Funding by Theft

Infrastructure needs in the U.S. have been put at upwards of $3 trillion. This is money needed now. And of all the billions Washington will spend, this will actually help our children by retaining a first class infrastructure vital in a competitive global economy.

Infrastructure spending is a win-win because it may create debt but it stimulates the economy. Unlike virtually any of the borrowing (which is now over 1/3 of all federal spending) passed on to the next generation, the improved infrastructure will still be there if it’s done right.


“On December 4, the last day the Department of Transportation was authorized to cut checks for highway and transit projects, President Obama signed a 1,300-page $305-billion transportation infrastructure bill that renewed existing highway and transit programs. According to America’s civil engineers, the sum was not nearly enough for all the work that needs to be done. But the bill was nevertheless considered a landmark achievement, because Congress has not been able to agree on how to fund a long-term highway and transit bill since 2005.”

Money is not there. The spending has drained the cash reserves and according to the article the Federal government must reach into bank deposits.

Mike Rivero at, who provided the link, has described the money issuing process as one where:

“The moment that first pretty-printed piece of paper goes into circulation, more money is owed to that private central bank than actually exists, which means the debt can never be paid off.” [link]

Rivero doesn’t mind that the money for this recent highway bill is being drained from bank coffers. I disagree; governmental theft (evidenced in singular, ad hoc events like this money grab rather than systematically, through taxation) will get ever worse. Once emboldened by getting away with it, the federal burglar will move on to other asset targets.

Creating money can be done for virtually nothing. As the article says, Lincoln issued greenbacks to pay for all kinds of things. The Nazis made interest-free loans to small businesses a part of their economic package, and it worked, cementing an economic recovery and political credence with the middle class.

No interest need be paid! There’s nothing that says new money need come with a cost added on top.

It must come as shocking news: there’s no reason that borrowers have to pay any interest at all. Henry Ford perhaps said it best when he said that if Americans knew how their monetary system worked, there would be revolution by morning.

The banks, a for-profit entity, make a juicy target but as Rivero says there is no eleventh marble. If no new net money is coming in, then the whole system croaks because it is dependent on new money being lent–at interest–, and the consumer is tapped out.

If the system released money without interest, then money would have less value. The Federal Reserve is there for a reason–ostensibly to protect our money supply from devaluation through inflation.

Interest rates do attach a value for money, bestowing a value beyond what it buys. With higher interest rates, less money is available to lend, and lending to consumers has been a mainstay for many years.

Now the average consumer is simply not buying like they used to, reflected in declining global trade and retail sales, with exceptions. Because the economy is 70% based on consumer spending, when that goes so too does lending, and no new money comes in.

The Main Street economy simply doesn’t have the means to grow, so taxation will have to climb. In a cruel replay of the 1970’s, when the Rust Belt spread across the industrial economy of the American Northeast, where businesses were shuttered and the shrinking tax base forced further relocations due to higher tax burdens.

What are the lower levels of government to do? The Federal Government can plunder the banks. It can force the Federal Reserve to buy its bonds. But where is there actual money coming from? I mean the government has so much debt that more and more tax revenue will have to go into servicing that debt.

That raises the strong possibility of hyper-inflation. Once prices rise–they aren’t now, at least uniformly–the temptation to create more and more money will be there. We saw this in post-World War I Weimar Germany.

Debasement of the currency an happen slowly but if the money simply isn’t there, the currency will go from slower debasement to more rapid devaluation. This scenario is made more likely if interest rates rise. Interest could cost upwards of a half-trillion dollars per year for a climb in rates of just a percentage point higher. (Not a bad profit for holders of the newly issued debt–and an attractive target for governments requisitioning like they used to pay for this Highway Bill.)

One scenario is a hyperinflationary depression. I’d describe that as money-creation used to avert the effects of a shrinking economy. The more money that is produced/distributed/lent to meet the terms of the loan, the less future purchasing power that money will have. So creditors will want more interest in return for for their loans, which should in theory slow down the spending.

But a Keynesian approach makes government the spender of last resort. If people aren’t making or spending more, then the government is supposed to step in and stimulate the economy through deficit spending. But the government budget has been in deficit for so long–even the Clinton years saw budget shenanigans–that borrowing has become standard practice. Add in normalcy bias–that the government will always be able to sell its debt–and a recipe for disaster stews on the stove top.

The predilection to spend, combined with the Citizens United takeover of Federal Government lobbying means that we can’t stop spending. Our government is a debt addict in denial whose can only be stopped by a complete cutoff of all credit.

Instead the debt addict has a money machine in the back, and they’re leaning on the Federal Reserve to keep the money coming. The Fed is clearly co-dependent on the Feds–without Congressional approval, the Charter of the Fed could be revoked.

The relationship between bankers in this system of money creation has brought them a level of control through the interest rate mechanism. But as I’m discovering, the Federal Funds Rate (FFR) may be decoupling from other debt instruments, notably Floating Interest Rate debt.

The Floating Interest loans move in value but are a recent creation. It’s unknown how all the private money out there will react with changes in interest rates, which changes in the FFR are meant to send in one way or the other.

The key axiom in lending to the government is the presumption that the government can just print money up to meet its obligations. Putting the Federal Reserve in the middle–between the government and its money–has let the banks profit from government borrowing, yes, but it’s also been key in limiting government spending. If money can be spent in infinite quantities by the government, it’s been proven I think, it will be overspent and too much will be borrowed, forcing a default or hyperinflation.

The shortening gaps between federal funding crises that we’ve been experiencing (budget brinkmanship) has raised the risk of a default. Being co-dependent, the Federal Reserve will need to feed its addict brother some cash or decides–at great risk to itself–not to come up with the cash.

The banks do make a juicy target. This is something the “great minds” in the financial industry have forgotten–the long-term. Addictions grow over time, and the denial forces a spiral of delusion. The addict–in this case Washington with its many troughs and tentacles–will never admit the scope of the problem.

Whatever hope of self-control we had is gone. Fiscal conservatism has been replaced by social conservatism, which capitalizes on our differences, to make us easier to rule. The Establishment is incapable of restraint–whereas in the past it might have been able to contain the beast, now it must service the addict’s growing hunger.

Addressing the temptation to overspend, the article says:
“The reality is that nearly all hyperinflations stem from a collapse of foreign exchange as a result of having to pay debt service.”

So we need not worry about the spending as much as the debt, but the spending simply won’t be able to continue. The money simply isn’t there. In a waning economy, sources of revenue dry up; the government will go searching to plunder other sources of revenue, calling it a tax.

Any incoming revenue will go to pay the interest on the debt. Like a debt junkie, the government will rob Peter to pay Paul. At some point borrowing will not be enough. Stealing will be the only way the federal machine will be able to get its fix and keep it rolling, til it’s time for another fix. With all the endless wars, massive medical cost rises (esp. Medicare.), Social Security insolvency, etc., which of these is Peter and which is Paul?


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