Monday, February 14, 2011

Oh, Lord have Mercy; We Need a Balanced Budget Amendment!!!

This is what many of the new lawmakers and many of the old lawmakers are saying as they try to capitalize on the fervor. The BBA is a different debate for a different time, especially since there is no danger in it passing in the foreseeable future.

If lawmakers were serious about a balanced budget, all they would have to do is stop raising the debt ceiling. KISS! Budget balanced.

If lawmakers were serious about lowering the debt, which a balanced budget DOES NOT DO, they could simply vote to lower the debt ceiling. KISS!

Perhaps this should be a separate post, but the prior debates are irrelevant in our current system where all our currency is borrowed from the FED. This debt can never be paid back!

Check this out:
  • Say we open a little country and start from scratch. We decide to have a central bank to furnish and manipulate our currency. To run this new country, we need to start with $100, so we create a bond worth $100 and pay 5% interest on the capital.
  • We issue no more bonds and thus receive no new currency from the central bank.
  • Now let's say after one year we change our mind and want a different currency. How do we pay the central bank back? Including interest, we now owe the central bank $105 but there is only $100 in circulation in the entire country! Our little government does not have the money to pay its debt once the first penny of interest has accrued!

    This is a grossly oversimplified description of our current system, but it shows that the system was set up to take the power from the government and put it in the hands of a few unelected decision makers, and it was set up in a way that will make it very difficult to overturn.

    By simple arithmetic we have shown that payment of the national debt is not possible under the current system. Any attempt to pay down the debt will cause a contraction of the money supply, which is not a bad thing but it will cause economic corrections and it will look like a bad thing.
    The only way to deal with the national debt is to first eliminate the current central banking system.

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