Monday, July 7, 2014
Can the United States Treasury Go Bankrupt
Can the United States Treasury Go Bankrupt? The Notion that it Actually Can Go Bankrupt Beginning to Surface in Public. The US Treasury is Not a Bank but Something Entirely Different. Lex Loeb Contributor Network . Did I just turn on the televsion and hear Donald Trump say that he thinks the US treasury , itself could go broke? I think I did. Well If he really did he is dead wrong about that. It is indeed for much smaller government treasuries to go broke and a lot of small national banks do go bankrupt from time to time. A country the size of Argentina can and does go bankrupt pretty often. It is about to do that once again unfortunately for the people of Argentina. There is some probability that the US treasury could do just about the same thing as Argentina and run of the mill banana republics if it really tried hard to do it. Still it is pretty unimaginable. If you go to the site www.savingsbonds.gov and click on the link "national debt to the penny" you will find a place where you can be very nice and send a check to the US Treasury to cancel some of the debt voluntarily . The address to send the check to is listed on the page! I thought of a campaign to send the pennies one at a time in an envelope. How silly is this that you should send them a check. And why? They print a lot of money and you write a check so numbers representing that money in your bank account goes to the treasury and POOF some of the national debt is gone. If Bill Gates and Warren Buffet together sent in checks as big as their combined fortunes the payment would hardly reduce the national debt by 1%! An other way the page tells you you can reduce the national debt is pretty simple and that is to cash in your savings bond or T bill and ask for cash or a check. That should get you a little confused. The only reason the government has debt is because people have lent it a lot of money and by an act of just voluntarily going to the treasury site and cashing out treasury bills you have there then the goverment is suddenly debt free as if by magic! What is really happening? The US treasury goes to the US mint and has them print a new kind of paper or better yet just send a computer code to your bank to transfer a check online . This is not exactly a bank after all. Go to your ordinary commercial bank and withdraw your money from your bank account there and the bank is no longer in debt to you but may be suddenly in need of new capital to repalce the funds you removed from your account and a run of depositors doing that can leave a regular bank bankrupt. That is impossible with the US federal treasury. If you take out your money invested in T-Bills , E bonds, I bonds the government is suddenly no longer in debt. It says so on their site at www.savingsbonds.gov after you click on the debt to the penny link! When Congress authorized the 700 billion dollar bail out it gave the US treasury the right to just go out and print money or sign checks or wire magic numbers to bank accounts and it is not at all certain that it will necessarily end up as part of the "debt to the penny" that you see online. Why? because every dollar that the treasury deals with is funny money. These are faith dollars. You either believe or you don't believe. If you want to take payment in US dollars you get faith. If you save us dollars you get faith. It used to be the US dollar was backed by Gold or Silver which means that the US Treasury had to have a vault where it could deposit gold or silver to match any possible claim that would be made against those reserves. That really was not exactly the case either because back in those days Government gold and silver reserves were in point an issue of faith too. In 1933 when FDR nationalized gold reserves with a national confiscation drive. It certainly did not help the economy! Did it prevent the collapse of the US treasury? probably not . What did the confiscation of gold do for the USA? They backed dollars with it but the exchange of gold for dollars would have only been availble for foreign governments or banks dealing with foreign interests? There is no evidence that the US Treasury parted with any of the reserve gold they collected till many years later when it again became possible for ordinary Americans to own gold. The US tresasury is in a different set of cirucmstances today than it was in 1933. Grabbing gold is silly if you reduce the national debt just by cashing out bond obligations. Worrying about the national debt is pretty much nonsense because every dollar listed is a faith dollar on loan one way or the other. I propose having the government back dollars with NASA as an asset. Assuming people will pay a premium for a piece of paper that says they own a share of NASA the US government can raise cash that they do not have to print to retire debt if a creditor wants it retired. That definitely is better for the money supply than just to print new money every time debt is called by creditors. What would a NASA dollar be? One idea would be a limited edition of $20 bills that are convertible into 20 share s of 200 billion dollars representing half of NASA net value of all NASA assets save Military NASA assets. It says so on the bill and instead of a picture of a building in Washington on the back of the $20 bill there is a picture of a spaceship , the moon and mars. These bills are convertible in a paper certificate showing giving you one vote on the NASA public core ownership and some of the money invested in the bills by individuals or governments can go directly to NASA for their budget. I suppose then the Chinese could just buy up NASA and have voting rights but they would have plenty of competition. It does not make NASA a public company because NASA still owns the other half of all its assets retaining a controlling interest for the US government. NASA is growing still and so more money can be raised this way by way of dilution. NASA bills could increase in value over face value because of collectors and greater fool theory or because the conversion certificates might actually pay a dividend from mining on the moon which is a possibility though not likely. It just backs dollars in the system with something other than faith. Or maybe it is space faith? Trading dollars for empty space. That is what credit is. A credit is a loan extended and the space that is left in the vault from the bank where the money came from is credit. As interest and principle for the loan come back to the bank from the borrower the credit hole slowly gets refilled until one day much more money fills the hole than there is room for it making it necessary for the bank to get a bigger vault. The US Treasury is not that sort of bank. If you get a loan from the government they have an infinitely big hole to fill. If you lend the government money the government credit hole still remains infinitely empty. When the government needs cash they either print it or write a check for it and now with the world wide web they simply generate some coded random numbers on computer screens and poof that is the new cash! Something that works this way can't go bankrupt because it is already bankrupt. It is not really a bank at all. Government money printing and random number assignments generation is a service to the economy that facilitates commerce. The treasury cannot go broke but the government can? Maybe but still unlikely. The reaction to world financial panic was for Americans and foreigners to flood the US treasury with money to buy treasury note and bills causing the value to rise as the treasury had little choice but to pack away dollars or destroy them as they were leaving circulation in the economy to be housed in the giant bottomless pit at the US Treasury. The risk it seems is that people will all cash out the money they loaned to fill the government's bottomless pit and we will have a lot of inflation in the economy as the money is used to buy up relatively scarce resources. That is how the economy will re-start when it does. The reason so many banks are going broke maybe because they are now obsolete and the whole idea that people have to go out and borrow money from a commercial bank to make the economy work seems crazy. The commercial banks are just extensions of the US treasury bottomless pit as everything they have to lend comes from the pit at a discount or from deposits by others with drew cash out of the bottomless pit. Listening to big debtors like Donald Trump screaming about how George Bush ruined him is fun because Trump borrowed gigantic sums of money based on lender's faith that he could condos in buildings he built or refurbished. A great condominium conversion project that will make a developer rich works like this: They buy a building that can be converted into apartments say for $500,000 and invest in it $5 million using borrowed money . They get 50 condo apartments out of it. and the cost of each with financing costs is $110,000 but they intend to put them on the market for $275,000 each. So before that can happen the bank calls and says it wants its money back because a few payments are late that were due. The developer goes into a frenzy because he knows he is in a jam. If the real estate market is bad and no one is going to banks and borrowing money to buy a condo the developer risks loosing the building. When a market bubble in real estate gets going everyone becomes a developer or an investor in such projects. Banks can extend their terms and wait for payment and give developers like trump a break but often they would rather just end up owning a building they don't know what to do with which means they never really should have made a loan with collateral that they could not hold or put to use until market conditions improve. Giving creditors more time to pay and slowing down the contract payments due could save a lot of banks from trouble. The US government treasury has the bottomless pit and it is now trying to use the pit to save the some developers and some banks that loaned to them but there is no formula that determines which banks and which developers get saved or have a temporary life line of credit extended. That is where the treasury becomes completely political. No mater how political or wasteful the US treasury becomes it cannot go broke because it creates all of the money. They can loose influence however if investors and banks switch to a foreign money pit treasury or find one that has real money. That proved to be completely false when the financial markets collapsed as even the Swiss banks were finding themselves insolvent. One thing the US treasury can do to save banks and existing financial contracts going bad is to create time to go along with all the space they have. Giving debtors more time is a possible fix. Another is letting the greedy people who borrowed more than they can pay back just go broke won't hurt either as real assets will eventually find buyers who value them. The entire government debt at the treasury is owned by people and corporations and foreign governments so there is plenty of money to buy assets that greedy speculators loose and eventually reset the market valuations to realistic a point between the forces of supply and demand. Trump went bankrupt once before and soon after that he was back in business when people loaned him tons of cash. Here he goes again. The US Treasury was never broke and everyone now seems to be loaning it megatons of cash and all it has to do is go to its computer random number generator to refund everyone that loans it money and their interest payments. The faith is someone eventually might have to be taxed to pay for it. Taxes are payable every single year and corporations that pay it can last 100s of years and working people who pay it do so for 40 or 50 years or more. There are good reasons to wish the government were downsizing instead of getting bigger. In the Old British empire the bank of england used to rape the colonies including India to pay it's bills. The way the Roman Emperors paid their bills was milking the provinces they controlled and taking spoils in conquests. The US Treasury is a whole new improved type of treasury and a definite improvement over what the world used to have but it can be a risk but never bankrupt. Real money backing for the US dollar would be a nice improvement but the treasury cannot change the way they make money with computer generated random number codes now. This article would be satire but it happens to be true. .