Jack Lew is the Secretary of the Treasury. He took over after the tax cheat Tim Geithner left. Secretary Lew is campaigning for an increased debt ceiling, along with the establishment Republicans, Democrats and pundits in the media.
To them, the issue is a no-brainer. They have to frame it as if it’s obvious what we have to do. Of course we have to lift the debt ceiling. Otherwise, how are we going to pay our debts? If the tea partiers got their way, we’d default. “And that’s just what those pesky tea partiers want as they point a gun to the head of Uncle Sam,” liberals keep saying. They want to “blow up the country,” “burn it down” and “hold America hostage.”
No, obviously we don’t want any of that. They’re just reciting their well-rehearsed talking points. It’s not so much that we should or shouldn’t pay our debts. It’s that we should cut spending. We should cut spending so much that we never have to raise the debt ceiling again. We should cut it so much that the debt ceiling debate never has to happen in the first place.
But talking to liberals about our monetary system and the need for spending cuts is like talking to a brick wall. But at least brick walls serve very useful purposes.
Our monetary system operates the very same way Bernie Madoff’s scam worked. The feds brought Madoff down, not because he was stealing, but because they viewed him as competition. Remember the saying: Don’t steal; the government hates competition. Madoff’s operation worked as long as his investors were none the wiser. As soon as the investors found out, thanks to his sons going to the authorities, they found they couldn’t cash anything out, because there was no money (or very little). It was all an illusion.
During his testimony to the Senate Finance Committee, Lew made his case for lifting the debt ceiling:
“Every week we roll 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 plan other than raising the debt limit that permits us to meet all of our obligations. Let me start by saying what I think should be obvious: that if we don’t have enough cash to pay all our bills, we will be failing to meet our obligations, and under any scenario we will be defaulting on obligations. Let me remind everyone, principal on the debt is not something we pay out of our cash flow of revenues. Principal on the debt is something that is a function of the markets rolling over.”
In other words, we’ve got to keep this illusion going. If our bondholders wise up like Madoff’s investors did, we won’t have enough cash for everyone, because it won’t be there. So, we have to raise the debt limit, so we can “borrow money in order to pay interest on borrowed money.” And in case bondholders want to cash out, we’ll have enough to accommodate them.
Ironically, the SEC calls such an operation a ponzi scheme. Here’s how they define it:
“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.”
That pretty much describes our entire fractional-reserve banking system.