Here Is Why Our Government Is Creating So Much Debt
publication date: Dec 15, 2009
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author/source: Brad Hamill
I’m still working on my ‘Gold vs. Labor’ follow-up. Stay tuned…
The Federal Reserve just released their 3rd quarter 2009 Flow of Funds Report. This report measures the increases/decreases of credit (debt) that households, businesses, state/local governments, and the Federal government experience. Rather than boring you with a bunch of the report’s verbiage, I thought it would be easier to create a graph from the principal numbers:
The chart looks a little confusing, but it’s really pretty simple to read. For instance we can see where the Federal government “reduced” its debt load between 1999 and 2000. Of course, they did this by stealing more money from the various “trust” funds, but that’s a story for another time. We then see where the Federal government kept increasing its debt over the years, but by no more than 10% a year. That’s until the third quarter of 2008 hit. It was at this time that the Federal government went on a debt creation rampage – and it hasn’t stopped since! Why is this?
What happened in the third quarter of 2008? This is when the international bankers collapsed the credit market all of a sudden. You can see from the graph that the Federal government was not really expecting it. It’s not like the two were working together in tandem to create our current economic mess.
The third quarter of 2008 is when the international bankers took the “credit” drug away from the addicts. And boy did it have an effect!
Look at the green ‘Households’ line. Consumers were happily entering into large amounts of new debt until around 2006. Then things began to tighten, but they didn’t know why. Now we see where household credit is being destroyed, and it’s been happening since the third quarter of 2008. Remember, debt = money. Therefore, we’re seeing money disappear from the economy. This money destruction threatens to throw tens of millions of households into a complete tailspin. Most people were living paycheck to paycheck, and had never established a “rainy day” fund. Households are on the ropes, and their tickets are about to be punched.
Now let’s look at businesses – the blue line. We see where businesses took a hit during the dot com crash years, but quickly made up for things by taking out huge amounts of new debt from 2003 until 2007. We then see a slight drop, then a much more pronounced drop beginning in the third quarter of 2008. Look at where businesses are right now – negative credit. Credit is being destroyed, therefore money is being destroyed in the economy. Businesses have been countering this problem with layoffs, reduced benefits, and reductions in pay – but we see where the problem has not abated. Businesses are praying for miraculous Christmas sales. I don’t believe they’ll see them because the consumer is being ripped apart as much as they are.
This leads us to state and local governments – the orange line. Governments like to spend money, pure and simple. We can see where these governments actually got into problems towards the end of 2007. This was primarily the result of business and household tax revenue dropping through the floor. But look what has happened since then. State and local government debt is actually on the increase! Why haven’t they gone negative? The answer is very simple. In government – to go negative on your flow of funds means to lose part of your power structure. They will avoid this at all cost. The debt is increasing due to added taxes, fees, and state/local bond issuance. They’re fighting hard to avoid collapse – while at the same time squeezing businesses and households with more claims on their reduced supply of money.
Lastly, we have the good ‘ol Federal government – the red line (I picked red since it fits them so well). Remember how I said that governments would NEVER purposefully allow themselves to have a negative flow of funds? So what happened between 1999 and 2000. The answer is President Bill Clinton. He sure was a slick talker. He convinced the American people that his administration actually ran a budget surplus! This just proved that Americans have never been taught even a modicum of how the Federal government economy works. The Federal government receives funds from three sources: 1) Tax Receipts 2) Having the Fed auction new Treasury Securities on the government’s behalf, and 3) Stealing money from the various “trust” funds, such as Social Security, Unemployment Insurance, and Medicare.
President Clinton was an absolute master at stealing money from the trust funds. In fact, he virtually drained them dry. President George Bush finished the job during his term.
Anyways, we see that the Federal government created a huge amount of new debt in an effort to balance out all of the credit/debt that was being destroyed during the dot com crash. Then the Federal government meandered along creating “relatively” small amounts of new debt until the third quarter of 2008. And wow!!! Look what happened after that! The Federal government began creating new debt like a crazed person. In fact, their level of new debt creation has not dropped below 20% PER QUARTER since then!!!
Hyperinflation – here we come! Actually….no it’s not.
Look at the total amount of new debt being created – the brownish/gold line. What do you think would happen to that line if the Federal government were to stop its incessant creation of new debt? Or if the state and local governments were to join them in that cause? Answer: our economy would collapse, and it would collapse quickly. Why? Because debt would be getting destroyed at unprecedented rates – meaning money would be getting destroyed at the exact same rate. Please understand how fast hundreds of thousands of businesses would go bankrupt. Also, understand how fast there would be tens of millions of people with no means of support. The various levels of government couldn’t support them – since they have cut off their creation of new debt in our example.
You should be able to see where the ONLY thing keeping our economy afloat right now is Federal government debt creation by the truckload. Will this ultimately work?
As mentioned previously, the Federal government only has three ways of generating the revenue that it spends. The first way, tax receipts, isn’t anywhere near capable of keeping up with current budget expenses – mainly due to the level of unemployment that we’re seeing. The government has also exhausted the option of stealing from the “trust” funds, especially since Social Security and Medicare inflows have dropped significantly due to the smaller labor force.
This leaves one “traditional” avenue left for the Federal government – they need to sell US Treasury securities like nobody’s business. Selling US debt does not automatically increase the nation’s money supply, contrary to popular thought. Most of our debt is bought by international bankers with existing money. This gives them fresh claims on future labor – paid with interest. If the government tries to sell too much debt, then we will begin to see bond yields (interest rates) rise. This is extremely bad for Americans, since it creates even more claims on our future labor just to pay the interest.
The Federal government has another “ace” up its sleeve. And they are getting ready to make it happen under the auspices of “giving everyone affordable health care”. People are getting breathless debating all of the facets of doctors, hospitals, prescriptions, etc. What they don’t realize is NONE of that is the true purpose of this particular legislation. The health care industry comprises approximately 17% of our nation’s GDP. What if the Federal government could eventually route virtually all health care payments to a new government “trust” fund? This would be an ENORMOUS pile of money. They could then steal any money that wasn’t used for current fiscal year outlay and use it to stave off the deflationary spiral. This would alleviate the need to sell so many Treasury securities.
There’s just one teensy problem. Businesses and households will have more government obligations to pay for from existing dollars. If the government is not successful in creating an inflationary scenario then these increased payments will drive many families over the financial edge.
There’s one other thing coming down the pipe that the Federal government will use to increase its revenue – Cap and Trade legislation.
Our nation has become a service-based country. Manufacturing is getting sent off-shore to be done by a cheaper labor pool. Cap and Trade will create a brand new market that we don’t really need – but one which will give the government more dictatorial control, and establish a new industry that will be worth trillions of dollars to them.
It is my belief that our government doesn’t care a whit about our environment. Instead, they are propagating environmentalism forward under false pretenses in order to create a brand new manufacturing industry. Their sole purpose is to keep our economic debt charade going just a little while longer.
Folks, we need to take back our economy. It can be done, and it can be done in a Christ-like way. It begins with not giving the banking system our deposits. This will prevent them from using those deposits to enslave others. We need a new type of bank that will accept deposits and hold them securely for us. In return, we would pay them a fee for the service. This would immediately transform our physical currency into “completed labor” currency. We would have earned it through our labor, and the banks would not have it as a deposit from which to create more claims on future labor.
If we don’t begin the transformation of our economic system into one which is God-honoring then we, and our progeny, will be forever debt slaves.
Warmly,
Brad
Comments and/or questions? brhamill@hamill.com
The Federal Reserve just released their 3rd quarter 2009 Flow of Funds Report. This report measures the increases/decreases of credit (debt) that households, businesses, state/local governments, and the Federal government experience. Rather than boring you with a bunch of the report’s verbiage, I thought it would be easier to create a graph from the principal numbers:
The chart looks a little confusing, but it’s really pretty simple to read. For instance we can see where the Federal government “reduced” its debt load between 1999 and 2000. Of course, they did this by stealing more money from the various “trust” funds, but that’s a story for another time. We then see where the Federal government kept increasing its debt over the years, but by no more than 10% a year. That’s until the third quarter of 2008 hit. It was at this time that the Federal government went on a debt creation rampage – and it hasn’t stopped since! Why is this?
What happened in the third quarter of 2008? This is when the international bankers collapsed the credit market all of a sudden. You can see from the graph that the Federal government was not really expecting it. It’s not like the two were working together in tandem to create our current economic mess.
The third quarter of 2008 is when the international bankers took the “credit” drug away from the addicts. And boy did it have an effect!
Look at the green ‘Households’ line. Consumers were happily entering into large amounts of new debt until around 2006. Then things began to tighten, but they didn’t know why. Now we see where household credit is being destroyed, and it’s been happening since the third quarter of 2008. Remember, debt = money. Therefore, we’re seeing money disappear from the economy. This money destruction threatens to throw tens of millions of households into a complete tailspin. Most people were living paycheck to paycheck, and had never established a “rainy day” fund. Households are on the ropes, and their tickets are about to be punched.
Now let’s look at businesses – the blue line. We see where businesses took a hit during the dot com crash years, but quickly made up for things by taking out huge amounts of new debt from 2003 until 2007. We then see a slight drop, then a much more pronounced drop beginning in the third quarter of 2008. Look at where businesses are right now – negative credit. Credit is being destroyed, therefore money is being destroyed in the economy. Businesses have been countering this problem with layoffs, reduced benefits, and reductions in pay – but we see where the problem has not abated. Businesses are praying for miraculous Christmas sales. I don’t believe they’ll see them because the consumer is being ripped apart as much as they are.
This leads us to state and local governments – the orange line. Governments like to spend money, pure and simple. We can see where these governments actually got into problems towards the end of 2007. This was primarily the result of business and household tax revenue dropping through the floor. But look what has happened since then. State and local government debt is actually on the increase! Why haven’t they gone negative? The answer is very simple. In government – to go negative on your flow of funds means to lose part of your power structure. They will avoid this at all cost. The debt is increasing due to added taxes, fees, and state/local bond issuance. They’re fighting hard to avoid collapse – while at the same time squeezing businesses and households with more claims on their reduced supply of money.
Lastly, we have the good ‘ol Federal government – the red line (I picked red since it fits them so well). Remember how I said that governments would NEVER purposefully allow themselves to have a negative flow of funds? So what happened between 1999 and 2000. The answer is President Bill Clinton. He sure was a slick talker. He convinced the American people that his administration actually ran a budget surplus! This just proved that Americans have never been taught even a modicum of how the Federal government economy works. The Federal government receives funds from three sources: 1) Tax Receipts 2) Having the Fed auction new Treasury Securities on the government’s behalf, and 3) Stealing money from the various “trust” funds, such as Social Security, Unemployment Insurance, and Medicare.
President Clinton was an absolute master at stealing money from the trust funds. In fact, he virtually drained them dry. President George Bush finished the job during his term.
Anyways, we see that the Federal government created a huge amount of new debt in an effort to balance out all of the credit/debt that was being destroyed during the dot com crash. Then the Federal government meandered along creating “relatively” small amounts of new debt until the third quarter of 2008. And wow!!! Look what happened after that! The Federal government began creating new debt like a crazed person. In fact, their level of new debt creation has not dropped below 20% PER QUARTER since then!!!
Hyperinflation – here we come! Actually….no it’s not.
Look at the total amount of new debt being created – the brownish/gold line. What do you think would happen to that line if the Federal government were to stop its incessant creation of new debt? Or if the state and local governments were to join them in that cause? Answer: our economy would collapse, and it would collapse quickly. Why? Because debt would be getting destroyed at unprecedented rates – meaning money would be getting destroyed at the exact same rate. Please understand how fast hundreds of thousands of businesses would go bankrupt. Also, understand how fast there would be tens of millions of people with no means of support. The various levels of government couldn’t support them – since they have cut off their creation of new debt in our example.
You should be able to see where the ONLY thing keeping our economy afloat right now is Federal government debt creation by the truckload. Will this ultimately work?
As mentioned previously, the Federal government only has three ways of generating the revenue that it spends. The first way, tax receipts, isn’t anywhere near capable of keeping up with current budget expenses – mainly due to the level of unemployment that we’re seeing. The government has also exhausted the option of stealing from the “trust” funds, especially since Social Security and Medicare inflows have dropped significantly due to the smaller labor force.
This leaves one “traditional” avenue left for the Federal government – they need to sell US Treasury securities like nobody’s business. Selling US debt does not automatically increase the nation’s money supply, contrary to popular thought. Most of our debt is bought by international bankers with existing money. This gives them fresh claims on future labor – paid with interest. If the government tries to sell too much debt, then we will begin to see bond yields (interest rates) rise. This is extremely bad for Americans, since it creates even more claims on our future labor just to pay the interest.
The Federal government has another “ace” up its sleeve. And they are getting ready to make it happen under the auspices of “giving everyone affordable health care”. People are getting breathless debating all of the facets of doctors, hospitals, prescriptions, etc. What they don’t realize is NONE of that is the true purpose of this particular legislation. The health care industry comprises approximately 17% of our nation’s GDP. What if the Federal government could eventually route virtually all health care payments to a new government “trust” fund? This would be an ENORMOUS pile of money. They could then steal any money that wasn’t used for current fiscal year outlay and use it to stave off the deflationary spiral. This would alleviate the need to sell so many Treasury securities.
There’s just one teensy problem. Businesses and households will have more government obligations to pay for from existing dollars. If the government is not successful in creating an inflationary scenario then these increased payments will drive many families over the financial edge.
There’s one other thing coming down the pipe that the Federal government will use to increase its revenue – Cap and Trade legislation.
Our nation has become a service-based country. Manufacturing is getting sent off-shore to be done by a cheaper labor pool. Cap and Trade will create a brand new market that we don’t really need – but one which will give the government more dictatorial control, and establish a new industry that will be worth trillions of dollars to them.
It is my belief that our government doesn’t care a whit about our environment. Instead, they are propagating environmentalism forward under false pretenses in order to create a brand new manufacturing industry. Their sole purpose is to keep our economic debt charade going just a little while longer.
Folks, we need to take back our economy. It can be done, and it can be done in a Christ-like way. It begins with not giving the banking system our deposits. This will prevent them from using those deposits to enslave others. We need a new type of bank that will accept deposits and hold them securely for us. In return, we would pay them a fee for the service. This would immediately transform our physical currency into “completed labor” currency. We would have earned it through our labor, and the banks would not have it as a deposit from which to create more claims on future labor.
If we don’t begin the transformation of our economic system into one which is God-honoring then we, and our progeny, will be forever debt slaves.
Warmly,
Brad
Comments and/or questions? brhamill@hamill.com
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