Thursday, October 30, 2008

The 20% Rule Will Crush Us Unless We....

Karl Denninger at wrote one of the most telling economic columns of 2008 on America's future. He pointed out that it now takes 5 trillion dollars in new debt to create one trillion dollars in new Gross Domestic Product (GDP). GDP = C+I+G+X-M or Consumption plus Investment plus Government plus Exports minus Imports.

Take a minute to wrap your mind around what it would mean to add 5 trillion dollars to the national debt which would increase the present 10.6 trillion dollars to 15.6 trillion. The first thing you might think of is how much it would cost you to pay the interest on all that new debt. But by increasing the demand for loans by adding 5 trillion dollars to the national debt you will find yourself paying a lot more interest and not just on what you have personally borrowed but also on the 15.6 trillion dollar national debt.

And it would only add one trillion dollars in GDP to cover that increased burden.

Mr Denninger pointed out that way back in 1968 you could get a one billion dollar increase in GDP for every billion dollars in new debt. This economic fact is related to the end of Monetary Illusion. Monetary Illusion was a cornerstone of John Maynard Keynes's economic theory. But ever since 1968 inflation has been increasing faster than the money supply.

I would attribute part of the change since 1968 to the Exports minus Imports part of the GDP equation. We are importing more and making less at home.

What I am calling the 20% Rule is a temporary relationship between debt creation and growth in GDP. Forty years ago it was 100%. Now it is 20%. It will soon be 15% and then 10% if the dollar and America do not self-destruct before we get to either 15% or 10%.

Could you possibly imagine making the payments on a 25.6 trillion dollar national debt? If you know recent American economic history you would remember reading about 15% home mortgages as recently as 1980. The cost of servicing a 25.6 trillion dollar debt will crush the American government and the people who pay taxes to support this insanity.

The coming spike in interest rates and the exponential growth in public debt will transfer all wealth from average Americans to Wall Street. America will choke as a nation and cease to exist because we will no longer be able to pay the vigorish.

My regular readers know that government debt is a fiction. If the Treasury Department had bought the Federal Reserve Bank back in 1929 or we had never created it in 1913 there would be no national debt.

As it stands now, when the Treasury wants run a deficit of 100 billion dollars the Federal Reserve Bank creates a bookkeeping entry for the federal government at the New York FED which is our official depository. In exchange the Treasurer gives the FED bonds promising that American taxpayers will pay the FED 100 billion dollars plus interest for making a bookkeeping entry.

We can no longer afford to subsidize Wall Street. They will destroy us with their greed.

If it were not for Wall Street's greed, there would be no national debt about to crush us and to transfer all wealth from us to them. If you do not believe me, just contemplate the picture of Americans paying 15% interest on home mortgages and 20% on the 25.6 trillion dollars of fictional debt.

If it were not for Wall Street's greed and our lack of an effective response, they would not be stealing billions of dollars each week from unaudited federal spending. Over 4 trillion dollars has been spent since 1995 in violation of United States law which requires that we adequately audit all federal expenditures. On 9-10-2001 Donald Rumsfeld admitted at a press conference that he was unable to trace 2.3 trillion dollars in Pentagon spending. On 9-11-2001 a bomb exploded at the Pentagon 3 ½ minutes before Flight 77 was alleged to have hit the building. The bomb killed 40 military auditors who were attempting to trace that missing money. It served its purpose and has discouraged overly inquisitive accountants who suffer from excessive honesty which can be a terminal illness in these times.

Catherine Austin Fitts says the stolen money is being invested offshore so that when the dust settles, Wall Street can buy America for pennies on the dollar thus making our enslavement complete.

The end is nigh. There is not enough money in the world to satisfy Wall Street's greed. There are only two paths left for America to take.

One path is what I have called the Glorious Day when everything belongs to Wall Street, democracy is abolished, the Bill of Rights is a faint memory and Bankers rule by Divine Right.

The other path is that we reform the government, abolish the Federal Reserve Bank, replace Federal Reserve Notes with Treasury Certificates, and restore the Bill of Rights.

Now you might understand why I have been so adamant that we either will be liberated or enslaved. The dollar will soon die and the current malaise will not last. We will either be free or enslaved and soon. As for me, I was born free and will die free.

I stand by my original prediction that unless substantial reforms are made our after tax wages in real dollars will be cut in half by 12-31-2009 with January 2005 as a base.


Karl Denninger's Market Ticker article can be found here:

Catherine Austin Fitts collection of articles on the missing money which includes the Donald Rumsfeld video admitting he was unable to trace 2.3 trillion dollars in Pentagon funds can be found here:

If you have friends who still believe 19 Arabs hijacked 4 airplanes on 9-11-2001 even though they had neither tickets nor boarding passes and were never filmed on any surveillance tapes, please ask them to go here:

If you have friends who believe that World Trade Center Tower 7 could collapse at nearly free fall speed even though it was never hit by a plane and only had fires on a few of its 47 stories, please ask them to go here:

To read about that bomb blast at the Pentagon that the news media never reported please go here:


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