Yip, we run the biggest ponzi in the history of the world says Obama aide

What's up doc?

President Obama’s Chairman of the Council of Economic Advisers, Austan Goolsbee, had a little Freudian slip this week when in comments about the possibility that Congress fails to vote to lift the US government debt ceiling higher than the current $14.3 trillion ($14,300,000,000,000), he said it would have “catastrophic consequences” as this would be “essentially defaulting on our obligations.”

This is admittance by Goolsbee that the US government runs a ponzi scheme, because what he says is that if the government cannot borrow more money to pay off debts falling due, the government would “essentially default on our obligations.”

Indeed, we have been arguing for a while that the US government – through the Fed and Treasury – runs the biggest Ponzi scheme in the history of the world. The vilified Bernie Madoff is small fry compared with the well over $14 trillion fraud that has been pulled on the American people.

This is not only limited to America. Europe, the UK, and Japan are all in the same boat. These economies are insolvent, and if you take away central banks that have the power to print money and lend it to governments through the commercial banking system, these governments would go bankrupt overnight and interest rates would skyrocket, crushing all sectors that have been inorganically inflated and pumped up by monetary and fiscal stimulus over the past few decades.

There is no way of making these debts disappear. These debts must be and will be paid for in the future. All that can be altered is who will pay for these debts. There is no free lunch here.  In Goolsbee’s words there are “catastrophic consequences” ahead, as the government will default through the currency and lump the bill on the unaware household’s doorstep.

At the moment, developed economy governments are ‘paying’ for these debts through monetary inflation. Money printing debauches the value of the currency, which allows governments to pay off their debts in money that is worth less than the oustanding debt.

Confusing? The privilege given to governments of being able to manipulate the currency like this is in an economic sense exactly the same as a homeowner being allowed to print the currency in his basement with which he pays for his home loan. This is exactly what Goolsbee meant, if they can’t print currency in their Washington basement to pay for their debts, they will have to default.

What is not yet seen or understood is that when governments create inflation to reduce the value of their real debts outstanding, the burden of paying for the debt falls on consumers who must pay higher and rising prices for everything else in the economy. As the value of the money falls, the prices of things in terms of that money rises.

The petrol price hike in South Africa this week is one example. Rising food prices is another. So too rising clothes prices. South Africans, whether we like it or not, will settle the debts of the American government if the SA Reserve Bank decides to devalue the Rand alongside the dollar.

The best protection South Africans will have against this fraud is if the SARB leaves the Rand the hell alone and lets it strengthen as it is wont to do. But even then, we fear we are already too deep down this path of monetary debauchery in the fractional reserve fiat monetary system and the day of reckoning will hit South Africans severely too.