article above when we described the Federal Reserve as “a private bank owned and operated for profit by a very powerful group of elite international bankers” we may have been oversimplifying things a bit, but it is the essence of what is going on.

In an excellent article that she did on the Federal Reserve, Ellen Brown described a number of the ways that the Federal Reserve makes money for those who own it….

The interest on bonds acquired with its newly-issued Federal Reserve Notes pays the Fed’s operating expenses plus a guaranteed 6% return to its banker shareholders. A mere 6% a year may not be considered a profit in the world of Wall Street high finance, but most businesses that manage to cover all their expenses and give their shareholders a guaranteed 6% return are considered “for profit” corporations.

In addition to this guaranteed 6%, the banks will now be getting interest from the taxpayers on their “reserves.” The basic reserve requirement set by the Federal Reserve is 10%. The website of the Federal Reserve Bank of New York explains that as money is redeposited and relent throughout the banking system, this 10% held in “reserve” can be fanned into ten times that sum in loans; that is, $10,000 in reserves becomes $100,000 in loans. Federal Reserve Statistical Release H.8 puts the total “loans and leases in bank credit” as of September 24, 2008 at $7,049 billion. Ten percent of that is $700 billion. That means we the taxpayers will be paying interest to the banks on at least $700 billion annually – this so that the banks can retain the reserves to accumulate interest on ten times that sum in loans.

The banks earn these returns from the taxpayers for the privilege of having the banks’ interests protected by an all-powerful independent private central bank, even when those interests may be opposed to the taxpayers’ — for example, when the banks use their special status as private money creators to fund speculative derivative schemes that threaten to collapse the U.S. economy. Among other special benefits, banks and other financial institutions (but not other corporations) can borrow at the low Fed funds rate of about 2%. They can then turn around and put this money into 30-year Treasury bonds at 4.5%, earning an immediate 2.5% from the taxpayers, just by virtue of their position as favored banks. A long list of banks (but not other corporations) is also now protected from the short selling that can crash the price of other stocks.

The reality is that there are a lot of ways that the Federal Reserve is a money-making tool.  Yes, they do return “some” of their profits to the U.S. government each year.  But the Federal Reserve is NOT a government agency and it DOES make profits. 

So just how much money is made over there?  The truth is that we have to rely on what the Federal Reserve tells us, because they have never been subjected to a comprehensive audit by the U.S. government.

Ever.

Right now there is legislation going through Congress that would change that, and the Federal Reserve is fighting it tooth and nail.  They are warning that such an audit could cause a financial disaster.

What are they so afraid of?

Are they afraid that we might get to peek inside and see what they have been up to all these years?

If you are a history buff, then you probably know that debates about a “central bank” go all the way back to the Founding Fathers.

The European banking elite have always been determined to control our currency, and that is exactly what is happening today.

Ever since the Federal Reserve was created, there have been members of the U.S. Congress that have been trying to warn the American people about the insidious nature of this institution. 

Just check out what the Honorable Louis McFadden, Chairman of the House Banking and Currency Committee had to say all the way back in the 1930s….

“Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.”

The Federal Reserve is not the solution and it never has been.

The Federal Reserve is the problem.

Any thoughts?