Prior to 1913 the U.S. treasury issued treasury notes as currency that was backed by gold. The Gold and Silver certificates could be converted into silver and gold on demand. This kept the government on a financial leash to prevent over spending. The treasury printed its own money so they did not have to borrow it. They could print as much money as they had gold to back it.
In 1913 a non-elected body called the Federal Reserve, which is owned by some of the largest banks in the world, became the issuer of U.S. currency. This establishment went on to replace all of the sound money in the U.S. with what is today a totally fiat currency. In 1971 we were taken off of the gold standard thus allowing the FED to print as much money as they wished with absolutely no backing other than the good faith of the U.S. Government.
When the government wants to borrow money they print treasury bonds which are sold by selected traders. The bonds are sold as an interest bearing investment. The more credit worthy the issuer is, the lower the interest rate will be. This is an indication of how safe the bond is.
Just like an IOU, the bonds are the same as cash. The perception of cash value is based on the perceived ability of the issuer to repay the IOU. If it is suspected that the IOU may not be honored, it may be sold at a discount to unload it onto someone else before the issuer defaults on repayment and it becomes worthless.
When the demand for bonds is not sufficient to absorb all of the new bonds, the FED must buy them to prevent a failed auction. A failed auction would bring the credit worthiness of the U.S. into question. This would cause the interest rates to go up to reflect the increased risk.
When the U.S. issues bonds as repayment for the loan, the holders of these bonds have the ability to call the loan if they want. This is done by demanding payment at maturity of the bond rather than rolling it over into more bonds.
As the U.S. increases its’ deficit spending, its’ credit worthiness will come into question. This will cause those holding U.S. bonds to dump them for something more secure. When no one else will buy them anymore, the FED must purchase them to keep the dollar stable. We are seeing this happen now. Eventually the FED will own all of the outstanding bonds if the crisis goes on long enough. When the FED has to buy bonds it must print new money to buy them. This is called monetizing the debt. This is very inflationary.
Keep in mind that the FED is owned by other banks. What the FED owns, they actually own.
Since the U.S. government no longer prints its’ own money, it must go to the FED to get more currency if government revenues are insufficient. If the FED should one day say it will no longer issue currency to the government until the bonds it is holding are satisfied, what would the U.S. government be able to pay them with? If you borrow money from a bank and cannot repay it, they ultimately come for your assets to satisfy the loan. That is a lesson the Greeks are now learning.
The U.S. government has some very nice assets in the form of pristine real estate, much of it with a great deal of mineral wealth beneath it. If they cannot pay the banks, the bankers may demand assets in return. If you don’t think the banks would do something like that, you obviously have not been paying attention to world events lately. It may not even be the FED bankers. It could be anyone with the funds to buy up all of the worthless bonds. Someone like the IMF perhaps.
This is a larger version of what happened during the great depression. People that owned land but had no money would get a line of credit at a store to buy food. The store would continue to extend credit until it reached a certain level then they would suddenly demand payment. The people were unable to pay their bill so the store owner would demand their land as payment. This was the intention of the store owner all along. I know because this is how some of the largest farms in my county came into existence at that time.
The people never agreed to use their land as collateral for the credit, but after the debt was created, they had no other recourse. This is the position the U.S. will likely be placed in to deprive Americans of the land the rightfully own. Those in power that get a piece of the pie will willingly support this option. Americans will lose the land their forefathers fought for, all for a pile of worthless paper printed out of thin air that ultimately destroyed their standard of living.
This may not be the future of this country but at this point in time it seems likely. Unless the public understands how this could happen and resolve to fight it if it ever does come to pass, we could lose it all overnight. One thing is for certain. Whoever comes to foreclose on America will not be willing to give up easily.
- The On-Going Collapse Of The U.S. Treasury Bond Market Is A Disaster In The Making (blacklistednews.com)
- What Is The Debt Ceiling and How Does It Affect You? (edgeucationnewmedia.wordpress.com)
- Default Softly, While China Carries A Big Stick (dailyresourcehunter.com)
- Quantitative Easing Worked for the Weimar Republic, Too. For a While. (directorblue.blogspot.com)