US Public Debt: No Solution

On Monday the US Congress has finally approved the new budget agreement allowing the government to increase the borrowing limit by 2012 on $2.4 trillion. The plan also provides for saving of $1 trillion in 10 (ten!) years. Today the US public debt is around $14.5 trillion. The budget deficit in 2011 will be $1.5 trillion. So by the end of this year the United States will borrow more than they will save in the next 10 years! These are the bare figures and facts.

Today many experts insist that the US public debt comprising around 100% of GDP is not critically large. They used to compare it with the debt of Japan, Zimbabwe or Greece, all having much larger ratio. But they forget to remind us that the global economy is the hostage of American, not Zimbabwean debt. And no one looks honestly at the nature of the US public debt. Few can distinctly answer the simple question: to whom owe the United States?

Evidently, the US government borrows from the Federal Reserve. The banknotes are repaid by treasury securities. The Federal Reserve sells these securities abroad thus burning off the excessive dollar stocks. According to US Treasury, the major holders of the US treasure securities in May 2011 were China ($1159.8 billion), Japan ($912.4 billion) and Great Britain ($346.5 billion).

What happens when the demand for the US treasuries goes down? The papers are left at the Federal Reserve storehouse. Does it mean that the United States owe to themselves? Nonsense! The matter turn clearer if we assume that the Federal Reserve does NOT belong to the American state. Here are some abstracts from the ‘Federal Reserve System: Purposes and Functions’ booklet (page 2) and the Federal Reserve System Overview by Federal Reserve Bank of Richmond (page 7) depicting the complexity of the task to disguise the fact of private ownership over American ‘Central Bank’:

“The Federal Reserve System is considered to be an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive branch of government. The System is, however, subject to oversight by the U.S. Congress.

“The Fed is an unusual mixture of public and private elements.”

“The banks are legally private but functionally public corporations. This means that they are owned by member commercial banks in their region (that is, member banks hold stock in their Federal Reserve Bank) but they serve public goals.”

So America owes to unknown bankers.

Now, is it possible to repay this debt? No, even presuming United States zeros its deficit and saves $1 trillion every 10 years, it would take more then century to repay it (having interests discounted as well). Meanwhile the current size of the US public debt already exceeds the size of the Earth!

What are the options for the US establishment to cope with the problem?

  1. To cut drastically the military spending ($1.7 trillion per year). Devaluate US Dollar. Bring the industry back to America and start working hard for the living to restore essential America, based on core principles of the US Constitution. Positive result guaranteed in mid-term perspective.
  2. To keep fueling chaos in the key regions of the world, invest into turmoil and revolutions, wage new wars for resources and intimidate any potential geopolitical rival. A risky scenario totally depending on success in political neutralization of China and Russia.

Nowadays the US establishment is presumptuously trying to take second option. They want the Others to pay off their account. Some of the Others are corrupt. Some greedy. But few of them are crazy. The Second Option will fail. It is not for our life.

READ ALSO: Episode 2. The US Federal Reserve.

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    One Comment
    1. This is another brilliant report from the Oriental
      However, I would like to add that there are some key differences between China and Russia vis-à-vis the United States. Russia is the largest country in the world; it has the most advanced nuclear weapons and also massive natural resources from mineral reserves to oil, gas timber and water( i.e. U.S military invasion of Russia is going to happen).On the other hand, China has well trained and eager to work labour force but it lacks the necessary natural resources to carry out its industrial growth. I do think that this is one of the reasons the U.S wants to get into the central Asia’s Silk Road/ energy routes in order to blackmail China. Russia can help but China must show willingness to want to work with Russia more closely rather than its current agenda of trying to protect the status quo in order to protect current trade relations with the U.S.
      P/S. it is interesting to see which countries are holding the highest amounts of the junk U.S treasury bonds!

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