Article 43
Wednesday, May 10, 2023
Why The US Should Declare Bankruptcy
The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.
- Ron Paul, January 2023
Doug Casey on the Debt Ceiling Farce and Why the US Should Declare Bankruptcy
By Doug Casey
International Man
May, 2023
International Man: The US federal government has raised the so-called debt ceiling 104 times since 1944.
Shouldn’t they call it a debt target instead of a debt ceiling?
Is this whole thing a farce?
Doug Casey: The situation is completely and irredeemably out of control. It’s a farce. Quite laughable, except for the fact it’s so deadly serious.
Can they reduce the debt ceiling or the amount of debt? Or even slow down its growth at this point? No.
The situation is beyond redemption because most US government expenditures go to pay entitlements - Social Security, Medicare, Medicaid, food stamps, and numerous other types of welfare.
Those things will be very hard to cut at this point; breaking the doggy dishes of millions of corrupted Americans would cause unrest. Plus, the so-called “defense” budget, which mostly supports the military/industrial complex while fomenting conflict. Its actually much larger than disclosed because it should include $50 billion of foreign aid, the cost of running outrageously large embassies over the world, the CIA, and black budgets of all types.
Meanwhile, all US government agencies are bent on expanding themselves. The bureaucrats who run them realize that if they don’t grow the budget every year, they reduce their chances of going from one GS level to the next. Their success is based upon managing more people and spending more money. Naturally, all these agencies grow like cancers.
As a result, the “debt ceiling” is a fiction. It will stay out of control unless there is a total reorganization of the government - which itself would be risky. And that’s not going to happen until we have a financial catastrophe that leaves absolutely no alternative.
International Man: You have previously stated the US government should default on the national debt.
What are the reasons for that?
Doug Casey: I know it sounds outrageous to propose the US government default on its national debt. Of course, they don’t think it will ever be necessary because, as several high-level government officials have pointed out, they can just print money to pay off the debt.
However, I disagree. What are the reasons for doing something as seemingly catastrophic as defaulting on the debt? I"ll give you at least five. Stick with me. Let’s conduct an outrageous but not unreasonable thought experiment.
First, barring default, future generations of Americans will be turned into serfs to pay off the debt. Profligate people have run up the debt, but everybody’s children and grandchildren are stuck with having to pay it off. That’s simply immoral. If you have any care for the future at all, future generations should be saved from becoming serfs to pay it off.
Second, it would punish the enablers who lend the US government money. People who lend the US government money facilitate it by doing all the stupid and destructive things it does. They shouldn’t be rewarded; they should be punished.
Third, official default is better than the alternative. Its like a hundred-story building that’s about to collapse. If that’s the case, should you wait until it collapses randomly and unpredictably, or should you have a controlled demolition? It’s not a pleasant alternative, but its the better alternative.
Fourth, default would make further borrowing on the part of the US government impossible, at least for a while. It would be exposed as an untrustworthy entity, like the Argentine government, which defaults all the time. People would still idiotically lend it more money, but a default might slow down the rate of increase in the US government’s size.
Fifth, it’s almost necessary that the debt goes away to help de-financialize the US economy. The US is tremendously over-financialized. It’s all about buying, selling, creating, and packaging financial instruments. Government debt, with the help of the Fed, is the actual engine of inflation. Defaulting on the national debt would pave the way for the reinstitution of a sound, redeemable, commodity-based money. People would have to concentrate more on real wealth than phony financial wealth, actual engineering, as opposed to financial and social engineering.
Of course, an objection reasonable people would make is: “If you default on the debt, it’s going to be a catastrophe.”
My answer is that just because all the paper debt of the US government goes away doesn’t mean the real wealth in the world will disappear. The farms, factories, technologies, and the skills of the workers, will still exist. But on a sound foundation. And with some new owners.
Furthermore, Id point out that the US Government isn’t “we the people.” It’s become a discreet entity with its own interests, like a giant corporation. If it declares bankruptcy, it’s a problem for its employees and clients much more than for you, the taxpayer.
Those are some of the arguments I’d make for defaulting on the national debt. But it’s just a rather academic thought experiment. The powers-that-be will prefer to build the current house of cards higher, probably propping it up with FX controls, Central Bank Digital Currencies, a Social Credit System, much higher taxes, more inflation, price controls, and god knows what else in the years to come.
The default will happen, but more gradually, through the subtle fraud of inflation, which is actually the very worst and most dishonest way to default.
International Man: Paul Krugman and other mainstream economists have proposed the US government issue a trillion-dollar coin to buy up the federal debt.
That “serious” people can put forward such a clownish solution illustrates that it’s all a ridiculous charade.
What is your take?
Doug Casey: When you’re using funny money as a substitute for real money, it’s inevitable that soothsayers will come up with ridiculous solutions. Krugman isn’t an economist; hes a political apologist. And a fool. He doesn’t describe the way the world works, but the way he’d like to make it work - using coercion and fraud, not voluntarism and the market. Every idea he has is so stupid that it’s criminal.
The solution to this problem is to go back to a commodity money. Money should be, once again, just a medium of exchange and a store of value. It could no longer be used as a political football.
And the US government should be cut in size by 50, 75%, or 95%. Who knows how deeply you can cut the size of the US government until you try doing it? But it’s necessary, at least if what’s left of the idea of America is going to survive.
Using commodity money will, itself, greatly downsize the US government. The US State has become a behemoth and a parasite. It’s a far bigger danger to the average American than the Russians, the Chinese, the Iranians, or all of them together. Returning to sound money and a tiny government would make for a more pleasant, prosperous, and safer world - although the process of doing it would be unpleasant for some people.
On the bright side, the only people who will be seriously hurt are the parasites living off the government. I say to hell with the parasites. They should be inconvenienced.
International Man: It’s hard to believe the US government was ever debt-free.
But it happened once - in 1835 - thanks to President Andrew Jackson. He was the first and only president to completely pay off the national debt.
Jackson also shut down the Second Bank of the United States, the precursor to the Federal Reserve, the US’s current iteration of a central bank.
It’s unthinkable a modern US president could or would do such things.
Given the practical reality of the world today, where do you see the federal debt going, and what are the implications?
Doug Casey: It was wonderful that Andrew Jackson paid off the national debt, something that Alexander Hamilton, with his warped ideas of economics, sold to the country. But it’s now absolutely impossible to pay off $32 trillion of acknowledged debt, scores of trillions of contingent liabilities, and scores of trillions more of unacknowledged debt.
I’d like to point out that there actually have been previous defaults by the US government. For example, Abraham Lincoln, during the War between the States, defaulted by printing up so-called Greenback currency.
Roosevelt defaulted on the debt by fraudulently devaluing the dollar, raising the price of gold from $20.50 to $35, but only after confiscating it from citizens. That was a default. Then there was Nixon, in 1971, defaulting on the promise to pay foreign governments at $35 gold. Now the dollar is only worth 1/2000th of an ounce of gold.
International Man: Is there any way to turn lemons into lemonade and profit from this situation?
Doug Casey: Let’s not sugarcoat the situation. The real question is how to profit from the collapse of an overextended and corrupt empire.
It makes sense to look at the historical precedent, like the Roman Empire. Was there any way to profit from the collapse of the Roman Empire? Well, some people did, I suppose. But the standard of living collapsed for almost all its residents during the ensuing Dark Ages.
Is there any way to profit from the collapse of Western civilization? That’s so serious that it’s almost like asking whether it’s possible to profit from an asteroid hitting the Earth. The best you can hope to do is insulate yourself as much as possible.
At this point, the best way to be hurt least, or possibly even profit within a very bad scenario, is to own gold, silver, and other commodities. And to improve your skills as a speculator. Remember, most of the real wealth in the world is still going to exist; it’s just going to change ownership.
Editors Note: We’re on the cusp of a global economic crisis that could eclipse anything we’ve seen before. Most people won’t be prepared for what’s coming…
That’s precisely why bestselling author and legendary speculator Doug Casey and his team just released this urgent PDF REPORT ON HOW TO SURVIVE and thrive in this chaotic environment. Click HERE to download it now.
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Dollar Hegemony, Saudi Arabia, Oil, and Ron Paul
By Adam Dick
Ron Paul Institute
January 18, 2023
Interviewed Tuesday at Bloomberg, Saudi Arabia Finance Minister Mohammed Al-Jadaan indicated that Saudi Arabia would be open to conducting trade, including involving oil, in various currencies - mentioning in particular the euro and the Saudi riyal - instead of the United States dollar. This is the latest in a series of developments suggesting the Middle East nation and large oil producer is shifting away from supporting US dollar hegemony through trade.
In February of 2006, then US House of Representatives member Ron Paul (R-TX) discussed the history of US dollar hegemony and its looming doom in a House floor speech titled “The End of Dollar Hegemony.” Paul began his speech with his assessment that the dollar dominance, called dollar hegemony more recently and dollar diplomacy in earlier decades of the prior hundred years, is “coming to an end.”
The full history and analysis Paul related in the speech is fascinating. But, there is a particular portion of Paul’s speech that relates to the Saudi finance minister’s comment. This is when Paul focused on the key role the trade of oil has played in supporting dollar hegemony and the related position of the US dollar as the world reserve currency.
Paul explained that after President Richard Nixon removed the final link between gold and the US dollar in 1971, backing of the dollar with oil became key to maintaining dollar dominance. Paul stated:
It all ended on August 15, 1971, when Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold. In essence, we declared our insolvency and everyone recognized some other monetary system had to be devised in order to bring stability to the markets.
Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it not even a pretense of gold convertibility, none whatsoever! Though the new policy was even more deeply flawed, it nevertheless opened the door for dollar hegemony to spread.
Realizing the world was embarking on something new and mind-boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence “backed” the dollar with oil. In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite the radical Islamic movement among those who resented our influence in the region. The arrangement gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as dollar influence flourished.
This post-Bretton Woods system was much more fragile than the system that existed between 1945 and 1971. Though the dollar/oil arrangement was helpful, it was not nearly as stable as the pseudo- gold standard under Bretton Woods. It certainly was less stable than the gold standard of the late 19th century.
Come the 1980s, Paul proceeded to state in the speech, additional support was provided to help maintain dollar dominance. Nonetheless, the “petrodollar” system remained a critical support for dollar dominance. Indeed, Paul commented: “If oil markets replace dollars with Euros, it would in time curtail our ability to continue to print, without restraint, the worlds reserve currency.”
That removal of the dollarҒs dominant role in oil markets is just what the Saudi finance minister is suggesting.
And the dollar has already been pushed aside significantly in the oil trade over the last year in reaction to US and several other nations’ sanctions on Russia, including on the large Russian oil and gas industry.
Paul, in his speech, describes the US as having been willing to pursue a series of foreign interventions in its decades-long effort to maintain the petrodollar system. It leads one to wonder what is in store as the petrodollar system’s crumbling seems to have much accelerated.
Turbulence is ahead. But, ultimately, Paul proposed in his speech, the end of dollar hegemony could make way for what he describes as a better system. Paul concluded his speech by stating:
Using force to compel people to accept money without real value can only work in the short run. It ultimately leads to economic dislocation, both domestic and international, and always ends with a price to be paid.
The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or Euros. The sooner the better.
Copyright © 2023 by RonPaul Institute. Permission to reprint in whole or in part is gladly granted, provided full credit and a live link are given.
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