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Russia, Greece, Chile, and the Narcissism of Harvard Debt Lords

By Damon Vrabel  

Today marks the beginning of a new administration in Chile as Harvard economist and billionaire Sebastián Piñera eked out a narrow victory in January.  Interestingly this is related to the rest of the world as we also see today Greek police, dressed in the Darth Vader costumes used in every country, cracking down hard on their poor countrymen.  They have been robbed by the elite financier/politician tag-teams that roam the world attacking whichever country and currency they choose. 

Since almost every currency is just a debt-based instrument, the tag-teams are quite successful.  Despite the claims of neoclassical economics and the theories of Harvard Business School, having a debt-based currency means that governments are not in charge of their countries.  We are living in a world governed by the bond market, billionaires, and elite financial institutions, not governments.  The future is grim if this isn’t changed.

People who dismiss this will learn the painful lesson in due course.  Most countries, especially the United States, are now stuck under incomprehensible levels of debt just waiting for financiers to attack.  National foreclosure is coming.  Those who paid attention when it happened to southeast Asian countries, Russia, Argentina, Mexico, and others know what is coming.  People who are paying attention now to Greece can see what is coming—the end of cash transactions, the loss of sovereign land, the privatization of resources, massive taxation, the end of support for the lower classes, and an active police state. 

Plutocracy: Government by the Wealthy Few

The Greek protesters are chanting “no sacrifice for plutocracy” while being tear gassed and beaten.  It certainly isn’t the catchiest phrase I’ve ever heard, but it is precisely accurate.  The private sector rich rotate through the public sector so their nexus of power cannot be threatened.  The citizens of Iceland understood this and luckily took their power back by refusing to payoff the fraudulent loans of the foreign financiers.  Why has no other country done this?  Why have no US states, bankrupt for the same reason, done this?  In every situation other than Iceland, the politicians submit to the financiers, put their citizens in austerity, and sick the storm troopers on the poor like a pack of pit bulls. 
The reason they submit is primarily because mega banking institutions control money (see previous article on Wall Street http://canadafreepress.com/index.php/article/20368). 

But politicians also submit because they are willing accomplices.  They increase deficits and participate in the game that builds up the leverage in the first place, which makes a few people very rich. Then when debt deflation or a currency attack occurs, they continue playing the game.  We have seen this in the United States over the last several years as presidents let the near-billionaire Harvard boys Robert Rubin and Hank Paulson setup the game, not to mention the not as rich Ivy Leaguers like Larry Summers and Tim Geithner.  So far trillions have been stripped from the American people.  But we are only at half time.  You will know when the 2nd half has started when you look outside your front window and see the picture from Greece above.

The few politicians and financiers I am talking about have been playing this game together for a long time.  They are bred in a world separate from you and me.  They live in the same elite enclaves, attend the same private prep schools, go to the same Ivy League colleges, business schools, and law schools, and then spread out between New York and Washington DC to continue their self-serving partnership.  Again, I’m talking about a small group, not 95% of the graduates of these institutions. 

A useful indicator for whether someone is part of the select few or not is narcissism.  Are they ruthless overachievers for a paycheck?  Is class status important to them?  Do they have contempt for the average person?  Do they strive to become part of the oligarchic elite in clubs like the Council on Foreign Relations? The answer is yes to all of those questions for some very key names we have seen over the last several years:

Robert Rubin – CFR, Harvard, Goldman, Treasury, Citi
Hank Paulson – CFR, Harvard, Goldman, Treasury
Larry Summers – CFR, Harvard, Treasury, World Bank
Tim Geithner – CFR, Dartmouth, Treasury, Fed, IMF
Jamie Dimon – CFR, Harvard, Chase, Fed

The list could go on for a while.  It includes both the private sector folks getting fabulously rich from our monetary, fiscal, and regulatory policy over the last 30 years, and the government officials who are making the policy.  In fact the officials making the policy ARE the rich private sector few who benefit from it—the definition of plutocracy and oligarchy.

You will not see people on this list who would be true public servants: 

Brooksley Born – tried to stop the Harvard boys under Clinton
William Black – defended the country in the S&L scandal
Janet Tavakoli – explains the public-private fraud better than almost anyone
Eliot Spitzer – could be the modern Teddy Roosevelt going after the plutocrats

People like this are capable of compassion and concern for fellow human beings.  They can see through Ivy League schmarm and are not controlled by a desire to be part of the inside clique.  They do not suffer from narcissism, which is easy to detect as you see them talk on TV (actually Spitzer is narcissistic, but he is the type that wants to fight the establishment narcissists, so he is a real public servant).  If these people ran Treasury, SEC, FDIC, Justice, and other regulatory agencies, we might have a country with a future for the average person.  Instead we only see the connected few in these positions. 

Harvard Economists, Debt Lords, and Billionaires in Government

In the US, the Harvard economists and billionaires who want to run things have to hide behind lawyers and corporate institutions or be appointed to unelected positions like Treasury Secretary because our citizens would never vote for them.  But something has changed in Chile where for decades they voted for public servants who have worked to eliminate poverty but have now put a Harvard economist and billionaire in office. 

How did Sebastián Piñera become a billionaire?  The same way the most powerful people in the world make money—by using debt to suck wealth from the population creating all the value.  He founded credit card company Bancard and helped put the Chilean people in debt to the Anglo banking model.  Will someone like this serve the public interest?

Well, here’s a scary thought experiment:  would Jamie Dimon, CEO of the biggest debt machine in the US and insider on the NY Federal Reserve Board, be a president who cares about you?  Any narcissist who can lecture lower class Americans to pay their debts, the source of his wealth, while his firm is in the process of tripling credit card rates and kicking them out of their homes has no business coming anywhere close to the public sector.  This is the type of guy who now runs Chile.  Of course with Rubin, Paulson, and their protégé Geithner in Treasury, this is also the type of guy who has run the US for several years.

As a fellow Harvard Business School alum, guys like Jamie Dimon and Hank Paulson embarrass and disgust me by furthering the financial empire system beyond reasonable means to keep lining their wallets while impoverishing the American Republic and conquering other nations.  There are more just like them in the select club.  But even worse than these MBAs chasing paychecks is the Harvard economist Larry Summers who creates the economic structure within which the MBAs operate.  He tore down Glass-Steagall and led the free market jihad against any and all regulation in derivatives, which setup the Wall Street structure that brought us to the crash of 2008.  He and his colleague Andrei Shleifer tried to privatize Russia in 1998 and hand it over to the wealthy oligarchs, while Shleifer was personally profiting from insider trades on Russian companies.  Then while he was president of the institution, he had Harvard pay the legal settlement for Shleifer, infuriating other Harvard professors.  Summers also helped put Mexico in debt and reinforce the plutocratic regime there in the peso crisis of 1994. 

These people need to be stopped.  It should be clear by now that Harvard MBAs voraciously pursuing paychecks running mega financial institutions, after Harvard economists have rigged the regulatory system, can do a lot of damage.  The citizens of Iceland have realized this and set the example.  If other countries fail to follow, their populations face a future clash with their police just as Greece is experiencing today.  Why the police agree to make war against their own people in order to protect rich guys is a topic for another article, but it could all be avoided if countries would just reassert their sovereignty. 

• Start phasing out debt-based currencies by creating sovereign ones that are an asset to the people.  Pass usury laws at the same time to prevent banks from jacking up rates to suck up this extra money and creating a financial catastrophe.
• Put people like Born, Black, Tavakoli, and Spitzer in charge.
• Breakup the Wall Street banks.  Also end their cartel by nationalizing the Federal Reserve, thereby passing power back to the states and state-chartered banks.
• Push your state governments to spend asset money into the system (see the Minnesota Transportation Act).  California and Illinois are about to be pushed into Greece’s foreclosure situation.  It does not need to happen if only the governments would do their constitutional duty.

EXPLOSIVE: Lehman – Where Are The Cops?

Posted by Karl Denninger

Europe’s Banks Brace for UK Debt Crisis

UniCredit has alerted investors in a client note that Britain is at serious risk of a bond market and sterling debacle and faces even more intractable budget woes than Greece.

By Ambrose Evans-Pritchard, International Business Editor

No turning back: Sterling is going to fall further over coming months, warns Unicredit

The Italian-German group, Europe’s second largest bank, said Britain’s tax structure will make it hard to raise fresh revenue quickly enough to restore confidence in UK public finances.

“I am becoming convinced that Great Britain is the next country that is going to be pummelled by investors,” said Kornelius Purps, Unicredit ’s fixed income director and a leading analyst in Germany.

Mr Purps said the UK had been cushioned at first by low debt levels but the pace of deterioration has been so extreme that the country can no longer count on market tolerance.

“Britain’s AAA-rating is highly at risk. The budget deficit is huge at 13pc of GDP and investors are not happy. The outgoing government is inactive due to the election. There will have to be absolute cuts in public salaries or pay, but nobody is talking about that,” he told The Daily Telegraph.

“Sterling is going to fall further over coming months. I am not expecting a crash of the gilts market but we may see a further rise in spreads of 30 to 50 basis points.”

Yields on 10-year gilts have already crept up to 4.14pc, compared to 3.94pc for Italian bonds, 3.48pc for French bonds, and 3.19pc for German Bunds, though part of this reflects worries about higher inflation in Britain.

Ian Stannard, currency strategist at BNP Paribas, said markets are fretting over how the UK will cover its deficit following the pause in quantitative easing by the Bank of England. The Bank has absorbed £200bn of debt, more than total Treasury issuance over the last year.

“The UK may have difficulty in attracting extra investors to fill the gap. We think they will have to do more QE as recovery falters,” he said.

BNP Paribas expects sterling to drop to $1.31 against the dollar this year and reach parity against the euro despite troubles in Club Med. “We’re very bearish on the UK,” he said.

Big global banks are divided over Britain’s economic prospects . Goldman Sachs is betting on a turbo-charged recovery as the delayed effects of sterling devaluation kick in. Britain’s trump card is an average debt maturity of 14.1 years, nearly three times US maturities and double those of France. This greatly reduces the risk of a “roll-over” crisis.

UniCredit said Greece is better placed than the UK in coming months even if deficits look comparable. “The polls point to a minority government in the UK, while Greece’s government can count on a majority to push austerity measures through parliament. Secondly, the British tax system offers less leverage for a rise in revenue,” he said.

Paradoxically, Greek tax evasion creates scope for a surge in revenues from tougher enforcement. “It is not out of the question that we will see a positive surprise in Greece: is there any such hope for Britain?” said Mr Purps.

Still, while it is arguable whether a hung Parliament in Britain will lead to policy drift, analysts said Greece was in trouble already. The country was brought to a standstill on Thursday by the second general strike in weeks. Police clashed with rioters , again reducing Athens to a fog of tear gas. Observers said that did not augur well for a nation that has hardly begun its three-year ordeal of draconian cuts.

Oh Mr. President and Congress (El-Erian)

Posted by Karl Denninger

The Case Against the Fed from a US Senator

If you read through this letter from US Senator Sherrod Brown (D-OH), who is also the chairman of the Senate Subcommittee on Economic Policy, you will get a grasp of how badly the Fed has mishandled its responsibilities over the past ten years at least.

I thought the Senator was far too kind and reserved in his criticism. Yes, the Fed did focus on inflation. Unfortunately the definition of inflation which they used was inappropriate, since it did not include the obvious asset bubbles which were created by the Fed’s own monetary policies.

In addition, the Fed not only neglected its role in consumer protection, it took an activist opposition to the regulation of new financial instruments such as derivatives that has created a position that even today leaves the US in a financially precarious position.

This is particularly galling when one hears of the schemes being concocted by the bank friendly Senators, Dodd, Corker and Shelby, to move more of the weak banking reforms into the Fed, which is itself a private institution owned by these very banks that it will regulate.

This is not the appropriate level of financial reform that the American people deserve. And if you notice to whom Senator Sherrod is addressing his concerns, you will understand my lack of enthusiasm or any change or improvement in this sorry state of affairs.

March 10, 2010

The Honorable Timothy Geithner
Secretary, United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

The Honorable Lawrence Summers
Director, National Economic Council
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500

Dear Secretary Geithner and Director Summers,

I write to you today to express my concern about the vacancies at the Federal Reserve, both on the Federal Open Market Committee (FOMC) and soon in the Vice Chairman’s office. This is the financial equivalent of leaving open vacancies on the United States Supreme Court, and it is essential that we fill these positions.

As Chairman of the Senate Banking Committee’s Subcommittee on Economic Policy, with jurisdiction over the Federal Reserve System’s monetary policy functions, I am acutely aware of the importance of monetary policy at the Fed.

Both the full Banking Committee and the Economic Policy Subcommittee have examined the causes of the financial crisis and the resulting effects on lending, access to credit, and employment. The evidence presented to the Committee about the role that Fed policy decisions played in the financial crisis and the economic downturn has led me to conclude that the Fed’s monetary policy has focused almost entirely on controlling inflation rather than maximizing employment and that the Fed has too often put banks’ soundness ahead of its other responsibilities.

In light of this experience, there are several other important qualifications that I would urge you to consider in selecting the new Vice Chairman and new members of the FOMC:

1. Recognition of the causes of the financial crisis before it occurred.

Many economic experts, including some at the Federal Reserve, failed to anticipate the impending economic crisis. However, there were exceptional people who sounded alarms about the rapidly inflating housing bubble, the proliferation of subprime lending, and the packaging, selling, and investing in toxic financial products by Wall Street. Unfortunately, regulators, including the Fed, ignored or attempted to discredit many of these courageous individuals, rather than heeding their warnings. We need economic policy makers who possess the foresight to identify harmful economic trends, the courage to speak out about the necessity of addressing these practices before they inflict lasting damage to our economy, and the wisdom to listen even if their views are challenged.

2. Demonstrated dedication to protecting consumers and maximizing employment.

For years, the Federal Reserve’s monetary policy has maintained an almost single-minded focus on inflation. This has been detrimental to the Fed’s other core missions, particularly maximizing employment and protecting consumers. The results of this fixation speak for themselves. The national unemployment rate is more than double the Fed’s statutorily mandated 4 percent unemployment target. The Fed also failed to act on repeated warnings about predatory mortgage lending and credit card abuses. Consumer protection experience is particularly important if the new consumer protection entity were to be housed at the Fed. Our economy will benefit from renewed attention to all of the Fed’s priorities.

3. Commitment to releasing e-mails related to the Fed’s involvement in the AIG bailout.

A growing number of experts – including economists, academics, and former regulators – have called upon the Federal Reserve to release all e-mails, internal accounting documents, and financial models related to AIG’s collapse. The American taxpayers now hold the majority of AIG shares, and they have a right to know how their money is being spent. Providing greater detail about the AIG bailout is particularly important because that episode continues to taint the Fed’s reputation. Focusing on candidates committed to full transparency related to this particular economic event would help to restore the Fed’s stature and credibility in the eyes of many Americans.

The American public has lost a great deal of confidence in the Federal Reserve. Selecting a Vice Chair and FOMC members with the above qualifications will send the message that the Federal Reserve has learned from the financial crisis, and that the Fed’s weaknesses are being addressed with more than just cosmetic changes.

I would be happy to discuss specific candidates with you at your convenience. Thank you for considering my views, and I look forward to working with you to address these vacancies at the Fed.

Sincerely,
Sherrod Brown
United States Senator

A Modest Amendment Proposal To The “Move Your Money” Campaign: Increase Your Withholding Exemptions

Submitted by Tyler Durden

Over the past few months, Arianna Huffington has initiated a grass roots campaign called “Move your money” whose purpose is to forcefully shift an allocation of the deposit base from the TBTFs which have captured the government via the Wall Street-D.C. lobby complex. While we hope this campaign succeeds, we are somewhat skeptical that it will achieve its goal. First, the logistics of transferring one’s account are non-trivial and can be daunting to most people. Second, the overarching problem lies not so much with the banks themselves, as with the one supreme enabler of not just artificial “profitability engineering” but of the broad range of market interventions, which will ultimately result in the collapse of America. Just today we demonstrated that the US monthly budget deficit hit an all time record, which, paradoxically, and completely counter-intuitively was accompanied by a record drop in the interest rate paid on public marketable debt. This is an artificial and perverted relationship which will soon breaks, and when it does the suffering will truly begin. Yet therein lies the rub: as the Administration, with the full complicity of the Treasury, borrows deeper into the red and consigns America’s future to a 3rd world fate, can now only be stopped by precipitating a full systematic reset of a Treasury-Fed duopoly set on testing whether or not America can default. Unfortunately, the guinea pigs in this experiment are some 300+ million Americans. We suggest a simpler solution to facilitate this the much needed reset: increase your tax withholding exemptions (a far simpler process to moving one’s deposit account), thereby forcing the treasury to tip its hand on just how much debt it will need, as it pretends to have some semblance of authority over an out of control budgetary situation.

This is a perfectly legal practice: here is the IRS itself providing a useful primer on how taxpayers can bump up their withholding exemptions all the way up to 10, in this way forcing the Treasury to delay receipt of tax funds via paycheck withholdings well into the post April 15^th future. We are confident that the capital reallocation that the banks will experience as a result of “Move your money”, coupled with the need to run a much more balanced budget (which we now realize is impossible, and the only alternative is eventual sovereign default or complete dollar devaluation) once tax withholdings dwindle, will finally force this administration and the banking cartel to listen to the silent majority of 95%+ Americans which are not on the list of burgeoning millionaires, and who couldn’t care less if the market shot up 100% today on some algo gone wild, yet which is somehow supposed to indicate that the economy is getting better. Just look at today’s record budget deficit number to make your own determination just how much “better” the economy is getting.

Bank Of America To Stop Charging 31,200% Interest

Posted by Karl Denninger

No, that’s not a misprint.

Let’s say you went to Starbucks and bought a $5 Latte.  You swiped your debit card and didn’t have the $5 in your account.

Bank of America would charge you a roughly $30 overdraft fee, amounting to 600% of your purchase for a loan of that $5 for as little as one day.  That’s bad enough.

Let’s assume you paid that overdraft fee (and the $5) in one week.  There are 52 weeks in a year and the bad news is that when computing the annual percentage rate you must divide the interest charged by the percentage of a year you held the money to get the APR.  Thus, 31,200% interest on an “annualized” basis, assuming you pay it in one week (it’s 218,400% if you pay it off the next morning!)

The bank will soon stop doing this, and in fact is mandated to do so without getting permission first for each transaction, as of June 1st.

The question that should be asked is why we should have to wait until June 19th for new accounts, or August 1st for existing accounts, never mind why this sort of outrageous behavior has been permitted in the first place.

Guido on the corner typically will charge you something obscene like 500% interest over the course of a year.

The banksters put Guido to shame.

How much do the banksters make off this?  Some $1.77 billion annually, at last count.  None of which, I might add, will be refunded to their customers.

The banking industry has claimed that changes like this will “restrict credit” to lower-income customers, who allegedly “need” that credit. 

I will simply observe that nobody “needs” a 31,200% interest rate loan except the bank that has been given license to rob the public blind – literally.

If you were wondering who the Congress and Fed work for, it clearly is not you.

The open question, and one that I cannot seem to find a reasonable answer to, is why we, the people, continue to allow both a Congress and Federal Reserve to sit in control of our government and financial system when they permit and endorse actions that constitute financial rape of such an egregious nature that absolutely everyone can understand it.

On April 25, 2008, a group of concerned citizens, from across the country, who met on an online forum called Market-Ticker.org decided that it was necessary to start tying to wake people up to the fact they were being robbed. Not only were they being robbed, but the robbery was about to become brutal.

Just a few days after Bear Stearns was forcibly merged into JPMorgan, using YOUR tax dollars, we stood in downtown New York city, with signs and literature, educating the public about what had just happened. We were well-received by many people, but there were almost as many people who thought we were nuts.

After watching this video, and seeing for yourself what has happened since April of 2008, NOW how nuts do you think we are?

It has been a hard road to haul, trying to wake people up. It was hard being ridiculed and laughed at. It was hard seeing friends and loved-ones walking straight into an abyss of perpetual debt and even harder knowing that they were condemnig their children to the same fate.

Along the way, as economic conditions became more obvious, and our government’s role in perpatuating fraud and protecting the guilty at the expense of the innocent became more clear, finally, it appeared the cavalry might have arrived. FedUpUSA owes a debt of gratitute for Rick Santelli’s loss of composure on CNBC TV in February of 2009. What we had failed to accomplish, seemed to occur overnight: people started awakening from their stupor. ‘Tea Parties’ started springing up overnight in response to what can only be described as the cries of a modern-day Paul Revere, people got up off their couches and started taking their message to the streets.

Our work, however, is not over; it has just begun. Unless we address the ROOT of the problem, we cannot hope to derail the fraud and stop the corruption. The root of the problem is, no more and no less, our economic system. Our economic system is based upon a lie. The is that MONEY = DEBT. Our Founding Fathers knew this and proscribed a NON-debt denominated monetary system. This was intended to be money, the quantity of which was controled ONLY by the production of people – their human labors.

Absolutely all the corruption that now exists in our government can be traced back to the nature of our current financial system. Until or unless this system is changed, there is no hope to ever get out of debt.

Thankfully, there are some very smart people who have figured this out – and not only realize the source of the catastrophe we now face, but have come up with a solution:

Freedom’s Vision – In a Nutshell…

“It’s not WHAT backs our money, it’s WHO controls the QUANTITY!”

-Bill Still

Private Central Banks control the production of money in the United States, not our Congress as dictated by the United States Constitution. This has given them the POWER to control our economy and our politicians.

It is critical WHO controls the money system which is different than the banking system.

The system of backing our money with DEBT ensures that the system will fail, we are at or approaching the mathematical limits now. This system is controlled by Bankers, not Congress.

The quantity of money and debt is wildly out of control.

History shows that severe upheaval and “other events,” such as wars, follow such times. It is our intention to break that chain so that those other events do not occur.

Freedom’s Vision is comprised of three parts – Economic Reform, Political Reform, and Future’s Vision.

Our immediate mission is to:

“Enact monetary and political reform capable of transitioning our economy from its current debt and derivative entangled state to a prosperous & sustainable system that works to keep the quantity of money under control for the very long term.

Monetary Reform ends the process of debt backing our nation’s money at the Federal level, it establishes procedures to correctly measure our economy and through transparency coupled with checks and balances works with Congress to ensure that the quantity of money never gets out of control.

While the systems of control are simple and intuitive, the very difficult part is transitioning our economy from its current debt saturated and derivative entangled state to a sustainable and prosperous future.

Significant tax money would be returned to the people used to pay down debt for those who have it, thus deleveraging and providing immediate relief to all citizens. This first step also makes the banks more healthy.

Through the unique procedures contained within, the debts would be brought back to manageable limits on all levels. Derivatives would be untangled. All banks would survive the transition and come out of the transition ready to do meaningful and REAL business.

All businesses would immediately benefit as the economy rapidly, but in a controlled fashion, cleanses away the debt and leverage that is holding us back.

State economies will be cleansed and will take more control over their own destiny through the use of state chartered banks that will provide funding and bank control for that state, enabling low and no interest loans for the needs of the state much as the Bank of North Dakota has since the year 1919.

The dollar system that emerges would look and feel to most people almost exactly as it looks and feels today, but without the problems associated with never ending inflation.

Please follow this link to learn more details about Freedom’s Vision Monetary Reform

Political Reform works to separate special interest money from politics, thus ensuring that long term decision making can be made and that WHO controls the quantity of money remains in the hands of the people.

The short list of benefits can be found here – Benefits of Freedom’s Vision.

Swarm Politics is our method of implementing Freedom’s Vision.

Future’s Vision comes into play as the transition of our economy to Freedom’s Vision is being implemented. This third piece of the puzzle provides long term goals and focus for our nation working towards creating real and meaningful jobs while moving our nation ahead with purpose.

None of these procedures are yet set in stone, there is still much room to improve and work on them. We will be working towards creating actual legal language as we proceed. We need your help to create and enact Freedom’s Vision so that we secure our money, our freedom, our future.

Freedom’s Vision – Securing Our Money, Our Freedom, Our Future!

Could the US EVER pay off its debt? A mathematical perspective

By Debtor’s Prison

Greetings Fellow Inmates,

Today we will take a break from the URC series for a speculative, fun post of Numbers!  We will use one of our three trusty abaci to finally explore a statement we made initially in Count The Money v2.0: “The [US] debt WILL NEVER BE PAID OFF”.    The following is a greatly simplified model, and as such we will properly outline its variables, parameters, equations, simplifications, assumptions, uncertainties, weaknesses and inflection points, as we promised we’d do in the About Us section.   We will then of course weave this “technical” picture into a coherent story.  Please stick with the first half where we lay down the premises of the experiment, we want to make sure you understand the foundations of our thought experiment.   The real cool, mind-bending stuff and results are in the second half.  We promise that even for those NON-technical amongst you, we will provide enough visual support to clearly and vividly illustrate our points.   We will leave the actual equation definitions of our first-ever appendix, in order to not distract the less-math-prone Inmates.

We are setting out to construct a model to attempt to answer the following question.   Given the United States of America’s current TOTAL PUBLIC DEBT SECURITIES and the total size of the US economy, as measured by NOMINAL GDP, what is the likelihood the that United States debt will ever be paid off?  Remember, as we always say, that the TOTAL DEBT SECURITIES (ie, US Treasuries mostly) is not the total amount of debt since the government has many other liabilities that are equally enormous, such as Medicare, Medicaid, GSEs, etc.   So, in any real thorough analysis of the likely evolution of the economy and the debt, these additional liabilities would have to be taken into account.   Clearly, they would make the situation, the current system, even more unsustainable than it already is.    This falls outside the purview of the following model, where we will attempt to demonstrate through simple math that even when just looking at the securities, which are just part of the total debt, the system is already guaranteed to fail.  

OK, on to the basics of the model.    We have split up the exercise into two parts.   In the first experiment, only the INTEREST on the debt securities is paid down.    In the second, the INTEREST is paid down, as well as some PRINCIPAL, with the intent of eventually paying down the debt, as a percentage of total GDP.   In both cases, we assume that NO MORE DEBT IS ISSUED IN EXCESS OF THAT INTENDED TO PAY DOWN INTEREST, or at least until the end of our simulations, in 2333.   This is a very important point, as any deductions, conclusions or recommendations we derive from this model will be predicated upon this assumption.     It is clear a priori that the only chance for the debt to be paid off is if the US starts paying down some of that principal.    This, we will see, can only come from real economic output.

For those of you that are math, reason, logic and rigour junkies such as Ourselves, we strongly urge you at the moment to stroll down to the appendix and read the description of the model before returning to read right here.    It’s a very simple model.   For starters, we assume that there is a fixed interest rate and economic growth.   Of course, this is a far cry from reality, and we will not repeat nor apologize for the simplicity of this model.  It is intended to be simple, it is in fact conservative, since what we are trying to demonstrate is the inherent instability of The System.   And the great thing about the little Excel abacus is that we can make it dynamic, and allow you to play around with it, to really wrap your mind around the absolute ridiculousness of it all.   When you play around with some of the parameters you realize the sheer absurdity of our current system and where it is likely to lead us in the future.   The over-simplifications in the model are of course not trivial and thus impede precise predictive power, but you can say the same about most anything.   The over-simplifications are meant for the simple reason that they illustrate certain key points without the cloudiness of confusion, and because OUR POINT is not to predict the future, but rather clearly demonstrate the nonsensical foundations of our monetary system.   In this purpose, the oversimplifications of the model become marginal, in our humble opinion.

You might also notice that of course the model must be iterative, as a simplified model such as this must clearly be; meaning that the total NOMINAL US GDP and TOTAL US DEBT SECURITIES OUSTANDING (the two main variables in which we are interested) in any given year depend on the values in the preceding year.   This exactly parallels reality, so this model assumption is safe.

Below are the results of our experiment, for a sample CASE STUDY.    You can download the full Excel file here.   We highly recommend you download it, since you can simply play with the parameters, in the RED BOXES, to see the wild outcomes that come out, in other words, you can make ANY SAMPLE CASE you want.   You are encouraged to explore all the embedded functions, check them for consistency, modify them, use them, distribute them, no copyright.    For our purposes we chose as parameters the following: an interest rate of 5% (equivalent to weighted average yield of outstanding US debt securities), and economic growth of 4%.   Of course, we are being somewhat generous given what we expect of the economy, but since our simulation is over 322 years at the max, 40 years at the least, we figure this would be a good “average” value to use over that horizon.    As for the interest rate, we are also being generous, ie “pro”-system-biased, by assuming that the IR will be only 5%, given that we are likely to see SuperInflation and much higher yields in the mid-term future.     So, all in all, we would call these estimates for GDP and DEBT safe, pheasible and conservative ballparks.  Remember, this is the base case we are going to work with where annual GDP growth = 4% and the yield on US bonds is 5%

The following chart shows the result of a case study with the preceding parameters.   Notice that the chart is divided in two parts, the left when ONLY INTEREST IS PAID, and the right, where INTEREST AND PRINCIPAL are paid.   In the second case, in which we assume that principal is paid down, we show that parameter in another RED BOX, as % of GDP.      Notice that for both parts, we calculate the ratio of DEBT/GDP and of GDP/DEBT.   In our CASE STUDY, we assume that the US designates 2% of its annual real economic output to pay down principal on the debt.   

We can notice several things.   Let’s start in the case where the US only pays down its INTEREST.   Then we see that by 2020, the total DEBT/GDP ratio will be 0.90.   By 2050, 1.20 (ie, the total DEBT outstanding is 20% larger than the size of the total US economy).   By 2333, the total DEBT will be 78 times larger than the economy!     In the case where the US uses 2% of its annual GDP to pay down PRINCIPAL, in addition to the interest, then we see that it is actually WORSE.   Up until 2050, things look pretty similar, but they begin to diverge about 2100.   In this case, by 2200, the total DEBT will be 297 times larger than the economy.    Then, in 2207, the GDP goes negative!  Clearly this is a sheer absurdity and the model has “broken down”, partly indicating a “systemic failure”, since remember that THEY do want us to believe that the system works in such simple fashion and there aren’t any nefarious Invisible Hands lurking around. 

Now, why exactly does the GDP go negative? Well, that happens because the debt NEVER stops growing (at least in this base case we are working with now), so at some point the interest payments on the debt become so large that even if we only pay 1% of the interest with real economic output, the cost is so large relative to the economy that it eats it all up.   Everyone dead.   Everything approaches zero; somehow our “system” managed to complete eradicate ALL VALUE FROM ALL THINGS.    Let’s look at what happens to our base case (GDP growth = 4%, Yield = 5%) when we only pay INTEREST and where we use different distributions of DEBT and OUTPUT to pay down the principal.   In other words, at some point we will pay some of the interest with mostly new debt, run the spectrum, until we pay for the interest with mostly real output.   Here are the graphic results.

Yikes!  Notice that given our base case, paying for 99% of the interest by issuing new debt, is the only level shown that prevents GDP from turning negative by 2333.   Anything less than that, even 95/5 is bound to result in sharply negative GDP eventually, with increasingly parabolic results.   In all cases, the debt grows parabolically, but such is the nature of compounding interest and we shouldn’t be surprised.    Perhaps you think we are being facetious by extrapolating all the way to 2333, I mean, really, who cares about what happens to their GreatGreatGreatGrandchildren?   So, let’s take a smaller-window view into the exact same thing, and selfishly look only until 2050.

Very interesting.   For starters we notice that of course, the discrepancy is not as huge.   When we change from paying for the interest with almost all NEW DEBT all the way to paying for the interest with almost ALL REAL OUTPUT, the outcomes are largely the same.    Between 2030 and 2042, the TOTAL US PUBLIC DEBT will surpass the size of the economy.    Big surprise.  

Alright, so it has now been unequivocally shown that in this simple base case, the US can NEVER be paid off if they limit themselves to paying only the interest.   We believe that this statement of course applies to all debt, anywhere, at any time, but we would welcome some debate on the matter.    Now, let’s see if there is any chance of paying off the debt if the US actually intends to pay principal.

In the CASE STUDY presented in the first chart, we saw that using 2% of GDP to pay down the principal actually resulted in a WORSE economic condition and faster deterioration towards ZERO GDP, or the ELIMINATION OF ALL VALUE.   However, by playing around with the parameters we realize that this is NOT always true.   We found that if the US were to designate 6% of all REAL ECONOMIC OUTPUT to paying down the INTEREST, then the DEBT would be in effect paid off, before GDP hit zero.     Voilá! Using 6% of GDP to pay down interest would result in the DEBT being paid off in 2074, and please look at the Excel file and notice how GLORIOUS it is that after the debt is paid down, the GDP begins to grow parabolically.   Of course!!! This is what SHOULD happen, in a RATIONAL DEBT-FREE world.    Below is a graphical sample of simulations all the way to 2100, using different values for the percentage of GDP assigned to pay down PRINCIPAL.

Wow, many interesting things once again.   Notice that when the US designates ONLY 5% of its GDP to pay down the debt the debt begins to decrease (as does GDP of course), but there is a point in which the debt begins to rise again, and once again runs away.       Why does this happen? Well, as GDP decreases, so does the amount of principal the US is able to pay, at some point, the principal payment becomes LESS than the mounting interest, so debt begins to rise again, never to fall for the rest of time.   At 6% however, this “barrier” is overcome and the debt can in fact be paid down.   So, between 5-6% we have another inflection point.      If 6% is designated, then the debt would be paid off in 1974; if 10% is designated, then it would be paid in 2033, and if 15% is designated the US would be debt free by 2023.  

So what are the chances of this happening?   Slim to none.   All we did was show under what circumstances it would even be possible to pay down the US debt.     So, if reality actually mirrored this greatly simplified model (it doesn’t), if Americans learned to live frugally for an entire generation (they can’t), if the macroeconomic conditions actually maintained the levels of our base case (they won’t), and the US government instituted serious fiscal reforms to bring this about (hahaha), then the US DEBT COULD BE PAID OFF.

Ultimately however, it is important to remember that THEY don’t want the debt to be paid off.   Of course not, that is how they keep us slaves.   But enough about blaming THEM.   It is time to blame OURSELVES.   Here it is, in vivid TechniColor, the sheer absurdity of this House of Cards, this Tower of Basel.   So why do you still participate in this system Inmates? 

“Because I must”  Why? 

“Because I have no other choice”  Why? 

“Because I don’t have enough firepower” Why do you need firepower? 

“Because the system gives me benefits and comforts which I’m happy to pay for?”  Even at the risk of death?

“Because I don’t care enough”  You should.

May your capital be safe and your investments prosperous,

MAAA

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APPENDIX

Let:

gOD(Y) = gross Outstanding US Debt securities on year (Y),

IR = representative interest rate of total US debt securities, ie, the yield on the weighted average maturity of outstanding US debt ,

INTEREST(Y) = the interest rate cost on year Y, equal to gOD(Y)*IR

GDP(Y) = nominal US GDP on year Y,

GDPchg  = the annual percentage change in nominal US GDP, in decimal units,

DebtPer = percentage of the annual interest cost that will be paid through new debt issuance,

OutputPer = percentage of the annual interest cost that will be paid through real economic output

PrinPer = percentage of nominal US GDP to be used to pay down principal,

PRINCIPAL(Y) = the total principal payment on year Y, equal to PrinPer*GDP(Y)

Then, the model stipulates that:

GDP(Y) = [ GDP(Y-1) – OutputPer*INTEREST(Y-1) – PRINCIPAL(Y-1) ]*[1 + GDPchg];

gOD(Y) = gOD(Y-1) + DebtPer*INTEREST(Y-1) – PRINCIPAL(Y-1) ;

where

GDP(Yi), and gOD(Yi) are the initial conditions, in our case

gOD(2010) = $11.9tr

GDP(2010) = $14.5tr