Andy Ross Articles

Economic and Business Writer

By Andy Ross
Grand News
New Haven CT

A Ponzi scheme – like the $50 billion one recently perpetrated by Bernard Madoff – is one that can only exist as long as new money comes in to make minimum payments to investors who are told that the checks they receive are their share of the profits. There are no profits, however, and the money investors get is simply skimmed off the capital invested by others participating in the scheme. As soon as not enough new money comes into the fund to meet the demands of those investors making withdrawals of make-believe profits, the scheme implodes and collapses – burning everyone involved.

Today our nation’s scheme to keep up with mounting debt, which I am too patriotic to imagine as intentional and malicious like Madoff’s con game, resembles a Ponzi, and that is cause for grave concern and a call for radical change. We are not generating nearly enough revenue to offset the gigantic mountain of debt pressing down on top of our financial house of cards.

As the financially devastating month of September 2008 came to an end, for example, the United States government was carrying $10 trillion dollars of debt owed to lenders outside the USA – one trillion dollars more than the previous year. That equals a debt increase of $2,900 for every man, woman, and child in the nation over the year before.

According to Gillespie Research/Federal Reserve, foreigners own about $9 trillion of U.S. financial assets, including 13 percent of all stocks, and nearly 30 percent of our corporate bonds. And they are acquiring more all the time, which gives them increased power and say-so regarding our native businesses. Even Fannie Mae, an agency created by Congress in order to ensure the availability of affordable mortgages for average Americans, turns to sources outside the USA for approximately 35 cents of every dollar.

Consider this statement from David Walker, the U.S. Comptroller General:
“Foreign interests have more control over the US economy than Americans, leaving the country in a state that is financially imprudent. More and more of our debt is held by foreign countries – some of which are our allies and some are not. The huge holdings of American government debt by countries such as China and Saudi Arabia could leave a powerful financial weapon in the hands of countries that may be hostile to US corporate and diplomatic interests”.
Of the $10 trillion in total federal government debt outstanding at the end of 2008, approximately $5.1 trillion was in the form of Treasury bonds and T-bills. Of that, nearly half was owed to foreign interests, including $700 billion owed to China. That number is about the same amount as our new economic stimulus package that is meant to save us from economic ruin.

Lucky for us, China continues to invest in the USA. In fact, China’s heavy purchase of our Treasury bonds is why we enjoy low interest rates to fund a war, provide public services, offer a stimulus plan, and line the silk pockets of irresponsible Wall Street firms and big banks.
But the Chinese are not investing here on the basis of our attractive economic future. They invest here because they desperately need for us to succeed. Otherwise it means a huge loss of debt payment income we owe to them.

Our country spent more than $300 billion last year, just to service interest payments on outstanding debt. Meanwhile we owe ourselves $3.3 trillion of debt accumulated through the internal habit of borrowing from Peter to pay Paul with IOU’s skimmed from sources including the Social Security trust fund. So far the government has drained $13 trillion from that fund alone, so we are not just borrowing from our parents and ourselves but also from our children and grandchildren.

Spread equally across the 304 million citizens of the USA, our total debt adds up to a staggering $42,763,00 owed by each and every person, including those still cruising around in strollers and diapers. Keep reading it only gets worse.

We have become so accustomed to hearing about the trillions of dollars we are in debt and watching that number meteorically rise that we have become insulated or desensitized to what it really means.

In order to truly appreciate what it means for the U.S. to owe this kind of debt on an indivual level just imagine the U.S. government deciding it must pay off it’s debt and will do it by sending all 304 million men ,women and child a bill for $43,000.00 representing their part of the total U.S. debt. Now as a practical matter the government knows that they cannot expect the majority of the people to pay this debt in one lump sum so let’s say they offer you terms similar to a credit card revolving account and spread $43,000.00 over 50 years at 3.5% interest. Your monthly payment for each household member will come to $150.00. Do you think this illustration helps drive home the point about how much it would take from each of us to solve our debt crisis?

Let’s add it all up as follows: 10 trillion is existing debt, 1 trillion short fall in 2009, 350, billion Tarp funds already disbursed to banks, 350,000 billion dollars for the second half of TARP funds, 1 trillion dollars earmarked to banks troubled assets, 790 billion in new stimulus spending and 3.3 trillion we borrowed from ourselves from programs like social security funds. The grand total is 15 trillion dollars divided by 304 million Americans equals $49,342.105 per person. That is a 50% increase in our debt from the stated 2008 year end.

The U.S. increasingly puts itself into a position where we must rely on the sales of new Treasury notes and bonds to keep up with the interest on previously issued instruments. This sounds Ponzi-esque to me.

It is as simple as it looks complicated we so not have the revenues we take in from taxes anywhere near sufficient to run the government on a day to day basis, let alone fund special projects and pay off our obligations. Our current system of financial management is dangerous. It requires serious restructuring, which must include a plan for reducing both internal and external debt and finding sustainable solutions to our hazardous and lopsided dependence upon foreign interests and powers.
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