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Peter John Palms | 05 Jan, 2012
What is the Federal Reserve System? The answer may surprise you. It is not federal and there are no reserves. Furthermore, the Federal Reserve Banks are not even banks. But India is part of participates in the systems referred to as Central Banks and fractional banking systems and these are what cause depressions and inflation and ultimately Collapse as the one in the U.S. has done three times in the past.

31,000,000 Americans became age 65 in 2011. That has added $310 billion dollars to the annual budget of the United States not including the cost of Medicare and Medicaid benefits, which young American will have to pay for. It took 198 years for the U.S. Government to borrow the first trillion dollars. Then, in just another 12 years, mostly under the Reagan ministration, it borrowed another three trillion. By the first year of the George W. Bush Administration, even before the terrorist attack on September 11, the federal debt had risen to over $5.8 trillion. By 2010 it had risen to $202 trillion, when all liabilities are included.

It is difficult to comprehend such numbers. If you had a stack of $100 bills 40 inches high, you would be a millionaire. $202 trillion would rise over 127 thousand miles into space. By the time you read this, after the expenditures of subsequent administrations that stack has reached the moon.

By 2006, gross interest payments on the national debt were running $406 billion per year. That consumed 17% of all federal revenue. It now represents the government's largest single expense; greater than defense; larger than the combined cost of the departments of Agriculture, Education, Energy, Housing, and Urban Development, Interior, Justice, Labor, State, Transportation and Veterans affairs.

These charges are not paid by the government; they are paid by you. You provide the money through taxes and inflation. The cost currently is about $5,000 for each family of four. All families pay through inflation but not all pay taxes. The cost of each taxpaying family therefore is higher. On average over $5,000 is extracted from your family each year, not to provide government services or even to pay off previous debt. Nothing is produced by it, not even roads or government buildings. No welfare or medical benefits come out of it. No salaries are paid by it. The nation’s standard of living is not raised by it. It does nothing but pay interest.

Furthermore the interest is compounded, which means, even if the government were to completely halt its deficit spending, the total debt would continue to grow as a result of interest on that portion which already exists. In 2006 interest on the national debt was already consuming 39% of all the revenue collected by personal income taxes.

Amazing, isn’t it? Without interest on the national debt we could save enough to cut our personal income taxes by a third and we could reduce corporate taxes as well. Unfortunately, under present policies and programs, that is not going to happen, because Congress does not live within its income. Many expenses are paid, not from taxes, but from selling government bonds and going deeper into debt each year. So, even if we could save enough to slash personal income taxes, it would not be enough. The government would still go into the red to keep its present lifestyle. However if a reduction in the size and scope of the bureaucracy were accomplished at the same time, personal and corporate income taxes could be eliminated and the government would have an annual surplus.

By 2008, outlays of the federal government were one-fourth of the nation’s economy. More people now work for government than for all manufacturing companies in the private sector. There are more bank regulators than bankers, more farm-bureau workers than farmers, more welfare administrators than recipients. More citizens receive government checks than those who pay income taxes.

By 2010 the average federal worker was earning 60% more than the average worker in the private sector. By 1992 more than half of all federal outlays went for entitlements

Normally with contracts for future obligations like private insurance company pension plans, annuities, life insurance, the issuer is required by law to accumulate money into a fund to make sure that there will be enough available to make the payments when future payments become due. The federal government does not does not abide by those laws. The funds exist on paper only. The money that comes in for future obligations is immediately spent and replaced by government IOU. So as those future payments become due, all the money must come from revenue being collected at that time.

1/6th of 1% of the American public now earns more than 50% of the total income of the nations. One in every 2000 people earns as much as the remaining 1999 earn.

Only corruption can accomplish that. It has nothing to do with capitalism or democracy, which we do not have. Our Government is a republic. The ones the people elect to make the laws make the laws. The people do not. The ones the people elected, represent the ones that paid the campaign funds for their election costs. Those who pay the election costs pay them for both parties.

It is said that power corrupts and absolute power corrupts absolutely. The absolute corruption level has just about been reached and in the history of the past 2000 years an economic collapse has occurred several times when an unjust central banking system, called The Federal Reserve system in America and fractional banking in the rest of the world, collapsed. This would be the fourth one for the USA and global consciousness is arising as a result, as evidenced by the growing number of "Occupy Wall Street" demonstrations which are occurring globally, and awareness is rising through activities of Michel Moore in America as well as a 2 hour 8 minute film named "Thrive”, which was made at a cost of three million dollars and can be seen on your computer.

Fiat money has always ended this way and here is a description of what you can Expect. Here is what has happened thus far. A decline in American prosperity; an increase in the size of government; a decrease in personal freedom; the growth of taxes; evidence that this is according to plan by an elite ruling group which hopes to merge the United States into world government on the basis of "equality" with less developed nations; the environmentalist movement shows to be an outgrowth of that plan

A pessimistic Scenario describes that a banking crisis and massive bailouts have already come to pass. The still unfolding scenario include hyperinflation, collapse of the economy, a new global currency, domestic violence, U.N. "Peacekeeping" forces in the U.S. , and the arrival of high tech feudalism.

A realistic Scenario describes what must be done if we are to avert the pessimistic scenario, a list of specific measures that must be taken to stop the monetary binge; an appraisal of how severe the economic hangover will be a checklist for personal survival--and beyond.

India is different from the U.S. in many cultural and historical ways, but it is exactly in the same circumstance as the U.S. with respect to money as long as it participates in the same Central banking system and fractional banking which needs to be abolished if an economic meltdown is to be averted.

* The author is CEO, Palms & Company, Inc.
* The views expressed by the author in this feature are entirely his own and do not necessarily reflect the views of SME Times.