Debt, the Biggest Trick of All
The realtime Debt clock in the above panel is from The Economist. The clock shows the global figure for all (or almost all) government debts in dollar terms. The Economist reminds its audience of two reasons why debt is important:
- When debt rises faster than economic output (as it has been doing in recent years), higher government debt implies more state interference in the economy and higher taxes in the future.
- Debt must be rolled over at regular intervals. This creates a recurring popularity test for individual governments. The higher the global government debt total, the greater the risk of fiscal crisis, and the bigger the economic impact such crises will have.
The Economist Debt Clock is based on the following assumptions
- Displays gross government debt for the globe. The clock covers 99% of the world based upon GDP.
- Debt figures are derived from national definitions and therefore may vary from country to country.
- The clock shows the estimated debt at the point corresponding to the current date and time in whatever year being viewed; this is why it increases even when viewing past or future years.
- The debt clock uses the latest available data, is updated on a quarterly basis and assumes that the fiscal year ends in December.
Where the world debt sits…
What is special about Aug 2, 2011? It is the day when US Debt ($14.57 trillion) exceeded US GDP ($14.53 trillion). The US now joins an elite group of other countries whose debt exceeds it’s GDP:
- Greece (143%)
- Italy (120 %)
- Ireland (114 %)
- Japan (229%)
According to former Reagan economic adviser and professor of economics at Laurence Kotlikoff of Boston University, however, the $14.57 trillion is itself a low figure. According to Kotlikoff, U.S.’s “true indebtedness” alone actually amounts to $211 trillion. That’s more than 14 times the “official” $14 trillion official figure and also represents 14x the GDP.
“We’re focused just on the official debt, so we’re trying to balance the wrong books,” Kotlikoff said, naming Social Security, Medicare, and Medicaid for the skyrocketing unofficial figure. To arrive at that whopping figure, Kotlikoff adds up all the promises that have been made for spending obligations, including defense expenditures then subtracting all the projected taxes. Kotlikoff assumed that annual noninterest spending, as well as taxes, would grow indefinitely by 2 percent a year beyond 2075, the point at which the Congressional Budget Office’s estimates end.The difference is $211 trillion. That’s the fiscal gap…
In a 2011 Bloomberg article, Kotlikoff calculated the expense for just one segment of the population…baby boomers. 78 million baby boomers are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 = $3 trillion a year.
In November, 2011, Fitch credit rating agency issued a report entitled European Exposure that disclosed that:
“U.S. banks have manageable direct exposures to the stressed European markets (Greece, Ireland, Italy, Portugal and Spain), but further contagion poses a serious risk.
We believe that unless the Eurozone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen. Our current outlook for the industry is stable, reflecting improved fundamentals at most banks combined with ratings lower than at pre-crisis levels. However, risks of a negative shock are rising and could alter this outlook.” – Fitch Rating
According to a Nov 2011 Bloomberg Businessweek article,
“JPMorgan Chase & Co. and Goldman Sachs Group Inc., among the world’s biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally.
Just don’t ask them how much of that was issued by Greece, Italy, Ireland, Portugal and Spain, known as the GIIPS.
As concerns mount that those countries may not be creditworthy, investors are being kept in the dark about how much risk U.S. banks face from a default. Firms including Goldman Sachs and JPMorgan don’t provide a full picture of potential losses and gains in such a scenario, giving only net numbers or excluding some derivatives altogether…”
Bank of America, Citigroup Inc. and Morgan Stanley also don’t list gross amounts of CDS on GIIPS debt in their filings. All three banks provide figures within their disclosures that they say include a net of their credit-default swaps bought and sold on the five countries.
Of course, all 5 of the major U.S. banks mentioned above loaded with trillions in European counterparty risk also happen to be on the FSB list for posing the greatest risk to the entire financial system.
European leaders have done nothing but delay the inevitable reckoning, by scrambling every few months to find cash to plug the ever growing holes in Greece, Ireland and Portugal, and praying that bigger and more alarming holes in Spain, Italy and even France do not reveal themselves.
- Michael Lewis
Financial journalist Michael Lewis, in his book “Boomerang” reports that worldwide debt levels, both public and private, climbed from $84 trillion in 2002 to $195 trillion today. In this book, Lewis takes the reader on a financial tour through a number of countries to see how their national character determined how they responded to the tsunami of cheap credit that rolled across the planet between 2002 and 2008…a response that uniquely brought each into the current financial crisis. The book reveals the global phenomena of the folly of both lenders and borrowers. Lenders, driven by greed, eliminated prudent lending criteria lending to all-too-willing borrowers; reminiscent of the subprime lending crisis. In this book, Lewis provides fascinating insights about the crisis including:
- Icelanders wanted to stop fishing and become investment bankers. Stefan Alfsson, an Icelandic fisherman who in 2005 quit fishing and joined the stream of young people becoming bankers, setting himself up as “an adviser to companies on currency risk hedging” — without a day of training.
- Some canny Greek monks who built a vast real estate empire that set off a scandal that helped bring down the government of Prime Minister Kostas Karamanlis in October 2009.
- When a new government took over, it found so much less money in the government’s coffers than it had expected that it decided there was no choice but to come clean; those revelations panicked investors, and the new higher interest rates the country was forced to pay left the country — which needed to borrow vast sums to fund its operations — more or less bankrupt.
- The Greeks wanted to turn their country into a piñata stuffed with cash and allow as many citizens as possible to take a whack at it.
- In Greece, State jobs paid three times those in the private sector (with no work required) and tax collection was a joke: two thirds of the country’s doctors reported an income of less than €12,000 a year.
- Those who work in jobs classified as “arduous” can retire and start collecting pensions, he adds, “as early as 55 for men and 50 for women”; more than 600 Greek professions have somehow managed “to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on.”
- The Germans acted responsibly in the domestic markets, but happily wallowed in filth when investing overseas.
- British investors, lured by the prospect of 14 percent annual returns, “forked over $30 billion” to dubious Icelandic banks (“$28 billion from companies and individuals and the rest from pension funds, hospitals, universities and other public institutions” including Oxford University which “alone lost $50 million”).
- And property-related bank losses in Ireland, according to one Irish economist, now come to roughly 106 billion euros
- A handful of Irish politicians and bankers had decided to guarantee all the debts of the biggest Irish banks, losses which alone would absorb every penny of Irish taxes for the next four years
- America’s national debts are now matched (even eclipsed) by those of its states and cities. As one analyst interviewed pointed out, the amounts owed to public-sector workers across the country are larger than it will be able to pay.
Who Do we Owe So Much Money to?
The governments of the world are bankrupt….but this begs the question: who do they owe so much money to?… Can those who are owed the money to not recognize the destructive nature of such astronomical debt? Why would they not consider debt relief?
Whoever the governments of the world owe the money to must be at the top of the pyramid….the governments of the world owe money to the central and commercial banks of the world. Hence, ultimately, we are not governed by governments, but rather, by the banks!
The basic reality of our current global monetary system rests on 2 simple facts:
1. Money is printed out of thin air by a private consortium called the Central Bank
Central Banks create money for the governments of the world. Further, they do not back up the money they printed with any kind of collateral….to legitimize the printed money, this consortium convinced the governments to back it up with the resources of their country.
2. Commercial Banks use Fractional Reserve Banking to change the amount of money in the economy
This process whereby the central bank manipulates the amount of money in circulation takes place in 4 steps, which will be illustrated for the case of injecting new money into the economy. The government allows Open Market Transactions, where US Treasury Bills can be bought or sold by the Federal Reserve:
To increase the amount of money in circulation:
- The Federal Reserve BUYS Treasury Bonds on the open market
- The Federal Reserve pays for these bonds by simply creating an electronic credit in the sellers bank account. This is the magical step!
- The law of Fractional Reserve Banking allows the bank to loan into existence up to 10x the value of these new deposits to new borrowers, ALL WITH INTEREST!
To reduce the amount of money in the economy:
- The Federal Reserve SELLS Treasury Bonds on the open market
- The money flows out of the purchasers local bank
- Loans must be reduced by 10x the amount of the sale
It’s hard to believe but it’s really that simple….banks create money out of thin air and charge everyone the right to use it through their loan scheme.
Why do we need central banks to create our money supply?
It is indeed the strangest situation for a government to have to owe money to banks! How did this situation arise? It was no accident! It was planned and orchestrated, ostensibly by a small group of men. Chief amongst them was J.P. Morgan, working with the Rothchild’s in Europe and J.D. Rockerfeller. The historical records show that these men consciously attempted to engineer the greatest money making scheme in history to siphon money from the 99.999% towards the 0.001%. They began with creation of the Federal Reserve in the US but this morphed into the World Bank and IMF.
Governments and people are dangerously indebted to these central banks. We must ask ourselves a fundamental question: “Why does a nation of people need to pay a central bank interest for the privilege of printing paper money that the citizens alone secure? Why should the banks bankrupt governments and people for the privilege of printing money when the government OR people can theoretically set up legal structures to print money for themselves?
Web of Debt
Web of Debt is a book and a website. Author Ellen Hodgson Brown, J.D. is out to inform everyone about the Web of Debt that is strangling society. Ellen writes about the US Banking system (which has been replicated globally):
“Our money system is not what we have been led to believe. The creation of money has been “privatized,” or taken over by private money lenders. Thomas Jefferson called them “bold and bankrupt adventurers just pretending to have money.” Except for coins, all of our money is now created as loans advanced by private banking institutions — including the privately-owned Federal Reserve. Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices — and robbing you of the value of your money.
Not only is virtually the entire money supply created privately by banks, but a mere handful of very big banks is responsible for a massive investment scheme known as “derivatives,” which now tallies in at hundreds of trillions of dollars. The banking system has been contrived so that these big banks always get bailed out by the taxpayers from their risky ventures, but the scheme has reached its mathematical limits. There isn’t enough money in the entire global economy to bail out the banks from a massive derivatives default today.
Web of Debt unravels the deceptions in our money scheme and presents a crystal clear picture of the financial abyss towards which we are heading. Then it explores a workable alternative, one that was tested in colonial America and is grounded in the best of American economic thought, including the writings of Benjamin Franklin, Thomas Jefferson and Abraham Lincoln.” – Ellen Hodgson Brown
THE MODERN BANKING SYSTEM MANUFACTURES MONEY OUT OF NOTHING THEN CHARGES INTEREST TO USE IT
The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequality and born in sin….bankers own the earth. Take it away from them, but leave them with the power to print money, and with the flick of a pen, they will create enough money to buy it back again…..Take this great power away from them and all great fortunes like mine will disappear. For then, this would be a better and happier world to live in. But if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.
Sir Josiah Stamp, Director of the Bank of England and 2nd wealthiest man in England in the 1920’s speaking at the University of Texas in 1927
COMPARISIONS TO THE WIZARD OF OZ
“If governments everywhere are in debt, who are they in debt to? The answer is that they are in debt to private banks. The “cruel hoax” is that governments are in debt for money created on a computer screen, money they could have created themselves. The vast power acquired through this sleight of hand by a small clique of men pulling the strings of government behind the scenes evokes images from The Wizard of Oz, a classic American fairytale that has become a rich source of imagery for financial commentators” – Ellen Brown
“Welcome to the world of the International Banker, who like the famous film, The Wizard of Oz, stands behind the curtain of orchestrated national and international policymakers and so-called elected leaders.” – Editorialist Christopher Mark
“Money and banking have been made to appear as mysterious and arcane processes that must be guided and operated by a technocratic elite. They are nothing of the sort. In money, even more than the rest of our affairs, we have been tricked by a malignant Wizard of Oz.” – late Murray Rothbard, economist of the classical Austrian School
“In essence, money has become nothing more than illusion — an electronic figure or amount on a computer screen. . . . As time goes on, we have an increasing tendency toward being sucked into this Wizard of Oz vortex of unreality [by] magician-priests that use the illusion of money as their control device.” – writer Victor Thorn
“We are left . . . with the thought that the Federal Reserve Board does not know what it is doing. This is the “Wizard of Oz” theory, in which we pull away the curtains only to find an old man with a wrinkled face, playing with lights and loudspeakers.” – James Galbraith, The New American Prospect
WHO ARE ALL THE GOVERNMENTS OF THE WORLD INDEBTED TO?
United States finanical reform author Ellen Brown writes:
“We are beginning to understand that our money is created, not by the government, but by banks. Many authorities have confirmed this, including the Federal Reserve itself. The only money the government creates today are coins, which compose less than one ten-thousandth of the money supply. Federal Reserve Notes, or dollar bills, are issued by Federal Reserve Banks, all twelve of which are owned by the private banks in their district. Most of our money comes into circulation as bank loans, and it comes with an interest charge attached.”
Brown cites German researcher Margrit Kennedy, who has studied this issue extensively:
- Interest now composes 40% of the cost of everything we buy.
- We don’t see it on the sales slips, but interest is exacted at every stage of production.
- Suppliers need to take out loans to pay for labor and materials, before they have a product to sell.
- For government projects, the average cost of interest is 50%.
According to Business Insider, 14.3 Trillion USD of US Debt (June 2011) breaks down this way:
- The U.S. Treasury / Federal Reserve: $1.63 trillion (11.3 percent)
- Hong Kong: $121.9 billion (0.9 percent)
- Caribbean banking centers: $148.3 (1 percent)
- Taiwan: $153.4 billion (1.1 percent)
- Brazil: $211.4 billion (1.5 percent)
- Oil exporting countries: $229.8 billion (1.6 percent)
- Mutual funds: $300.5 billion (2 percent)
- Commercial banks: $301.8 billion (2.1 percent)
- State, local and federal retirement funds: $320.9 billion (2.2 percent)
- Money market mutual funds: $337.7 billion (2.4 percent)
- United Kingdom: $346.5 billion (2.4 percent)
- Private pension funds: $504.7 billion (3.5 percent)
- State and local governments: $506.1 billion (3.5 percent)
- Japan: $912.4 billion (6.4 percent)
- U.S. households: $959.4 billion (6.6 percent)
- China: $1.16 trillion (8 percent)
- Social Security trust fund: $2.67 trillion (19 percent)