The Sleight of Hand Of Finance & Government.

sleight of hand n. pl. sleights of hand

  1. A trick or set of tricks performed by a juggler or magician so quickly and deftly that the manner of execution cannot be observed; legerdemain.
  2. Performance of conjuring tricks.
  3. Skill in performing conjuring tricks.

The nation’s debt is the legerdemain in the room. There are numerous national distractions to aid the deception such as, sports, entertainment, arguments about racial politics, gender identity, Sony studio hackers, Drones, CIA torture accusations, and the latest Hollywood gossip. All of this pales in comparison to the real trouble brewing with fiscal policy / spending.

Since t18-ton armored vehicle with gun turrets and bulletproof glasshis is still a pot on simmer and hasn’t gone into complete boil, most people are unaware of this looming catastrophic problem. After all, if it takes years in the making, how can it be considered a big deal? The reasons may seem a little complicated, but if you read on, it may all start to make sense.

Know this basic fact; whenever nations get into serious financial difficulties they will take steps to eradicate or minimize the problems. Unfortunately the steps they take lead to things such as runaway inflation, radical inequity of wealth, asset seizures, emergency federal powers, and usually war.

All the perplexities, confusions, and distresses in America arise, not from defects in the Constitution or confederation, not from want of honor or virtue, as much as from downright ignorance of the nature of coin, credit, and circulation. — John Quincy Adams

Money - ResourcesI am afraid that ordinary citizens will not like to be told that the banks can, and do, create and destroy money; and they who control the credit of the nation direct the policy of governments and hold in the hollow of their hands the destiny of the people. — Reginald McKenna, Chairman, Midland Bank London 1919-1943

Those who have knowledge don’t predict. Those who predict don’t have knowledge” — Lao Tzu, 6th century BC poet.

At risk of making this statement even more true, I will continue to explain the problem and likely outcome of our fiscal crisis. Oh, you say we don’t have a financial crisis?

Congressman Patman: Mr. Eccles, how did you get the money to buy those two billions of government securities? Eccles: We created it. Patman: Out of what? Eccles: Out of the right to issue credit money. — Testimony of Marriner Eccles, Chairman of the Federal Reserve Board, before the House Banking and Currency Committee, 1941

Every circulating Federal Reserve Note represents in actuality a one dollar debt to the Federal Reserve system. — Money Facts, House Banking and Currency Committee

I have never seen more Senators express discontent with their jobs. I think the major cause is that, deep down in our hearts, we have been accomplices in doing something terrible and unforgivable to our wonderful country. Deep down in our heart, we know that we have given our children a legacy of bankruptcy. We have defrauded our country to get ourselves elected. — John Danforth (U.S. Senator 1977–1995)

If all the bank loans were paid up, no one would have a bank deposit, and there would not be a dollar of currency or coin in circulation. This is a staggering thought. We are completely dependent on the commercial banks for our money. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money, we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp upon the picture, the tragic absurdity of our hopeless position is almost incredible – but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it is widely understood and the defects remedied very soon. — Robert H. Hemphill, Federal Reserve Bank of Atlanta 2008

From these quotes, the entire Federal Reserve System of treasury notes and credits may be understood. Money after all is merely a form of accepted trade. The value of each trade (note of currency) is arbitrary and set by agreement, but can rise and fall within days.

Why is it so important to understand money and debt? Does the United States really have to concern itself with its national debt? After all, isn’t the national debt something we’ve had for centuries and if taken into context as a percentage of GDP, then why should any of us be all that concerned?

Can the US ever pay off its debt?

In 1913 the Federal Reserve Act passed and the 16th Amendment ratified, binding the country in the shackles of central banking and taxation of income.

Over the century that followed, the US has gone from being the biggest creditor in the world to its biggest debtor.

Decades of expanding government programs, new departments, waste, endless and costly wars, have racked up such an enormous pile of debt, it has become almost impossible to pay the debt down.

Definition: the deficit is our annual money spent vs. our income. If income should ever increase to more than what we spend, a deficit for that year wouldn’t exist. The debt is an accumulation of yearly deficits, now with a combined total of over $18 trillion. Despite all of the outcry about how high we are taxed, since the end of World War II, the US government’s total tax revenue has been almost constant at roughly 17% of GDP. Although the actual tax rates themselves rise and fall, the government’s ‘slice’ of the economic pie is almost always the same — 17%. Using figures supplied by the U.S. government, and with overly optimistic assumptions (a 7%+ GDP growth for several years, & low-interest rates), it’s simply not feasible for the US government to ‘grow’ its way out of debt.

The following 2 charts show the world’s biggest banks and the largest companies, and demonstrates the enormity of the U.S. national debt when compared to the amount of revenue & assets of these behemoths. Even with the combined assets & revenue of these international companies, U.S. debt dwarfs them.  This perspective makes more sense than the number of times you could stack dollar bills to the moon and back. The largest banks in the world ranked by market capitalization. Wells Fargo is currently the largest bank in the world based on market capitalization.

World’s Biggest Banks (chart courtesy of Wikipedia)
Rank Bank name Market capitalization (US$ billion)
1 +3 United States Wells Fargo & Co 261.72
2 +3 United States JP Morgan Chase & Co 229.90
3 -2 China ICBC 196.21
4 -1 United Kingdom HSBC Holdings 191.43
5 +3 United States Bank of America 181.77
6 -4 China China Construction Bank 160.83
7 Steady United States Citigroup Inc 144.63
8 -2 China Agricultural Bank of China 126.41
9 Steady China Bank of China 115.92
10 Steady Australia Commonwealth Bank of Australia 115.35
11 +6 Spain Banco Santander 110.57
12 Republic of Ireland Allied Irish Banks plc 100.61
13 -2 Australia Westpac 99.22
14 +8 France BNP Paribas 96.03
15 -1 Canada Royal Bank of Canada 95.18
16 +13 United Kingdom Lloyds Banking Group 90.92
17 +1 Canada Toronto-Dominion Bank 86.49
18 -5 Australia Australia and New Zealand Banking (ANZ) 83.25
19 -7 Japan Mitsubishi UFJ Financial Group (MUFG) 78.45
20 +7 United States US Bancorp 78.11
Top 10 Companies of the World (chart from Wikipedia)
Rank Company Country Industry Revenue in USD
1 Walmart  United States Retail $476.3 billion
2 Royal Dutch Shell  Netherlands United Kingdom Petroleum $459.6 billion
3 Sinopec  China Petroleum $457.2 billion
4 China National Petroleum Corp  China Petroleum $432.0 billion
5 Exxon Mobil  United States Petroleum $407.7 billion
6 BP  United Kingdom Petroleum $396.2 billion
7 State Grid Corp of China  China Power $333.4 billion
8 Volkswagen  Germany Automobiles $261.5 billion
9 Toyota  Japan Automobiles $256.5 billion
10 Glencore   Switzerland Commodities $232.7 billion

Add their numbers up & compare to our national debt and you can see the ominous signs of too much debt.

What are the first steps usually taken to reduce a nation’s debt?

If you were an individual that liked to purchase lovely toys, luxury cars, boats, huge home(s), jewelry, and you knew you could pass off the debt to your children, would you do it? As a nation we refuse to curtail credit purchases and have passed the problem down to future generations. Oh sure, politicians make big speeches on how they’re going to reduce spending and turn the corner on debt, but have they or will they?

It’s not going to happen for several reasons. First, it’s going to hurt the economy for several years. We’ve lived off credit for so long, we are like a crack addict. There would be a huge amount of protest by those affected. Secondly, power is obtained through wealth, and if you think you control the wealth (a false perspective), you want to continue with that power. That’s why both parties, despite rhetoric will continue to expand government through continuing more programs which create more problems than they fix.

What are the remedies?

The U.S. government could default on their creditors (governments like China who loaned us money). This would spark a global financial and banking crisis. It might also lead to war.

The U.S. government could default on the Federal Reserve, which owns trillions of dollars of US debt. This would create an epic currency crisis for the US dollar, almost a guarantee for a huge war so those owed the most money could gain vast income from selling arms & munitions and acquire mineral resources with land.

The U.S. government could default on their obligations to their citizens—primarily to future beneficiaries of Social Security (who collectively own trillions of dollars of US debt). Yes, this money has been paid into a system which never truly protected this money to be paid at a later time, when they knew it was going to be collected. Instead the government has combined social security income with the general fund to show smaller deficits. Literally robbing Peter to pay Paul, this is soon going to be a huge crisis for older people.

The U.S. government could choose to default on their obligations to everyone who holds US dollars, and engineer inflation. This is a popular favorite. This is where statistical sleight of hand fools a lot of people until it becomes runaway inflation. The idea is to diminish the outstanding debt as a percentage of GDP through inflationary prices of goods and services. When you see the popular backing of Washington politicians supporting a minimum wage increase, this isn’t due to the goodness of their heart. If minimum wage increases, there will be a corresponding price increase for goods and services. The increase in money circulation, improves or maintains the ratio between Debt vs Gross Domestic Product. Inflation of currency has a technical term (Quantitative Easing) used by the Fed to obfuscate what is really happening.

We’ve reached a monumental tipping point. Although both political parties have participated and even doubled down on creating this soaring debt, neither one wants to be blamed. Once the monetary crisis reaches a breaking point, (perhaps through the dollar no longer the world standard currency), the politicians will be blaming each other and seeking cover as though they’re playing a huge game of musical chairs.

Just as it is for private individuals, constant increases in accumulated debt destroys wealth. Look around you and observe how many major cities suffer when they no longer had large tax revenue to pay for all the grandiose projects and programs. Infrastructure suffers as well as people. The federal government forestalls this through currency regulation and issuing debt.  Our economy will be in ruins and most of us will suffer if our nation doesn’t wean itself off of credit card roulette.old worn bridge