Dec 4, 2014 Posted by AGA Editor

Is The Federal Reserve A Ponzi Scheme?

Treasury Issues $1T in New Debt in 8 Weeks—To Pay Old Debt

The Daily Treasury Statement that was released Wednesday afternoon as Americans were preparing to celebrate Thanksgiving revealed that the U.S. Treasury has been forced to issue $1,040,965,000,000 in new debt since fiscal 2015 started just eight weeks ago in order to raise the money to pay off Treasury securities that were maturing and to cover new deficit spending by the government.

During those eight weeks, Treasury took in $341,591,000,000 in revenues. That was a record for the period between Oct. 1 and Nov. 25. But that record $341,591,000,000 in revenues was not enough to finance ongoing government spending let alone pay off old debt that matured.

The only way the Treasury could handle the $942,103,000,000 in old debt that matured during the period plus finance the new deficit spending the government engaged in was to roll over the old debt into new debt and issue enough additional new debt to cover the new deficit spending.

This mode of financing the federal government resembles what the Securities and Exchange Commission calls a Ponzi scheme. A Ponzi scheme, is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.

With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.

Every week the U.s. rolls over approximately $100 billion in U.S. bills. If U.S. bondholders decided that they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire cash balance.

There is no option other than raising the debt limit that permits us to meet all of our obligations. It is impossible to pay back the current debt we have.

At the end of November, the total debt of the federal government was over $18,000,000,000,000.

If the Treasury were forced to convert the $1.4 trillion in short-term bills (on which it now pays an average interest rate of 0.056 percent) into 30-year bonds at the average rate it is now paying on such bonds (4.919 percent) the interest on that $1.4 trillion in debt would increase 88-fold.

Are you awake Yet?