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watched the well-dressed customer in front of them use food stamps for ice cream, pretzels, candy, and wine and then drive away in a late-model car. The political function of the food stamp program is not to help the hungry but to buy votes.
The programs that do involve contractual obligations—such as Social Security and Medicare—could be turned over to private firms which would not only operate them more efficiently but also would pay out higher benefits. Congress, however, does not dare to touch any of these entitlements for fear of losing votes.
Normally, with contracts for future obligations of this kind, the issuer is required by law to accumulate money into a fund to make sure that there will be enough available when future payments become due. The federal government does not abide by those laws.
The funds exist on paper only. The money that comes in for future obligations is immediately spent and replaced by a government IOU. So, as those future payments come due, all of the money must come from revenue being collected at that time.
Herein lies the doomsday mechanism. These obligations will be paid out of future taxes or inflation. Entitlements currently represent 52% of all federal outlays, and they are growing at the rate of 12% each year. When this is added to the 14% that is now being spent for interest payments on the national debt, we come to the startling conclusion that two-thirds of all federal expenses are now entirely automatic, and that percentage is growing each month.
Even if Congress were to stop all of the spending programs in the normal budget—dismantle the armed forces, close down all of its agencies and bureaus, stop all of its subsidies, and board up all of its buildings, including the White House—it would be able to reduce its present spending by only one-third. And even that small amount is shrinking by 10 to 12% per year. That is a best-case scenario. The real-case is that Congress is accelerating its discretionary spending, not canceling it. One does not have to be a statistical analyst to figure out where this trend is headed.
The biggest doomsday mechanism of all, however, is the
Federal Reserve System. It will be recalled that every cent of our money supply—including coins, currency, and checkbook
money—came into being for the purpose of being loaned to
someone. These dollars will disappear when those loans are paid back. They exist only so long as the debt behind them exists-Underneath the pyramid of money, supporting the entire structure, DOOMSDAY MECHANISMS
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are the so-called reserves which represent the Fed's monetization of debt. If we tried to pay off the national debt, those reserves would also start to disappear, and our money supply would be undermined. The Federal Reserve would have to scramble into the money markets of the world and replace U.S. securities with bonds from corporations and other countries. Technically, that can be done, but the transition could be devastating. Under the Federal Reserve System, therefore, Congress would be fearful to eliminate the national debt even if it wanted to.
These are the doomsday mechanisms already in operation. If we do not understand how they function, we will not be prepared for our trip into the future. The scenes that will unfold there will appear too bizarre, the events too shocking. We would be convinced that something surely had gone wrong with our time machine.
WHO OWNS THE NATIONAL DEBT?
It has been said that we need not worry about interest on the national debt because 'We owe it to ourselves.' Let's take a look at who owes what to whom.
It may come as a surprise to learn that the Federal Reserve holds but a small portion of the national debt, only about 8%.
Foreign investors own approximately 27%, and agencies of the federal government have 28% (the IOUs that replaced money taken from the funds such as the Social Security Fund). Private-sector investors in the U.S. hold the largest share of about 37%. It is partly true, therefore, that 'We owe it to ourselves' or at least that
So, a major portion of the interest on the national debt does, indeed, accrue to the benefit of a large sector of the American people.
That's the good news. The bad news is that the government obtains every cent of the money it pays to us by confiscating it from us in the first place. If it is true that we owe it to ourselves, then it is also true that we
THE CREATURE FROM JEKYLL ISLAND
takes $1000 from us in taxes and inflation and gives us back $350.
The so-called 'benefit' to the public is but a giant scam.
And more bad news: When people purchase government
bonds, there is less money available for investment in private industry. It is well known that government credit 'crowds out'
private credit. The result is that the productive side of the nation is handicapped by unfair competition for investment capital. To obtain new money for growth, private companies must pay higher interest rates. These are passed on to the consumer in the form of higher prices. Many companies are forced to curtail their plans for expansion, and potentially new jobs are never created. Some companies are forced out of business altogether, and their employees are put out of work. The economy is always retarded by government debt. The larger the debt, the greater the damage.
