Babylon Today

(updated part: Interest expense on the United States debt is a time bomb - now exploding - comprising a whopping 44% of our total 2008 deficit. As of fiscal year end '08, debt interest set a new record totaling $451 billion dollars. Do we have to wonder why the Fed is willing to cut interest rates, regardless of further rendering the U.S. dollar to the status of a banana republic currency? Let alone the Fed's feeble effort to head off a banking collapse resulting from the unwinding of the greatest real estate mania in world history.)

The bleak prospects of our exponentially escalating interest expense bodes particularly ill toward hopes of balancing any future budgets. Interest expense on our debt for fiscal 2006 totaled 405 billion, blowing away the 1998 former record interest expense of 363 billion. At 405 billion, interest expense for 2006 composed a whopping 70% of our total on-budget, or actual, deficit for the 2006 fiscal year. As of August '07 debt interest set a new record totaling 430 billion dollars. Do we have to wonder why the Fed quit reporting M3 and system repos? Monetization of the debt perhaps?

The above chart compares interest expense to T-Bill, 5 year note, and Fed Funds interest rates. Record intrest expense was logged in spite of the fact that we have for some time been experiencing some of the lowest interest rates in 50 years. What will happen to this debt now that higher average interest rates are required to service our national debt, following 14 consecutive Fed rate hikes? Average issued debt maturity is just 55 months, what will happen as we retire more of the cheap debt that we owe at lower interest rates, replaced by higher rate notes? More on debt interest.

(I asked the above question before the Fed unbelieveably lowered rates - twice). It appears that in spite of the long series of Fed rate hikes the dollar seems undefended and may be in the process of breaking trend in a downward direction. The recent rate cuts should trash it further. Chart below courtesy of futures.tradingcharts.com. Click on the chart for current daily data.

So why would anyone loan our government money at 4% interest, when the Fed has depreciated our currency by 15% over the last year alone? And by 36% over the last 5 years. Could it be that the world's central bankers understand better than anybody that they are involved in a game of musical chairs, in which they fully understand there are no chairs whatsoever?

Here's a fun U-tube on debt as money. While it is a good introduction to money, the conclusions and repair are liberal and unrealistic. If history is any guide, the only "fix" for phony money begins with economic collapse followed by a collective interest in returning to sound money. Click on chart for latest weekly chart.

This site began with a theme of bashing the U.S. as Babylon the Great, described in the book of Revelation. More likely Babylon the Great is a reference to a global economic system. The numbers and politics that follow on this page are not nearly as important as gaining an understanding of that which has brought us to this point in history, and knowing where we are headed from here.

The Chart above (anchor) reflects total U.S. public debt. I don't see any surpluses do you? An even bigger problem, and the root cause of the astronomical nature of our national spending and debt is evidenced in the M3 money stock growth, or the production of debased paper*, bank credit and electronic currency, from thin air, by the Federal Reserve and global central bankers*, charted below from the table at Economagic.com. The rapid devaluation of our currency is evidenced in part by the fact that the money supply has been growing 7 times faster than material or industrial goods production.

Amazingly the debt turned in this poor performance in spite of the blizzard of M3 money stock being blown into our system at rates such as a whopping 182 billion dollar increase over eight weeks, as shown on this chart of debt to M3. In the following 12 weeks to year end '06, M3 increased by another 273 billion. This is over a 10% annualized increase to our entire money stock. Is it any wonder that the Fed quit reporting M3? To put these figures into perspective, it would appear that if the government sold all of the gold they claim to have today, at $500 per ounce, it would total less than 131 billion dollars (unless the Government has gold that this site doesn't account for).

Perhaps this is an effort to hold off inevitable deflation, but it has caused some serious distortions, particularly in the housing market, and previously in the stock market. Is the Government and banking sector accelerating the dilution of your savings, through inflation, in order to monetize the debt? Here's Mises on monetization. More on monetization. Marc Faber on printing. On October 18th U.S. debt hit 8 trillion dollars, which was barely reported. I highly recommend signing up for the free Mises e-letter (I don't make any money, from anywhere, in any form, whatsoever, as a result of this babylontoday website).

To try to obfuscate the M3 blizzard with comparisons to GDP would be to suggest that when somebody paints another's fingernails, or washes someone else's car, that wealth is created rather than money simply being transferred from one hand to another. What portion of GDP derived this way should be represented by "new money"? I would suggest zero. Sadly, jobs are evermore created in the service sector, while real wealth production is increasingly sent offshore. Since 1959 industrial production has gone up by a factor of 4.4 times while the M3 money stock has gone up by a factor of 32 times, or 7 times the rate (chart). Since 1959 even our GDP has only grown by 4.6 times.

Random House dictionary (1966): inflation, n. 1. undue expansion or increase of the currency of a country, esp. by the issuing of paper money not redeemable in specie 2. a substantial rise of prices caused by an undue expansion in paper money or bank credit. More politically correct Random House dictionary (1997) inflation—n. 1. Econ.a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation). 2. the act of inflating. 3. the state of being inflated. Is it any wonder that housing got where it did? (anchor)

From the above chart you can see that IN JUST THE 9 YEARS prior to termination of M3 reporting, the volume of all money created since our fraudulent currency began in 1913 - WAS DOUBLED - plundering American's savings by diluting our currency through an unprecedented blizzard of fiat money and easy credit via Keynesian economics. Please note that the Y axis dollar value scale begins at ZERO. The last attempt to slow the rate of growth of M3 was in the late 80s and early 90s, and the related recession caused such a negative change in social mood, that Americans voted George Bush out of office after one term, who had been a historically unprecedented 90% popular, just months before the election. If Bernanke, the new "Maestro", were to try that trick again it would perhaps incite an all out tar-and-feathering of Bush Jr..

Click here for an Excel Growth Trend projection of M3 carried forward 75 years based on a 46 year history. Click here for a projectionof M3 from 1995 to 2024. According to the Excel Growth Trend projection if the candy bar that cost 5 cents in 1960, costs 50 cents today, it will set you back $200 in the year 2079! In the 8 weeks ending September 30, 05 the Fed increased the money supply by 182 billion, and in the following 12 weeks to year end, by another 273 billion. This is over a 10% annualized increase to our entire money stock. To put these figures into perspective, it would appear that if the government sold all of the gold they claim to have today, at $500 per ounce, it would total less than 131 billion dollars, unless the Government has gold that this site doesn't account for.

Here is an enterprising webmaster that believes he has reconstructed M3 using available data, from http://www.nowandfutures.com/key_stats.html. Based on historical trends, and the Microsoft Excel trend projections in this website it would seem to be on track. Look at it as the speed at which your savings are shrinking, or being diluted. Here is another construct by John Williams at Shadow Government Statistics. These are both hawkeyes that I have found to be unbiased. Click chart for source and update.

Apparently without a reasonable explanation as to why, on Nov. 10, 2005 the Federal Reserve announced that as of March 26, 2006 they will discontinue providing repurchase agreement information, as well as the M3 monetary aggregate numbers from which I developed the above chart. Is this the beginning of the end of Fed transparency? The desire for Fed secrecy should perhaps be of no surprise, perhaps as apparent monetization of the debt accelerates even more than today it is understandable that they may not want U.S. citizens, much less our nation's foreign creditors, to know the extent to which they are creating more phony money, with which to repurchase Fed notes, that further dilutes the value of our currency in order to, in part, service our nation's evermore overwhelming debt. If you thought that a 3% increase, in 12 weeks, in all U.S. money ever created was huge, hang onto your hat for secret Bernanke helicopter delivered rounds! Without a future of disclosure what would prevent them from cheating the last few numbers lower? Representative Ron Paul proposed legislation to prevent the Fed from ending their publishing M3.

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, 'Account overdrawn.'" - Ayn Rand - Atlas Shrugged

While the first 6 months of debt increase in 05 put us on track for a linear annual projection of an 800 billion dollar increase in our debt, or "on-budget deficit", who would have imagined that M3 would be pounded into the economy as, for example, in the 172 billion increase in M3 over the 8 weeks prior to August 19th. Interest paid on our debt in 2005 was $352 billion. This amounted to a whopping 62% of our 2005 on budget deficit. The only easing in the debt trend was around the turn of the century, resulting from capital gains tax revenues booked on the likes of Pets.com. Is this likely to happen again? Y2K concerns juiced it up as well, but that's behind us now. Are real estate capital gains revenues going to do the heavy lifting going forward or is housing simply going to be the next bubble to disappoint? Highly leveraged housing gains certainly don't seem to be helping with our deficit so far this fiscal year, as evidenced by the chart above.

Above is a chart (anchor) of an Excel Growth Trend projection of our National debt carried forward 10 years. This is calculated based on the historical rate without, for example, including the 2004, 43%, single year increase in all future spending commitments, with the help of the prescription drug benefit. Click here for a projection of our debt carried forward 75 years. Here is the same projection taken out to 2079. If you don't believe that Excel growth trend can be used this way I did a projection from 1959-1968, and projected it forward to 2004 here, and just missed the mark.

As you can see THE DEBT CLOCK adds another million dollars every 15 seconds or so, or a billion dollars every 4 hours. A trillion here, a trillion there, and pretty soon you're talking about real money! Originally this "quote" referenced a billion or perhaps even a million dollars and was widely recognized as being an absurd number at the time. It is obvious that our national debt has never been the result of a single reduction in taxation. Our national debt has been, and will remain, the result of out-of-control government spending, largely on bureaucracy, social engineering and welfare schemes, regulation and little more, with the exception of military spending which is a constitutional responsibility. However the GAO report referenced below indicates that military spending is also notably unaccounted and out of control. It's pretty hard to accrue debt if you don't spend money. Any time politicians talk about spending on unconstitutional projects, such as "job creation" for example, all they are really doing is producing yet another excuse to squander your hard earned money on more bureaucracy in exchange for what they hope will be a good campaign sound bite. Government can't create jobs. Government instead can only confiscate would-be savings thereby siphoning capital out of the private sector that would otherwise be put at risk and invested to create jobs.

Some would suggest that debt, in and of itself, is not a problem. However the total debt compared to income chart, from "Grandfather Economic Report" demonstrates that we are, evermore exponentially, loosing our ability to service our debts. Grandfather Economic Report reflects ONLY historical and current amounts, without consideration of future obligation or trend.

Tax cuts are always shown to increase revenue, but every time the revenue increases congress increases spending like a bunch of even drunker sailors. Income tax increases, on the other hand, reduce revenue by killing the economy from the bottom up, injuring the least among us the most, as both Reagan and GHW Bush learned from their increases, especially after the dems defaulted by not following through on the budget cutting they promised in the exchange (actually increased). Without knowing how much of this revenue increase is from real estate capital gains, this could reflect unsustainable revenue rates from the real estate bubble that appears to be beginning the process of deflating in some areas. New homes are being discounted. The debt chart above shows that the late 90s experienced an even more extreme as well as unsustainable revenue stream that was the product of the nasdaq and dot-com manias, capital gains. What will take the place of the stock market, and now housing, bubbles to produce tax revenue increases going forward? A tax increase would be disasterous.

At the end of 2005 the House finally passed a bill to reduce spending by a paultry 40 billion....over 5 years. Plus these are generally reductions in the rate of built-in spending increases, not actual reductions. The bill is now expected to face what is increasingly being characterized an epic battle in the Senate. And this is the problem congress has with cutting spending just 8 billion per year, all the while passing spending bills like the Medicare Prescription Drug Benefit to, perhaps in part, bail out major corporate medical spending on pensioners. Is it any wonder when we can quote Tom Delay: "DeLay declares 'victory' in war on budget fat" - "House Majority Leader Tom DeLay said yesterday that Republicans have done so well in cutting spending that he declared an "ongoing victory," and said there is simply no fat left to cut in the federal budget." If he should have been indicted for anything it should perhaps have been for saying this!

At 553 billion our 2005 deficit indicates the U.S. spent over 25% more than the 2.15 trillion it received in revenue. This is a little better than the 2004 deficit of 596 billion against a revenue stream of about 1.89 trillion indicating spending 31% greater than revenue, but going forward we have spending for the prescription drug benefit and plenty more beginning to come onstream.

While the link page with the chart above is worth a read as Snow cheerleads for the Treasury, it fails to mention that the economic growth that we are experiencing today, and subsequent revenue gained, has been borrowed from tomorrow, as is evidenced by the steadily increasing national, business and personal debt and decreasing personal savings rate, which is now negative. Consider also the artificial and exponential run-up in real estate, producing "gains" that could well turn into losses. Further, the blizzard of phony money from the Fed has been the real engine of growth adding over 100 billion in the first 12 days of December '05 alone. Nationally, in the public and private sector, we have been borrowing our "prosperity" from our children's, and their children's, futures.

It is if we continue to demonstrate an exponentially increasing inability to pay our bills. America seems to be suffering from "Attention to Deficits Disorder" (Mogambo Guru). According to Walter J. Williams from Gillespie Research our 2003 deficit alone, was 3.7 trillion as opposed to the reported $374 billion, when using "generally accepted accounting principles (GAAP)". "Put in perspective, that means if the U.S. Treasury had seized all wages and salaries in 2003 with a 100% income tax, there still would have been a deficit! The outlook for fiscal 2004 numbers is even worse."

We now have the benefit of the GAO 2004 U.S. Financial Statement (below), and find even Williams 2004 "outlook" to be so accidentally conservative (who could have imagined) that the reality renders it laughable, including a 4.9 trillion increase (GAAP) even without including the 8.1 trillion pile-on from the Medicare prescription drug benefit. Could the U.S. credit rating be downgraded as a result? Why not? In April '05 Moody's downgraded GM's debt to junk status for less impressive financial shortcomings, but the creditors and shareholders don't seem to much care.

In July of '04 and January of '05 ("Psst, the deficit's shrinking"), Wall Street cheerleader Larry Kudlow suggested that our deficit was shrinking. Being very charitable, I suspect that Kudlow's perspective was at a minimum myopic. He was certainly not looking at the fiscal '05 TREND at the time of those writings. Perhaps he was looking forward to April and what should have been, but apparently was not, a windfall in capital gains revenue generated from HIGHLY LEVERAGED profits in today's historical real estate bubble/mania. But then I guess it's the cheerleader's job to cheer even when their team is doing poorly. In my opinion regarding what the CBO calls the deficit, as Ann Richards might say, "You can put lipstick on a pig and call it Monique, but it's still a pig". Our annual increase in debt indicates the annual amount that we come up short from being able to pay our bills; or deficit.

The year of 2007 is on tract to record the 3rd or 4th highest deficit in our nation's history, but with the end of Federal Reserve system repo reporting, and the end of M3 reporting, it obscures just how much of the debt the Fed is simply printing away, or monitizing. Look at the explosion in M3 just prior to the Fed ending reporting of it. Today our government spends so much money that our debt mounts even in the heat of tax revenue received from the most highly leveraged orgy of speculation and greed in the history of the Republic; the housing bubble. Easing capital gains (some turned into losses) in housing does not bode well for revenues going forward. Meanwhile the interest time bomb on our national debt is in the process of exploding.

Click here for a chart comparing National Debt to M3 which seems to demonstrate considerable monetization of our debt. In one 8 week period ending September 30, 2005 the Fed increased the money supply by 182 billion. In the following 12 weeks to year end, by another 273 billion. This is over a 10% annualized increase to our entire money stock. To put these figures into perspective, it would appear that if the government sold all of the gold they claim to have today, at $500 per ounce, it would total less than 131 billion dollars, unless the Government has gold that this site doesn't account for. This desperate blizzard of housing bubble prop-up phony money is an indication that my debt projections are still most likely conservative, and that Kudlow and the "shrinking deficit" crowd are most likely GROTESQUELY incorrect.

Skyrocketing interest on our debt is particularly ominous since interest rates had been falling through 2003 to 40 year lows. Interest expense on our debt for fiscal 2006 totaled 405 billion, blowing away the next highest interest expense total in 1998 of 363 billion. Chart. Interest expense for 2006 composed a whopping 70% of our total on-budget deficit. At 352 billion last year it amounted to 62% of our total 2005 on-budget deficit.

Under Clinton/Ruben our 30-year bond was retired. A large portion of our national debt was moved into short term instruments. This helped to create a short-term reduction in the deficit because interest rates are lower on shorter-term bills and notes. The gamble paid off because continuing foreign interest in purchasing our debt allowed interest rates to drop through the period, although total interest paid was still going in the opposite direction to interest rates because of the mounting debt as shown in the chart below. What will happen to just this interest expense portion of our increasing debt now that the Fed has been raising rates in earnest, with T-Bill rates more than quadrupling between April of 2004 and December of 2005? How rapid will the impact of the increase in interest expense be now that average issued debt maturity is just 55 months with 51% being held by foreigners? I believe that interest expense on our public debt is bound to be one of the biggest topics of 2006.

(anchor) Even as interest rates plummet, interest paid to service our national debt skyrockets. While the 5 year note and Fed Funds rates dropped to less than 10% of their early 1980s highs, interest payments on our national debt more than tripled. Even with 5 year note rates dropping by 57% from 1999 to 2002 our interest payment over these same years dropped by less than 7%. What will happen if rates continue to increase from here, or even simply flatten out, with the current 55 month average maturity? That's an average of 4.6 years. Now look back 4.6 years on this chart of Fed Funds and you can see how the interest expense is going to mushroom as we move forward from the area of the lowest rates in 40 years, into our higher interest rate cycle. T-Bill rates have more than quadrupled between April of 2004 and December of 2005. Combine this with the astronomical increases in the underlying national debt that the interest expense is servicing, let alone the spending commitment of programs that haven't even kicked in yet, such as the Medicare prescription drug benefit soon-to-be-boondoggle.

During the week ending November 19, 2005 with 4-1/4% 5-year and 4-1/2% 10-year notes Larry Kudlow and guest indicated that they didn't think there would be too much of a problem with a 6% 10-year note. Looking at this chart of national debt interest expense, what do you think a doubling in interest rates (at least in the 5 year note) from March 2004 rates would mean?

As of the end of August fiscal 2006 interest paid on the Federal debt so far this fiscal year is a whopping 385 billion dollars. This blew away the former annual record total, set in 1997 of 363 billion, by over 20 billion dollars. As of August 31 this debt interest represented 66% of our nation's total on-budget deficit for fiscal 2006 of 583 billion.

Tragically, the average length of maturity of U.S. indebtedness has shrunk to around 55 months. The total interest paid still includes notes from a period in which the government enjoyed some of the lowest interest rates in 40 years. Since then T-bill rates and Fed Funds have tripled. Where should we suppose this leaves us for 2007, as our nation, and average debt maturity, settles into a period of higher rates?

I have read some that suggest that we don't need to pay back any debts at all, when we can simply monetize them. "Monetize the debt: Financing the national debt by printing new money, which causes inflation due to a larger money supply." Below is a chart that shows annual total increases of debt and M3, by the month. Note especially the rapid increases in M3 toward the end of the '05 fiscal year and the proportionately low increases (in fact decrease) in debt. Check out the Philadelphia Federal Reserve PDF on monetization.

The alternate or opposite increases and decreases of debt and M3 in the chart look like the classic rabbit and fox, or aphid and ladybug predator prey cycles. In regard to the resulting inflation, ask yourself if the overall purchasing power of your, interest earning, savings increased or decreased? In the housing market? At the gas pump? At the grocery store? In the commodity markets and particularly the gold market which is an inflation indicator? In the automobile market? In foreign countries or goods? Or in anything that we can't buy from the Chinese? Is it reasonable that government debt would be decreasing through the month of September '05 based on what you know, even anecdotally, regarding government spending post Katrina and Rita? Is this spending being financed by increasing government borrowing, or the creation of new money, that is, theft of your savings through inflation?

No wonder the Fed stopped publishing the figures for M3! In the first 3-1/2 months of fiscal 2006 the Fed increased the money stock by 320 billion - more than half of the total of fiscal 2005. Over 5 times as much as the same period in 2004. This is over a 3% increase in the entire M3 money stock of the United States, in 3-1/2 months. While the annualized rate of change may not be historically unprecedented, 3% of M3 as recently as 1997 was only half that much, at 150 billion. At the same time the volume of gold held by our treasury remains the same. To put the 12 week 300 billion dollar figure into perspective, it would appear that if the government sold all of the gold they claim to have today, at $500 per ounce, it would total less than 131 billion dollars. Need we wonder why gold is continuing its romp? Here's a table for M3 by the month.

"First, the federal government reported a $412.3 billion unified budget deficit and a $568 billion on-budget deficit in fiscal year 2004, representing approximately 3.6 percent and 4.9 percent of gross domestic product (GDP), respectively. Second, the U.S. government's reported liabilities, commitments, and other obligations grew by over $13 trillion in fiscal year 2004, primarily due to the enactment of the new Medicare prescription drug benefit, and now surpass $43 trillion, representing close to four times current GDP."

Further, simply projecting the CBO numbers using Microsoft Excel Growth Trend applied to the CBO table "at present value cost" totals 8.4 trillion over just the next 35 years, in 2004 dollars. And the White House said the CBO numbers only represented 1/2 of what the spending will actually be. Considering this increase in U.S. spending and future obligation, especially with current U.S. debt, would any responsible foreign government, making a purely business based decision, ever loan us money with even the faintest hope of being repaid? Looking at U.S. debt to income it is obvious that we are not going to "earn" our way out of this. As many Americans who are regularly spending their home "equity" will attest ("eating their house"), you cannot service exponential debt with linear income.

Both political parties are to blame. Prior to the elections the democrats proposed an even more ambitious prescription drug program than the republicans. The PRIMARY BLAME however lies with an apparent majority of Americans who expect the government to give them drugs, to be paid for by their next door neighbors. If this were not the case this Marxist proposal would have been exposed for what it is. We witnessed both parties shamelessly competing to see which could promise the most "free" medicine. And what about presidential vetoes?

"The federal government's gross debt as of September 2004 was about $7.4 trillion, or about $25,000 for every man, woman, and child in the country. But that number excludes such items as the gap between promised and funded Social Security and Medicare benefits, veterans' health care, and a range of other liabilities, commitments, and contingencies that the federal government has pledged to support. If these items are factored in, the current dollar burden for every American rises to about $145,000 per person, or about $350,000 per full-time worker."

"Once again, the trustees' reports confirmed that both the Social Security and Medicare programs are unsustainable in their present form. The trustees also noted that Medicare's financial difficulties are much more severe than those confronting Social Security. Furthermore, the new prescription drug benefit has singnificantly increased the federal government's commitments associated with the Medicare program. Specifically, in their 2004 report the trustees estimated the present value cost to the federal government of this new benefit over the next 75 years to be $8.1 trillion as of January 1, 2004. The trustees reiterated the message contained in their previous reports that action to address the financial difficulties facing Social Security and Medicare should be taken in a timely manner and that the sooner these financial challenges are addressed, the more varied and less disruptive the solutions can be."

Today's housing bubble appears to be accelerating to catch up with M3. We don't buy drugs from the Chinese either. Should we expect the growth rate in government drug financing to look like anything but an exaggeration of our national debt chart anyway, especially since Medicare is the primary debt growth culprit, according to the GAO report? Does anybody trust the CBO for honest numbers anyway? Why do you suppose it is, that they ended their projections after only the first 10 years? My guess is that the growth figures projected in the Excel projections are conservative by comparison.

In 1913 the power was given to central bankers to debase our currency and increase our supply of paper money at their whim via the newly formed Federal Reserve system. Discovering this fraud by the early 30s, Americans made a run on the banks to exchange their paper dollars for gold. FDR not only ended this exchange, but forced all Americans to turn in their gold, and made it illegal for U.S. citizens to own gold. The reason, of course, was that the volume of currency that had been issued had already dwarfed the volume of gold that, prior to 1913, had backed it, and could be freely exchanged for it. The increasing dependence of today's Keynesian balloon economies on the creation of evermore debased currency and easy credit is evidenced by the chart of M3, and projections based on historical rates are stunning.

Is it a surprise that the costs of U.S. housing have doubled in the last 9 or even 5 years in some areas, since our "money" has been diluted to 50% of its value (volume doubled) of just 9 years ago? Looking at the M3 chart from 1959-2004, is it any wonder that the candy bar that we used to buy for a nickel per oz. (Chunky and Almond Joy did cost a whole dime!) in 1960 now costs fifty five cents per oz.? It certainly has no more intrinsic value today than it did in 1960. "From 1985-2000, production of material goods in the U.S. has increased only 50%, while the money supply has grown by a factor of 3. Money has been growing more than six times as fast as the rate of goods production." To make matters worse, we've become consumers of imports rather than goods of our own production, with money that we don't have. As one union official put it "If empty containers were a trade item, they'd be America's leading export." Additionally during the 90s the American economy was converted into a service economy rather than one of production and wealth creation. The chart below (anchor) based on the Census Bureau table http://www.census.gov/foreign-trade/statistics/historical/gands.pdf shows what happened to our balance of payments as a result. Current: http://www.census.gov/foreign-trade/Press-Release/current_press_release/exh5.txt

PBS ran a Frontline show regarding the trade gap that demonstrated how seriously we have lost our manufacturing and have become relegated to being simply a raw material supplier of China. Much of the show focused on the global giant Wal Mart whose continuing success is perhaps one of the harbingers of global single-store commerce, at the expense of small business, and eventual global governance. We send the Chinese cotton, they send us clothing, we send them scrap steel they send us industrial machinery. The U.S. has, in other words, taken on the characteristics of a third world country. What none of these discussions ever seems to mention are the underlying reasons for what has happened. The first is our having exchanged our constitutional system of taxation through duties, for an income tax, in 1913. The second and larger reason is our having turned control of a formerly sound currency, backed by gold, over to the Federal Reserve also in 1913. The Federal Reserve is an arbitrary setter of value of a currency that is absent a sound basis. Since then, and particularly accelerating since the early 1960's, our currency has been inflated so dramatically that the price of our labor has become non-competitive in a global marketplace.

"Collectively, Japan, Korea, and China, including Taiwan and Hong Kong, produce essentially all of the world's ships, LCDs, and electronic components, two thirds of its consumer electronics, office equipment, appliances, and computers, and half of its steel, precision instruments, transport equipment, semiconductors, and machine tools."

"Paper currencies and the financial systems based on them come and go relatively easily, the capital and technological base for value-added industrial production, in contrast, takes generations to put in place. It is this hard-earned legacy, not a house of fiat currency cards, that will keep East Asia under the midday sun for years to come."

Above is a Microsoft Excel Trend Projection of historical M3 Growth beginning in 1995 with the trend projected from 2005 through 2024 (anchor). As you can see, at present rates of growth the volume of M3 money stock is projected to multiply by 2.38 times, over just the next 10 years and 5 times over the next 20 years. If you don't believe that Excel growth trend can be used this way I did a projection from 1959-1968, and projected it forward to 2004 here, and just missed the mark. Some might believe that the Fed can create as much phony money as they desire, without consequence. Perhaps they also look forward to their home "appreciating" by 2.38 times over the next 10 years. Maybe homeowners can all quit their jobs and live off of their home equity (eat their house), and let those unfortunate enough to be caught without a home totter off to work every day and do the heavy lifting. Somehow I don't believe the world works that way. In fact I will be so bold as to suggest that I believe that those who do not own homes will, before too long, be the ones that are increasingly envied (4-11-05). And bear in mind that gas for your car will also be 2.38 times higher IF the U.S. dollar stabilizes from here which is unlikely given the rate of M3. Bear in mind your new car will cost 2.38 times more too. Will your income keep up? The M3 chart above indicates that your home would have to be worth 5 times what it is today, in 20 years, just to keep up with money stock growth. Here's a chart of M3 vs Housing Prices. Here is a chart of M3 from 1959 to 2004 Excel growth trend projected forward to 2079.

USING THE U.S. TREASURY'S OWN FIGURES, THE TOTAL GOLD HELD BY OUR GOVERNMENT IS 261,557,123 TOTAL TROY OUNCES WITH A BOOK VALUE OF $11,043,517,160. EVEN FIGURING AT $500 PER OZ. THE TOTAL VALUE WOULD BE LESS THAN 131 BILLION DOLLARS. http://www.fms.treas.gov/gold/01-06.html By comparison, the M3 money stock went from 4.75 trillion to 9.5 trillion in just the last 9 years! During this period Greenspan created more money from nothing (FinancialSense.com) than all Fed governors and central bankers in the history of the U.S. combined, laying bare the obvious nature of the fictitious capitalism that resulted from our fraudulent currency via Keynesian economics and the Federal Reserve system. In the first 3-1/2 months of fiscal 2006 the Fed has increased the money stock by 320 billion - more than half of the total of fiscal 2005. Over 5 times as much as the same period in 2004. This is over a 3% increase in the entire M3 money stock of the United States, in 3-1/2 months. To put the 320 billion dollar figure into perspective compare it to the 131 billion dollars worth of gold held by the Treasury. The new Fed governor Ben Bernanke promised to drop cash from helicopters to illustrate how the Fed would react if the economy begins a deflation.

Christopher Mayer, writing for the Ludwig von Mises Institute, stated it well: "Faith that paper money itself was of any lasting value would have struck our forebears as patently absurd." To make matters a little worse we may have committed most of what little gold our country has left in the form of SDR certificates, and now simply store it for the Fed and the World Bank. As you can see from the M3 chart, Greenspan began the most recent exponential increase in the supply of "money" shortly after a slightly decreasing rate in the early 90's. The decrease was accompanied by recession and the subsequent first term ousting of what had been a historically unprecedented 90% popular president shortly before. What would happen if M3 slowed today? What would happen to housing or Freddie and Fanny (update 9-05: already happening to FRE and FNM)?

"In the absence of the gold standard there is no way to protect savings from confiscation through inflation. There is no safe store of value without gold. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the hidden confiscation of wealth. Gold stands in the way of this insidious process that stands as a protector of property rights." - Alan Greenspan - 1966

We're not alone. All currencies in the world today are debased frauds. The Swiss Franc was the last to go just a few years ago. Relative value simply depends on who is most willing to expand their currency supply the fastest partially in search of, elusive in our case, exports. Our dollar weakness may indicate that we are forced to expand our money stock more rapidly than other countries to keep our massive financial real estate bubble inflated. What makes it worse today is that it can all be created and shipped digitally so paper doesn't even need to be printed. Some countries, such as Indonesia and some in the Middle East as well as India and China are accumulating gold and silver. Gold is the money of Islam. Paper money is the currency of infidels. For many of these countries their citizens have always kept or hedged in metals because they have experienced periods of economic and currency instability. From the early 1930s until the 1970s it was illegal for U.S. citizens to do the same. However today we can even buy it electronically, or from our stock broker if you trust these kinds of instruments.

Keynes on Lenin ("The Economic Consequences of the Peace") "Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

And again: "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. – As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery."

Trouble for the U.S. began under Woodrow Wilson's administration, that was responsible for the implementation of both the Federal Reserve which spelled the beginning of our debased currency, as well as the institution of a formerly unconstitutional income tax, which replaced tariffs as the primary source of funding of our Federal government. From the very beginning income taxes were Marxist taxes based on revenge and taxed only the wealthy. Ending tariffs at that time resulted in the interest of U.S. businessmen and entrepreneurs to go offshore in search of lower production costs of their goods, to import back into the United States, causing the loss of jobs and the movement of U.S. wealth/capital to offshore jurisdictions, which ultimately helped to result in the financial collapse of the late 1920s and 1930s. Some of the targets of the tax, wealthy industrialists, simply turned into central bankers and started stealing their fortunes in a less conspicuous fashion instead.

The Federal Reserve (a private banking organization that has nothing to do with our Federal Government) may be able to set interest rates going forward, up until the little boy points his finger and cries "The Emperor has no clothes" regarding our increasing inability to repay our creditors with anything other than a blizzard of phony currency. From that point on the marketplace will brutally set interest rates up to "banana republic" levels, which we will be required to offer to finance our debt, because the rest of the world will correctly perceive that our gutless spendthrift politicians, encouraged by an ignorant Marxist media, will continue to overspend and ultimately be unable to repay, which will render the Fed absolutely helpless. Today ten-year notes are the longest term instrument that our government can use to finance its debt. Currently 35% of our debt is shorter than 3 years in term. What will happen if rates simply return to those seen as recently as the early 1990's? Adjustable rate mortgages at the time ran up to over 9% (I know because I had one). Doubling Fed Funds would not seem unreasonable looking at the chart below (anchor) (from economagic.com updated June 06):

On October 18, 2005 the house passed, by 2 votes, spending increase reductions of 50 billion, OVER 5 YEARS. With budgets in trillion figures this is absurd, and it was laughably a contentious battle. The cuts in increase apparently made them feel so warm and fuzzy that the same day they voted themselves a $3100 pay raise. Update 2-3-06 - the Senate version cuts 70 billion over 5 years - 12 billion per year - whoopie ding. It should seem obvious from the debt chart above that anyone who looks at our exponentially increasing deficits and debt, and then blames any single politician or administration over a short term, is either lying or ignorant. This has been baked in the cake at least since Wilson and Roosevelt, and additionally Johnson. Certainly the liberal Bushs and Clinton spending didn't help matters any.

While there was a brief easing in the ballistic nature of the public debt chart at the end of the last century, it was a result of capital gains realized on sales of vacuous bubble Internet companies like pets.com, and mania inflated issues like Nortel, Lucent, and JDSU, some selling for 50 or more times their eventual lows, accompanied by massive liquidation of real estate and capital assets plus accelerated spending on I.T. and computer remediation and replacement because of Y2K concerns. Th