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U.S. Government Squanders “Trust Funds”

Articles & Blogs - US Commentary

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A recent reader-comment - asking me for the source of some of my data - caused me to realize that I had neglected to tap-in to that source for quite some time. In this case, my “source” is Michael Hodges – who has put together a superb reference site with not only many categories of charts and data on virtually every aspect of the U.S. economy, but also insightful analysis – identifying the most serious economic problems which will confront the U.S. in the future.

His web-site, Grandfather Economic Report, should be bookmarked by every American who is suspicious of the “statistics” produced by the U.S. government, as well as its assurances that “everything is under control”. While there are numerous topics which could form the basis of a revealing commentary, in this case I chose to focus on his research showing the obscene degree to which the U.S. government has been pillaging its (so-called) “trust funds”.

I have referred (on many occasions) to the robbery by the U.S. government of trillions of dollars from the “surpluses” of the Social Security “trust fund”. Not only does Mr. Hodges put a precise price-tag on such theft, but he also reports on the other government “trust funds” which have been sucked-dry by the U.S.'s reckless, two-party dictatorship.

In previous commentaries (most recently "Obama continues peddling fantasy deficit numbers"), I have referred to how these two parties have colluded to lie to Americans about the size of the “official deficit”, year after year after year – with whichever of the two teammates is currently in power allowed to pretend that the “official deficit” is only half as large as it has actually been. I have also pointed out that when you compare the “official deficits” to the Treasury Department's once-a-year calculation of the deficit using GAAP accounting (the same accounting rules which all U.S. corporations are required to use) that the “official deficits” have represented as little as 5% of the true increase in debts/liabilities of the U.S. government – with those true deficits averaging more than $4 trillion per year.

With the U.S. economy now in a Greater Depression, and government revenues having collapsed, we can expect the true deficits to now regularly exceed $5 trillion per year. Most of the collusion between the two parties with respect to the “official deficit” is simply lying. During the Bush regime, that government reported more than $2 trillion of “off-balance sheet” surpluses for the U.S. government over those eight years – which supposedly reduced the U.S.'s deficits to the fictional totals reported. None of that money existed.

However, an equally important part of this campaign of lies has been the collusion between the two parties to never mention how much money both parties have stolen from government trust funds over the last two decades. Here are the horrible details which have been hidden from the U.S. public.

A total of $4.2 trillion has been pillaged from U.S. government trust funds. However $3.4 trillion of those thefts have taken place during the last 17 years (1991 – 2008), with the amount that is being stolen this year not yet known. This is an average theft of $200 billion per year. This lying is already serious enough to constitute a national scandal, but it gets worse.

There no provisions in future government budgets to ever repay the trillions that have been stolen.

When I and other commentators talk about the U.S. government cheating its creditors by either defaulting on its debt, or to devalue the U.S. dollar to such a degree that creditors only get pennies back on their debts (assuming that one day the U.S. actually repays a penny of that debt), the assumption has always been that the U.S. would be cheating foreign creditors. However, as Hodges points out, nearly 40% of that money is owed to Americans – in future entitlement payments (part of the $70 trillion, or so in “unfunded liabilities”).

Of that stolen money, $2.2 trillion of that money has been embezzled from the Social Security trust fund. The reason why that fund had such a large surplus (past tense) is that for more than 50 years the U.S. government has known there would be massive draw-downs on that fund when the baby-boomers retire.

This is what makes it such a cruel joke each and every time a U.S. politician muses about “fixing” Social Security. The truth is that far from trying to “fix” Social Security, it is recent U.S. governments which broke this system – and they do more damage every year by plundering hundreds of billions more.

This is also another example of how the U.S. economy has degenerated into one, large Ponzi-scheme. The only way that present operations can be continued is by stealing more and more money that had been set aside for future spending obligations. The alternative would have been to try to dump $4.2 trillion more in U.S. Treasuries – onto a global market which is already over-saturated with U.S. debt.

As I pointed out in a recent commentary (“Foreign investors FLEE from U.S. debt”), recent “TIC reports” (the flows of capital into/out of the U.S.) show that this year, instead of the usual $100 billion per month (or more) of foreign capital which used to flow into the U.S. economy that foreign entities are now dumping U.S. debt at the greatest rate in history.

Thus, if the U.S. government had tried to cram $4 trillion more down their throats it would have surely failed – unless it would have jacked-up interest rates by enough percentage points to bribe foreigners to take on more U.S. debt (and more U.S. risk). However, as I have also pointed out, with the U.S. carrying more than $57 trillion in total public/private debt (another stat from Hodges' site), every 1% increase in interest rates drains more than $500 billion per year from the U.S. economy – roughly equivalent to a 5% reduction in GDP.

What this means is that if the U.S. government had not stolen this $4.2 trillion from Americans that it would have had to simply print-up another $4.2 trillion of Federal Reserve “Monopoly money”. The consequences of flooding the world with that much more U.S. currency would have been equally severe to bribing foreign investors to buy more Treasuries.

This extreme dilution of the U.S. dollar would have resulted in a devaluation somewhere in the neighbourhood of 30% to 50% lower than it sits today. Since this concurrently devalues the real worth of all assets denominated in U.S. dollars, Americans would have still had over $4 trillion stolen from them – it would have just occurred in a different manner.

Imagine the rabid rhetoric which would emanate from the U.S. government if Al Qaeda had managed to somehow steal $4 trillion from the U.S.! Undoubtedly that would have meant yet another war on some hapless scapegoat. I have stated to my American friends (privately) on many occasions that the U.S. government is a much worse “enemy” of the American people than Al Qaeda would (or could) ever be. However, this is the first time I've been able to back-up that assertion with a specific dollar amount.

More than 200 years ago, residents of what were then British colonies revolted against a government which they saw as stealing the fruits of their labour – simply to fatten itself (and fund its wars).

More than two centuries later, Americans now have a government which steals much more from them than the British monarchy ever did. Not only does it use its ill-gotten gains to fund even more wars, but to add injury to insult, it also sends off Americans to die pointless deaths in these contrived and unnecessary military conflicts.

With virtually nothing left to steal from the “trust funds” of Americans, the U.S. government is now forced to solely rely upon “Plan B” - to “fund” its huge, structural deficits: simply printing-up more Bernanke-bills by the trillions.

While clueless and complacent foreign governments have somehow remained oblivious to the “shell game” which the U.S. government has been playing with its annual deficits over the last two decades, they certainly will notice when the Federal Reserve floods the market with trillions more U.S. dollars every year.

We cannot fail to remember, however, that over this period of time the U.S. government has been little more than servants to the Wall Street oligarchs. The trillions in debt which the government has racked-up correspond with trillions in added wealth for the bankster oligarchs. The destruction of the U.S. economy by Wall Street is almost complete. The death of the U.S. dollar will be their final “nail” in the U.S. coffin.

Comments (2)Add Comment
Jeff Nielson
written by Jeff Nielson, October 06, 2009
Realist, it also illustrates when you start lying (and stealing) in relatively small increments how HUGE those lies and thefts can get over time - much like the metaphor of the lobster who doesn't realize its being boiled-alive if the temperature is turned up slowly.

For me, the real "disconnect" from reality is the view (unique to the U.S.) that "selling bonds" is NOT the same thing as borrowing money. I had to laugh when I discovered that the requirement that U.S. states "balance their budgets" EXCLUDED the "sale" of bonds - no matter how many BILLIONS of dollars worth was peddled.

Debt is NOT a "trade good". I see this as BY FAR the most difficult concept for U.S. political and business leaders to grasp - as a new, "world order" in the global economy is created.
written by realist, October 06, 2009
What is so depressing about this situation is that it has been going on for decades across two generations. It started with LBJ's administration and continued forward with no stop. It was rare for anyone to speak out against this spending by deception. One of the few who did speak out against this fraudulent accounting was U. S. Senator John Williams. He did so in the late 1960's. That was 40 years ago! But why didn't many more speak out against this fraud? The people were distracted, indifferent and apathetic to this, that's why. Well, we are now reaping the consequences of such behavior.

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