|
Summary
The financial future of the USA looks hopelessly bleak, with few
credible prospects for changing the economic direction before the economy
plummets to disaster. In hopes that there is still time, and that the
politicians in power will rise to the level which the current crisis demands,
this commentary offers one approach to restore the USA to economic health and
prosperity.
Current USA financial status
It will be no surprise to most readers that the USA is financially
bankrupt. Anyone who does not understand that fact needs only to ask when the
USA budget will eliminate all dollar deficits and return to an extended
period of dollar surpluses that would be needed to pay down the USA dollar
debts. Never is the only correct answer, and bankrupt is the inescapable
conclusion. The USA has taken on massive debts that no one can imagine will
ever be repaid. Government income is much less than the annual expenditures,
so the debts continue to grow without limit. USA states and cities are at the
financial breaking point due to overwhelming financial obligations at the
same time that tax receipts are much less than are necessary. Individuals are
burdened by inadequate job opportunities, and increasing numbers of people
are becoming permanently dependent on subsidies from the bankrupt and deep in
debt government.
The current path into the future for the USA
USA children (including those not yet born) will owe impossible levels
of debt that they had no part in creating. People who are working now face an
increasingly uncertain job future as the USA work prospects continue to
shrink. Cities and states are unable to meet their financial obligations
without increasing levels of handouts from the federal government.
Politicians in Washington are addicted to spending without restraint by the
much lower levels of income. The already overwhelming levels of USA debt will
continue to increase for as long as foreigners buy that ever increasing
amount of debt. A time will come, however, when foreigners will refuse to
loan more wealth to a bankrupt USA. Then the USA financial path will go
directly off a very steep financial cliff, and will plunge into an
irrecoverable free fall.
The social future of the USA is no less dark and depressing than the
financial future. Federal agencies such as the TSA are using
“security” as an excuse for substantially increasing the control
they exert over Americans. Executive orders are being enacted to enable the
federal government to essentially declare and enforce martial law whenever
they desire to do so. The Constitution no longer has significant power to
stop government from abusive actions that would have been unthinkable a
generation ago.
An abrupt default would be simple, but simply disastrous
The current path the USA is following leads directly to the edge of a
steep financial cliff. At some point in the future, foreign nations will
refuse to have any financial dealings with a deadbeat and bankrupt USA, and
the U.S. $ will become worthless in foreign markets. Hyperinflation
comparable to Zimbabwe will be inevitable as long as the U.S. government can
do nothing more than print the dollars that it wants to spend. While
hyperinflation will be a disaster for everyone in the USA, the millions of
people who are dependent on government programs and benefits will be hit much
harder. The unbearable pain that would be imposed on the people, along with
the inevitable social disorder and the accompanying military style government
response that would follow, makes the “solution” of abrupt dollar
default as unthinkable as it appears to also be inevitable.
Absent a working alternative to the dollar based economy, both within
the USA and for international trade, an abrupt dollar freefall
toward its intrinsic zero value would terminate economic activity within the
USA. Before the dollar begins its plunge into the financial abyss, the USA
must have an alternative financial structure already implemented and fully
functional to enable the economy to continue to operate. Since the primary
problem that will drive the dollar into oblivion is that there are massively
too many debt obligations attached so that no one will trust the dollar for
future commerce, the alternative financial structure that the USA must have
would be one in which the “new money” will have no debt
obligations attached to it. That “new” financial structure will
not be new at all, but simply a return to the gold and silver based money
that is called for in the Constitution and that enabled America to grow and
prosper until 1971 when the last vestiges of silver and gold were removed
from USA currency.
It is likely that until the inevitable dollar destruction that lies
ahead, politicians will continue to create ever higher mountains of dollar
denominated debt to kick the proverbial can further down the road (and to
increase their chances of getting reelected). After the dollar dies, only
silver and gold will be accepted as payment in full (because only precious
metals will be free from unacceptable debt obligations attached). A
transition is necessary from the current fraudulent financial system in which
debt obligations are multiplied (without any corresponding transfer of real
wealth that is needed to pay for those debts) to the honest financial system
(based on debt free silver and gold) that will be required in the future. If
that transaction is not planned and implemented before the dollar crashes,
then the abrupt destruction of buying power for the dollar will be
accompanied by severe financial and social chaos throughout the USA and
around the world. This commentary proposes one way to manage the transition
in advance of the time when the dollar will lose all of its value.
What must be done to change our path away from financial and social
destruction
Many people have looked at where the USA is and where its going, and have concluded
that there no longer exists a solution to the financial problems. The
pessimists conclude that it is impossible for the USA to kick its addiction
to the free money it receives by “borrowing” as much as it needs,
and promising to repay loans, but knowing full well that all debts will be
defaulted upon because it is impossible to ever repay any of the loans. The
pessimists also point to politicians since 1981 who never even talk about
balancing budgets, but who focus instead only on moderating the rate of
increase in USA debts. Now that the debt levels are so high that it is
impossible to ever consider repaying those debts, pessimists are sure that
politicians will continue to push the USA higher up the debt mountain until
the economy eventually falls abruptly into the default cavern below. This
commentary will outline a more optimistic possibility in which a planned and
orderly transition to use of silver and gold as money can be implemented
before a dollar crisis destroys the dollar as money.
If our political leaders can stop their political bickering long
enough to focus on the dreadful financial and social state that America has
deteriorated into, and if those leaders will exercise the required
statesmanship instead of perpetual partisanship, then a solution exists to provide
America with a more gradual transition than an abrupt fall off the disastrous
debt and default cliff that looms ahead. This commentary outlines that
hopeful transition process, and explores some of the many changes that must
be implemented as an essential part of the process.
Structural changes required in America
The next topic below this one will offer a half percent solution to
the transition problem of converting the American economy from one with a
disastrous dependence on dollar debt to one which can be healthy and stable,
with a debt free basis in precious metals. Part of the essential transition,
however, requires more than simply replacing the doomed dollar with precious
metal alternatives. It is also necessary for the USA to correct several
fundamental errors in the way the nation has been steered by politicians over
the last half century. Although the financial problems in the USA accelerated
after 1981 when politicians perceived a green light to “borrow”
whatever amount was needed to enable them to spend as much as they desired
without concern about ever repaying the “loans”, there are also
other structural problems within America that must be resolved so that the
USA can once again stand proudly as a strong and free nation. Here is my list
of changes (copied from my commentary Stop the theft!) that need to be accomplished within the USA:
1) Return jobs to America. That must be accomplished by moving
away from the disaster called “Free Trade”, and replacing it with
Fair Trade. Free Trade may sound good to those who want a one world
government, and it did result in cheaper imports, but it has cost the USA too
many jobs. As USA industries relocated to Asia where people work for much
lower wages than in America, our citizens are left with only a small fraction
of the jobs we once had here. It is essential for Congress to impose
sufficient tariffs on the imports from each nation to insure that we have an
equitable balance of payments with that nation. No doubt, all prices would
rise substantially when we implement the essential fair trade approach that
America needs, but jobs that left the USA to nations where people work for
much lower wages would return to America, and USA workers would then have a
level playing field on which to compete. National strength flows from
production, and fair trade would return production to the USA.
2) Reestablish gold and silver as legal tender. Precious metals
would not replace the paper Federal Reserve Notes (FRNs) that are currently
legal tender by fiat decree, but would instead offer an alternative method of
transacting business. Precious metals as legal tender would not have fixed
“prices” compared to FRNs, but would instead be valued as ounces
for transactions and contracts. The comparable FRN prices would float with
market action. Government could facilitate re-acceptance of silver and gold
by posting daily prices for physical metals, with intra
day price adjustments as needed. Those physical prices would likely be
different than the futures prices that flow from paper trading. Government
could backstop their posted prices by agreeing to purchase physical metals at
the posted price plus a few percent and agreeing to sell physical metals at
the posted price minus a few percent. Merchants would be free to sell their
products in FRNs, and/or to list sale prices in ounces of silver or gold.
Similarly, any employer could offer to pay workers in any combination of FRNs
and silver and gold that the workers agreed to accept. In the same way that
government protects the paper FRN by prosecuting forgers, government would
also prosecute all who try to sell fake metals disguised as silver or gold.
As an essential step in correcting the previous fatal problems with the USA
economy, precious metal transactions or wages would not be taxed. Taxes in
the precious metals portion of the economy would be limited to tariffs needed
to balance payments in international trade, a tax on energy consumption in
the USA to promote energy efficiency, and the estate tax described in a link
below. Although silver and gold would be legal tender so that new contracts
or agreements could specify payment in silver or gold, there would not be any
retroactive requirement to pay real silver or gold for obligations
implemented with paper FRNs.
3) Print the Federal Reserve Notes (FRNs) needed to pay all current
obligations. The USA has one get out of jail free card. As Allen
Greenspan said at least twice, the USA will never default on repaying its
debts because those debts are denominated in US$. The USA can simply print
any dollars needed to pay its debts. That statement by the previous chairman
of the FED reflects the reality that USA debts are denominated in promises to
repay only paper FRNs. As a necessary action to stop the theft!, the USA should immediately cease
“borrowing” (of value that can never be repaid) and instead
simply print FRNs in sufficient quantity to satisfy all previous and current
FRN obligations. The USA will meet its “full faith and credit”
promises to repay FRNs by printing enough FRNs to fulfill all claims. There
would then be no need to perform triage on insurmountable debts by trying to
decide which debts should be defaulted on, or whose promised benefits would
be denied. By printing FRNs as needed to meet all obligations, there would be
sufficient FRNs at all levels of governments and businesses to pay all
obligations the full number of FRNs that were previously promised.
Yes, overtly printing enough FRNs to pay all of the USA obligations in
full will inevitably reduce the value (measured in purchasing power) of FRNs
to near zero. All entities who previously borrowed will deliver the full
number of FRNs that were agreed to be repaid. Nations, businesses, and
individuals who loaned valuable funds will receive the agreed number of paper
FRNs, but those FRNs will have little if any real value. Some people might
argue that printing worthless FRNs now to repay debts would be a new theft
from lenders who expected to receive value in return for the value they
loaned, but that would reflect a misunderstanding of the default timeline.
The actual thefts already happened over the previous decades when politicians
“borrowed” more than can ever be repaid, and made promises that
cannot be kept. Repaying those loans and fulfilling the promises now by
printing a huge number of FRNs not a new theft. Printing FRNs is only a way
to close the circle on old theft that was done through loans and promises
that cannot otherwise ever be repaid. In contrast, any new borrowing of value
now, but which cannot ever be repaid with comparable real value later, would
be a new theft even if some the new proceeds are used in a Ponzi scheme to
repay older debts. It is long past time to stop the theft!, and that requires the USA to refuse to
“borrow” additional value that can never be repaid.
4) Eliminate the inequitable income tax and property taxes.
Since any reasonable approach to stop the theft! will
essentially re-boot the financial system into a smaller one which can
function properly again, that will also be an opportunity to realign the
approach that the USA uses to raise needed funds for government operations
into a fair and equitable structure. My basic cornerstones for fair and
equitable are that every person should have equal rights and equal
responsibilities. The government must not use force to take wealth from some
individuals so that some of the loot can then be given to other individuals.
On the contrary, government can and should refuse to take hard earned wealth
from anyone. Instead of paying income and property taxes on wealth that has
been earned or saved, individuals should be able to keep their wealth without
risk of government confiscation. Instead of taking earned or saved wealth
from the people who generated that wealth, government income should be
derived from inheritance taxes on the wealth remaining after the owners of
that wealth pass away. The current system of taking wealth from workers,
while allowing wealthy families to build and pass on huge amounts of wealth
to children who may have not yet even been born, is clearly inequitable and
unfair. While we petition our government to stop the theft! from foreigners, we should also demand that governments stop
the theft! from hard working people in the
USA. There is much more detail about this approach to eliminate the unfair
and inequitable income and property taxes in this link: Eliminate the national income tax
5) Limit the role of government to enforcement of responsibilities.
One of the reasons that government finds it difficult to stop the
theft! is that government seems to think that
it has a mission to do everything that anyone wants done. To succeed with a stop
the theft! approach, We the People must
demand that government operate only within the framework of its available
income, and that it does only the things that are necessary to enforce responsibilities. Government does not have the resources needed to
police the world or to interfere with foreign governments, so it is necessary
to restrict the military mandate to only protection of the USA borders and
coastal waters. Phase out and eliminate government sponsored
“insurance” (including Flood, Social Security, Medicare,
Medicaid, unemployment, and programs of other government agencies that do not
enforce responsibilities, and could easily be performed by private
businesses). Government cannot “give” anything to anyone because
government has nothing to give. Instead, government takes by force from other
people, wastes a significant portion through inefficiency or fraud, and then
redistributes the remainder. The new vision here is that government should
return to the basics of doing only those actions which are required to
enforce responsibilities. Only by limiting the scope (and power, and expense)
of government to the essentials which are required to enforce
responsibilities can we hope to stop the theft!
6) Demand responsibility from all citizens. Government power
should continue to deter (when possible) or to punish (for future deterrence)
criminal or fraudulent activities in which some people abuse or abandon their
responsibilities. Government should also act to protect children who cannot
otherwise protect themselves. People who cannot meet their responsibility to
their children should not be parents. One of the primary obligations of
government is to enforce the responsibilities that people have to their
children. By properly enforcing parental
responsibilities, government can phase
out and eliminate the unfair and inequitable giveaway programs like welfare.
The reduced population that will result from government enforcement of
responsibilities will mitigate many problems with pollution, energy, and
jobs. People also have an obligation to spend less than they earn so they can
save some for difficult times ahead or for their older years. Government must
assist people to meet that financial obligation to themselves
by eliminating costly government giveaway programs like Social Security,
Medicare, and Medicaid which motivate people to depend on the government
instead of taking care of themselves. We the People must demand that
government stop the theft! by
eliminating giveaway programs which distract and discourage people from
meeting their financial obligations by living within their means.
7) Enforce responsibilities for all businesses. One of the
responsibilities that government has is to prevent any financial organization
from becoming too big to fail. The super sized
banks and insurance companies that are so grotesquely huge that they can
threaten the entire USA financial system must be brought under control. One
orderly way to do that would be for a financial tax to be placed on very
large businesses. That tax could be low at first, but increased frequently so
that it would be advantageous for very large firms to divest some of their
subsidiaries and to shrink others that remain so they will not exceed the
size threshold for taxes. Then all businesses will have the same freedom to
take prudent risks, and to fail if the risks do not perform adequately well.
Government funds (even if they are “borrowed” from foreigners and
never repaid) must not be given to banks or any other business because of
their size or their stranglehold over the USA economy. Also, banks must not
be allowed to continue the practice of theft through fractional reserve
creation of new money for loans. It is long past time to restore sound
banking principles within the USA, so that banks will migrate back to the
time honored method of honestly borrowing money from savers and then loaning
those same funds back out to people who can qualify for real loans. Allowing
banks to flood the USA with paper money that they have created without limit
is an obvious recipe for financial disaster.
8) Restore America to the Republic under which the USA offered
freedom and enabled its citizens to achieve prosperity. This essential
restoration must be accomplished as government shrinks to live within its
means. By embarking on a mission to stop the theft!,
our elected representatives will return to the honorable work that they swore
an oath to perform. Many people will discover personal responsibilities that
they did not know about during the transition to freedom, but the rewards of
living in a free society again will far surpass the inconveniences imposed by
personal responsibilities.
Solving the transition problem at half a percent per
month
Assuming that We the People have succeeded in electing politicians who
will rise above the political party distractions and even above their own
desire to get reelected, so that they are willing to assist in beginning the
essential transition from a disastrous dollar debt debacle to a solid and
stable economy based on debt free precious metals, the problem then becomes
how to manage the transition. The approach I outline below will create a
structure that can allow the markets and the people to adjust to an honest
money system over time. All U.S.$ denominated debts
will be paid the full amount of $ that were owed, so it will not require
painful decisions about whose benefits would be reduced or which contracts
would be broken. People who depend on salaries or fixed payments, like Social
Security for example, will see the purchasing power of those payments drop
substantially over time, but those people will at least have more advance
warning about the dwindling purchasing power than they would if the dollar
plummets off a cliff and leaves many people with no shelter from the subsequent
financial apocalypse.
The Federal government should begin the necessary conversion process
by cutting expenses and reducing government staff (including military). For
the remaining staff in the first month of conversion, the government would
convert one half of one percent of the take home pay for each person to gold
or silver, using the then current market price to compute the exchange rate.
To minimize the hassles of moving fractional amounts of physical silver and
gold around, new bank accounts could be created and limited to precious
metals deposits or withdrawals. The current evils of fractional reserve
banking and printing of unbacked fiat paper would
be eliminated by making the proceeds in the new bank accounts fully
convertible to physical precious metals on demand. Each person would receive
the same value for their pay as they received before the conversion, but some
of it would be in precious metals account deposits and the amount of fiat
would be correspondingly reduced by ½ percent from the previous month
amount. In each successive month, the process would repeat, so each person
would receive ½% less fiat than in the
previous month, but would also receive precious metals account deposits into
accounts that would be the sum of the amount in the previous month plus the
additional amount computed from the ½% of fiat divided by the new
market price of gold and silver.
Although all fiat received as pay would continue to be taxed as
before, the metals account deposits would not be taxed, and this ½% process
would also phase in implementation of the no income tax
provision. The ½% fiat reductions and subsequent conversion to
precious metals account deposits would apply only to the salary of employed
staff. The government fiat payments people receive for benefits (retirement,
unemployment, social security, Medicare, welfare, etc.) would not be reduced,
and none of those payments would be converted to precious metals account
deposits. Although the number of fiat dollars in each payment would not be
reduced, the purchasing power of those payments would diminish over time as
inflation debased the value of the fiat dollars. Similarly, government
obligations (retirement payments, bond redemptions, social security, etc.)
for future payments that were determined before the conversion process began
would also be paid in the full number of fiat dollars that were promised, and
would not be converted to precious metals account deposits.
The ½% conversion process at the federal level would set a
template for comparable conversions for state and local governments, and for
private businesses throughout the USA. All preexisting contracts denominated
in fiat dollars would be fully paid in the appropriate number of fiat
dollars. New contracts negotiated after the conversion process begins could
include a conversion process to precious metals account deposits. All fiat
dollar payments would be taxed as before, while precious metals account
deposits would not be taxed.
As this conversion process is repeated each month, workers would
receive fewer fiat dollars (which would continue to be taxed) and more
precious metals account deposits (which would not be taxed). Businesses
across the USA would respond by offering products with prices in either fiat
dollars or in precious metals, so workers could save or spend the precious
metals they receive. People who receive government benefits or pre-conversion
private retirement payments would continue to get the same number of fiat
dollars, but the purchasing power of those dollars would likely decrease over
time.
This ½% per month conversion plan offers a possibility that the
USA could gradually restore good value to the nation’s money supply,
and also gradually wean recipients of benefits programs from the national
teat, so a solid and healthy economy can once again develop within the USA.
The only alternative to a gradual conversion program is an abrupt plunge off
the economic cliff to a painful crash into the rocks below for the dollar and
the people of the USA. Readers are encouraged to strongly request any
political representative who will listen to support a gradual conversion
program which should begin as soon as possible so the health and the vitality
of the American economy will have the potential to survive the inevitable
transition that lies ahead.
Jim Otis, “The
Optimist”
The
Optimist
|
