VITAL SIGNSrnECONOMICSrnDebt Money andrnthe Federal Debtrnby Gus R. StelzerrnIn 1985, I was a resident of RanchornSante Fe, California, and a member ofrnthe prestigious Rancho Sante Fe Golfrnand Country Club. 1 often played golfrnwith “Jack” (not his real name), who wasrnlisted in Forbes magazine as one of thern400 richest people in America. On onernoccasion, as we were walking down thernfairways, I talked about the evils of a risingrnfederal debt, then about $1.8 trillion.rnAfter some 20 minutes of talk (mostlyrnmine), Jack stopped walking and said,rn”Gus, you worry too much about the federalrndebt. I hold $15 million worth ofrnfederal T-bills. They’re risk-free, andrnthey’re paying me over a million dollars arnyear in interest. The higher the debtrngoes, the more T-bills I will buy, and thernmore interest I will get. Anyway, tomorrow,rnMadge [his wife] and I are flying tornTahiti for two weeks, and I’m not going tornworry about the federal debt. It’s a money-rnmaker as far as I’m concerned.”rnToday, the federal debt is over threerntimes as large as it was when Jack told mernwhat the debt is really all about. His messagernwas: “There is big money in it for thernfinancial elite . . . individuals with considerablerndiscretionary wealth, banks, insurancerncompanies, securities brokers,rncurrency speculators, and others whornbuild fortunes on debt and on the backsrnof people who pay the interest.”rnWithout the general populace beingrnaware, the monetary system of the UnitedrnStates has been transformed. Today, therngap between rich and poor is wider thanrnat any other time in American history.rnWe are gradually becoming a two-tier society,rnlike most Latin American countries.rnThe federal debt funchons as a mechanismrnto transfer the wealth of the “poorrnand middle class” to ten percent of ourrnpopulation, who already own or controlrn90 percent of private wealth. The federalrndebt is a gold mine for money lenders!rnToday, the federal debt is about $5.6rntrillion, of which $2 trillion is owed tornvarious trust funds, such as Social Security,rnMedicare, veterans’ benefits, highways,rnrailroad, etc. The balance, aboutrn$3.6 trillion, is “publicly held” debt,rnagainst which T-bills have been issued byrnthe Treasury Department. Of thatrnamount, about $2.3 trillion is held byrnU.S. citizens and institutions who alreadyrnown, or control, 90 percent of our nationalrnwealth, and the federal governmentrnpays them over $140 billion a year in interest.rnThe balance (about $1.3 trillion) isrnowned by citizens of foreign countriesrn(Japan, Germany, Britain, Taiwan, CommunistrnChina, etc.) with whom the UnitedrnStates has racked up $2.6 trillion inrnmerchandise trade deficits since 1971.rnUp until that time, foreign holders of ourrndollars could “cash them in” at a rate ofrn$35 for one ounce of our gold, under thernterms of the 1944 Bretton Woods monetaryrnaccord.rnAs a result of rising imports in thernlate 1960’s and early 1970’s and thernconsequent outflow of U.S. dollars, ourrngold reserves were being depleted at anrnalarming rate. So, on August 15, 1971,rnPresident Nixon announced we wouldrnno longer honor our Bretton Woodsrncommitment.rnNow that they could not convert ourrncurrency into gold, the foreign beneficiariesrnof our $2.6 trillion trade deficitrncashed half of the dollars that they held inrnon federal T-bills. Today, our governmentrnpays them over $70 billion a year inrninterest to get our own money back!rnThus, the federal government is nowrnpaying over $210 billion in interest eachrnyear to finance the debt, a large part ofrnwhich was caused by immoral trade policiesrnthat sabotaged our industrial taxrnbase, closed thousands of factories, andrnshipped the jobs of over ten million lawabidingrnworkers to countries that do notrnabide by our laws.rnIn order to pay that interest, the governmentrnmust collect taxes from U.S. citizensrnat a rate of about $2,000 per Americanrnhousehold. This money is siphonedrnout of the wallets of average Americansrnand then transferred to those who alreadyrnown or control 90 percent of our nation’srnprivate wealth, thereby steadily wideningrnthe gap between rich and poor.rnThe most outrageous part of this scamrnis that over $70 billion per year is beingrnpaid to foreigners in order to get our ownrntrade deficit dollars back. If that $70 billionrnof interest were retained in our countryrnand applied against future obligationsrnto Social Security and Medicare recipients,rnthe worries about the solvency ofrnthose programs would disappear overnight.rnThe prudent use of the projected federalrnbudget surpluses could also reducernthe interest burden on the American taxpayer.rnThe projected surpluses may simplyrnbe “smoke and mirrors,” caused eitherrnby windfall tax revenues created byrnrecord capital gains in an unsustainablernstock market or by temporary surpluses inrnSocial Security that will have to be paidrnout in a few years. Still, let’s assume thatrnthe surpluses do materialize. Whatrnshould be done with them?rnThere is strong pressure in Congress torn”give the money back to the Americanrntaxpayers” through various tax cuts. Butrnthere is a heavy dose of demagoguery inrnsuch proposals, political posturing to gainrnvoter support in upcoming elections.rnFurthermore, the proposed tax cuts offerrnlittle benefit to those most in need—thernworking and middle classes. But theyrnprovide a double benefit to the rich:rnWhile their taxes are reduced, thernwealth-transfer mechanism of the federalrndebt is left intact.rnThe working and middle classesrnwould benefit more if all budget surplusesrnwere applied against the federal debtrnuntil it is completely eliminated. In additionrnto saving the average householdrnabout $2,000 per year in taxes, eliminationrnof the debt would avoid a massiverndrain on our capital resources. Mortgagernrates, interest on car loans, credit cards,rnetc., would fall drastically. These lowerrninterest rates would save Americanrnhomeowners and consumers thousandsrnof dollars a year.rnSuch a plan would be a blessing for thernaverage American and for our entire socialrnand economic order: It would inflictrna mortal wound on a devious schemernthat transfers a good part of the meagerrnwealth of the poor and the middle class tornthe ten percent who already own or controlrn90 percent of our private wealth. Itrnwould stop the widening polarization ofrnour society. It would liberate average cit-rnJANUARY 2000/41rnrnrn