Posted on 08/23/2008 7:14:45 AM PDT by kellynla
The U.S. government, like so many creaky monarchies and dubious regimes in history, may be conspiring to repudiate its own debt, suggests a former vice president at the Federal Reserve Bank of Dallas.
U.S. Treasury debt obligations have long been considered the most secure and most certain of repayment in full, including interest. It's part of the reason the dollar has stayed strong, and why the United States has been able to borrow so much, so cheaply, for decades.
Increasingly, that trust is for the first time becoming questionable.
"Congress, with the complicity of the White House and the Fed, has arguably embarked on a stealth repudiation," warns Gerald P. O. O'Driscoll Jr., writing in The Wall Street Journal.
Although not predicting that the government will default on its obligations, O'Driscoll writes that U.S. debt will be met through what famed economist Adam Smith, author of The Wealth of Nations, called "pretend payments."
In other words, debts would be repaid through deliberately uncontrolled inflation, according to O'Driscoll, now a senior fellow at the Cato Institute. That means Uncle Sam will be paying back its borrowed money with debased dollars, the so-called "pretend payments."
In their successful fight against inflation, President Ronald Reagan and then-Fed Chair Paul Volcker were greatly assisted by "bond vigilantes," who bid up interest rates on bonds to 10 percent and more.
The high cost of money and low taxes during that era ignited an economic boom, says O'Driscoll, and beefed up the Fed's credibility. The message: In its efforts to control inflation, the Fed won't cave to political pressure.
Fed Chairman Alan Greenspan continued to keep a lid on inflation, although inflationary currents were mild during most of his tenure.
Now, Fed chief Bernanke pursues an "easy money policy with inflation already picking up," says O'Driscoll.
(Excerpt) Read more at moneynews.newsmax.com ...
What do they say- if you owe the bank a hundred bucks, you have a problem. If you owe the bank a billion bucks, the bank has a problem.
If it all goes down badly, let the central banks try to collect. We still have ammo.
Thanks. WIll go find this treaty of Avalon. Years ago, I read the Trafficant pieces he let fly just before going to jail. There’s some interesting historical references in there, if they’re still around somewhere.
I had a discussion the other day about Colonial Scrip and Franklin’s record of economic tensions between the colonies and the Bank of England- which according to Franklin, was the actual cause of the Revolution.
Amazing how popular American history has been sanitized of the history of banking.
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