The major media doesn't talk much about the consequences of America's expanding National Debt and
when they do, it's usually soothing and low-key. But the interest on the National Debt was almost half a
trillion dollars in the fiscal year that ended in September 2011 ($454,393,280,417.03), so it is a substantial
cost to the nation.
That $454 billion includes the monthly interest for: U.S. Treasury notes and bonds, savings bonds, state
and local government series and other special purpose securities, amortized discount or premium on
bills, notes and bonds. (Source: http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm).
Additionally, the National Debt has just passed a historic milestone. In August 2011 the National Debt
exceeded America's Gross Domestic Product. That means that America is approaching the national debt
levels that are about to tear apart the European Economic Community. It also means that America has
attained the debt levels that slow down economic growth.
Breaking ranks with the major media, Forbes Magazine wrote about the National Debt last year,
mentioning the work of academics Reinhart and Rogoff (see below). Since the primary thrust of the
article was the possible profits and potential pitfalls in holding or shorting international bonds, the
article was frank in its analysis. At the time of the article, the National Debt was 84% of GDP. Now It is
over 100%. Here is part of what Forbes had to say:
"The world has issued so much debt in the past two years fighting the Great Recession that paying it all
back is going to be hell -- for Americans, along with everybody else. Taxes will have to rise around the
globe, hobbling job growth and economic recovery... The pain of repayment is not yet being felt,
because interest rates are so low -- close to 0% on short-term Treasury bills. Someday those rates are
going to rise. Then the taxpayer will have the devil to pay." (Daniel Fisher, "The Global Debt Bomb,"
Forbes Magazine, February 08, 2010, see Forbes.com).
"More debt weighs heavily on GDP, says Carmen Reinhart, a University of Maryland economist. The
coauthor, with Harvard professor Kenneth Rogoff, of This Time It's Different: Eight Centuries of
Financial Folly (Princeton, 2009), Reinhart has found that a 90% ratio of government debt to GDP is a
tipping point in economic growth. Beyond that, developed economies have growth rates two
percentage points lower, on average, than economies that have not yet crossed the line." (Ibid).
"If the GDP doesn't expand at "normal" rates of 3% to 5% coming out of this recession, wrestling down
the debt will be very tough, indeed -- perhaps impossible without drastic cuts in spending and higher
tax rates on many fronts. The Congressional Budget Office currently projects the fiscal deficit will
decline from 10% of GDP next year to around 4.4% from 2013 to 2015. But that assumes economic
expansion of at least 4%, not the 2% predicted in the study by Reinhart and Rogoff. You see the vicious
cycle here: Debt depresses growth, and then low growth makes paying down the debt an impossible
According to a Nov. 22, 2011 government report, real (with inflation removed) GDP only grew between
.04% and 2% in the first three quarters of this year. (US Dept of Commerce, Bureau of Economic Analysis,
Full Release and Tables in PDF format, Nov. 22, 2011, Table 1, top line). Real GDP growth for the past
year, from the third quarter of 2010 to the third quarter of 2011, was 1.5%. (Ibid, Table 8, top line). As of
the third quarter of 2011, real GDP has only grown 5.66% since 2005, the year the index was set at 100.
(Ibid, Table 5, top line). See: http://www.bea.gov/newsreleases/national/gdp/2011/pdf/gdp3q11_2nd.pdf.
To sum up these numbers, due to the Great Recession (in reality GDII), real GDP has been growing at
less than 1% a year since 2005. In the last fiscal year real GNP grew 1.5%. But we need real growth in the
GNP of between 3% to %5 or drastic cuts in spending and higher taxes to pay off the National Debt.
There are several ways to deal with this bad news. America could continue with business as usual and
ignore it until the checks bounce. If you think that could not happen, here's the scenario. In order to pay
it's many obligations, the Federal Government now borrows about 40 cents of every dollar it spends.
Combined with the cost of the National Debt, this presents a severe problem.
The Federal Government paid over 12% of the $3.6 trillion it spent in the fiscal year 2011 in interest on
the National Debt. The interest rates are currently artificially low, because the financiers of the world are
trying to preserve a very shaky world economy with easy credit. Economist Larry Lindsey has this to say.
"A normalization of interest rates would upend any budgetary deal if and when one should occur. At
present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was
5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion
higher in 2014..." (Laurence B. Lindsay, "The Deficit Is Worse Than We Think," The Wall Street Journal
Opinion, June 28, 2011). Larry Lindsey was a Federal Reserve governor and helped form President
George W. Bush's economic policy. He is president and CEO of the Lindsey Group.
Because of chronic overspending Greece has being asked to pay interest rates of over 50% on its
bonds this year. Of course, the perception of America's credit is much better than the perception of
Greece's credit. America's government is only paying about 2.5% interest. But Americans should be very
concerned by the refusal of America's government to deal with the problem of overspending.
If minimizing and ignoring America's economic problem is not your idea of a reasonable solution, there
are several alternatives.
There is the Ron Paul solution, which is to cut various programs and balance the budget. This is a very
good solution for several reasons. It allows an orderly tear down of an overbuilt government, with
substantial time for weighing of priorities.
There is the Buddy Roemer solution, which is to take back control of America's trade from the World
Trade Organization (WTO) in order to grow jobs, and cut government spending by ending government
subsidies and sweetheart deals for special interests. I honestly think it's possible to grow substantially
more manufacturing jobs if we get out of the WTO (I'll have a how-to article soon) and I think that the
first cuts to balance the budget should come out of the pockets of the special interests. Electing Buddy
Roemer is my idea of the best solution.
I don't think any other candidate has a real solution. Obama is promoting more spending on
infrastructure as a solution and the other Republicans are promoting more tax breaks for the rich.
Neither of these solutions work. See No. 132, "Jobs And Failed Policy." All candidates, except Paul and
Roemer, are Big Money candidates, for example, Obama is predicted by the Huff Post Politics to raise
about $1 billion.
I presented you with two good candidates, one, Ron Paul, is labeled unelectable by the media, the other,
Buddy Roemer, is hidden or misrepresented by the major media and the Republican Party despite being
a successful bank founder, a Harvard MBA, a former US Congressman and a Louisiana Governor who
balanced the budget and cut unemployment in half. Why?
It's simple, while you have been systematically misinformed about the economy, the rich invest. Their
investment gurus keep them well informed about the state of the American economy and the state of
the world economy. They know very well that the world economy is in the Second Great Depression AND
they want candidates loyal to them, beholden to them for the money that got them elected. Such elected
officials will be sure to protect THEIR interests in the difficult times that lay immediately ahead. They
absolutely don't want any candidate like Buddy Roemer, who won't take their money and plans to let
their special interests take the first hit.
Worst of all, Buddy Roemer is a banker calling for banking reform and he would curb the outrageous
scams that banks are still perpetrating. Here is a sample scam which costs the FDIC $252,000, $200,000
for actual losses and $52,000 for bank profit. It also explains why banks fight loan modifications.
"The original loan amount was $500,000. Missed payments and other foreclosure costs bring the amount
up to $550,000. At 70%, OneWest bought the loan for $385,000.
"The home is located in Stockton, CA, so its current value is likely about $185,000 and OneWest sells the
home for that amount. Total loss for OneWest is $200,000. But this is not how FDIC determines the loss.
"FDIC takes the $500,000 and subtracts the $185,000 Purchase Price. Total loss according to the FDIC is
$315,000. If the FDIC is covering “ONLY” 80% of the loss, then the FDIC would reimburse OneWest to the
tune of $252,000... OneWest makes $52,000 in additional income above the actual Purchase Price loan
amount after the FDIC reimbursement. At this point, it becomes readily apparent why OneWest Bank has
no intention of conducting loan modifications." (Mike Shedlock, "Soros, Paulson and Dell Profit Billions
on Federal Bank Deal," finance.townhall.com, November 27, 2011). Mike Shedlock is a registered
investment advisor representative for Sitka Pacific Capital Management.
My presenting you with alternatives implies that there may be a political solution. The primaries will tell
the tale. Look up Buddy Roemer and talk to your friends and neighbors about the true state of the
economy and the Second Great Depression. Maybe there can be a political solution. If there isn't you
can expect whatever Big Money candidate is elected, the working class will feel most of the pain when
the international debt system goes splat.
This is the debt default solution. The Western World is struggling under the weight of huge, often
unrepayable, national debts. The debt system of the world has robbed the poor of the world of
opportunity by concentrating the world's wealth and means of generating wealth in the hands of the
super rich, people who are very good at pretending that the poor do not exist. It is this loss of
opportunity that has the jobless people of America protesting in the streets.
One way or another, the debt system of the world must go. It puts the livelihood of the people of the
world in the hands of the idle rich, so the poor sit jobless and helpless with many of them starving for
lack of economic opportunity. There can hardly be a worse way to run the world's economy than the debt
The good and bad news is the system will destroy itself soon as America joins what will become a long
parade of nations going into default. The debt system has destroyed world markets by shrinking the
income of buyers through inflation, job loss and reduced hours, and caused the loss of confidence that
accompanies loss of the value of assets (like houses). Without debtors, the debt system must fail.
The good news is that this is the destruction of an evil banking system that our forefathers warned us
about and that our representatives allowed to flourish because they were bribed.
The bad news is that the government will immediately start cutting programs because they will have no
way to borrow the $.40 for every $1 spent that they borrow now. If you're getting government help and
one of the Big Money candidates is President, at very least, your check will be less. If you are working
for the government, you might lose your job or take a substantial pay cut. America will lose its super
power status and its international military bases. The situation will be grim.
There are ways to make the eventual default less painful. Balancing the budget is one. If you elect a
candidate that really represents you instead of one who represents the Big Money Boys, you will have
someone to guard your interests, think Buddy Roemer.
If Buddy Roemer is successful in his stated goal of restoring jobs to America (and I think it can be done),
that will lessen the pain also. If he is successful in his stated goal of closing loopholes for rich tax
payers and corporations and special interests, the cuts to balance the budget will be less.
To insure that the debt system goes down, stop borrowing money. Minimize your taxable income. Buy
second hand. Barter where you can. Create a fund for purchasing a place in the country and use it to
buy a place where you can grow food. (For more, see No. 127, "Surviving GDII.")
Amo Paul Bishop Roden