1/2 pct Solution to USA Financial Problems


The Half Percent Solution to the USA Financial Problems




The financial future of the USA looks hopelessly bleak, with few credible prospects for changing the economic direction before the economy plummets to disaster.  In hopes that there is still time, and that the politicians in power will rise to the level which the current crisis demands, this commentary offers one approach to restore the USA to economic health and prosperity.


Current USA financial status


It will be no surprise to most readers that the USA is financially bankrupt.  Anyone who does not understand that fact needs only to ask when the USA budget will eliminate all  dollar deficits and return to an extended period of dollar surpluses that would be needed to pay down the USA dollar debts.  Never is the only correct answer, and bankrupt is the inescapable conclusion.  The USA has taken on massive debts that no one can imagine will ever be repaid.  Government income is much less than the annual expenditures, so the debts continue to grow without limit.  USA states and cities are at the financial breaking point due to overwhelming financial obligations at the same time that tax receipts are much less than are necessary.  Individuals are burdened by inadequate job opportunities, and increasing numbers of people are becoming permanently dependent on subsidies from the bankrupt and deep in debt government.

The current path into the future for the USA


USA children (including those not yet born) will owe impossible levels of debt that they had no part in creating.  People who are working now face an increasingly uncertain job future as the USA work prospects continue to shrink.  Cities and states are unable to meet their financial obligations without increasing levels of handouts from the federal government.  Politicians in Washington are addicted to spending without the restraint that should be required by the much lower levels of income.  The already overwhelming levels of USA debt will continue to increase for as long as foreigners buy that ever increasing amount of debt.  A time will come, however, when foreigners will refuse to loan more wealth to a bankrupt USA.  Then the USA financial path will go directly off a very steep financial cliff, and will plunge into an irrecoverable free fall.


The social future of the USA is no less dark and depressing than the financial future.  Federal agencies such as the TSA are using “security” as an excuse for substantially increasing the control they exert over Americans.  Executive orders are being enacted to enable the federal government to essentially declare and enforce martial law whenever they desire to do so.  The Constitution no longer has significant power to stop government from abusive actions that would have been unthinkable a generation ago.



An abrupt default would be simple, but simply disastrous


The current path the USA is following leads directly to the edge of a steep financial cliff.  At some point in the future, foreign nations will refuse to have any financial dealings with a deadbeat and bankrupt USA, and the U.S. $ will become worthless in foreign markets.  Hyperinflation comparable to Zimbabwe will be inevitable as long as the U.S. government can do nothing more than print the dollars that it wants to spend.  While hyperinflation will be a disaster for everyone in the USA, the millions of people who are dependent on government programs and benefits will be hit much harder.  The unbearable pain that would be imposed on the people, along with the inevitable social disorder and the accompanying military style government response that would follow, makes the “solution” of abrupt dollar default as unthinkable as it appears to also be inevitable.


Absent a working alternative to the dollar based economy, both within the USA and for international trade, an abrupt dollar freefall toward its intrinsic zero value would terminate economic activity within the USA.  Before the dollar begins its plunge into the financial abyss, the USA must have an alternative financial structure already implemented and fully functional to enable the economy to continue to operate.  Since the primary problem that will drive the dollar into oblivion is that there are massively too many debt obligations attached so that no one will trust the dollar for future commerce, the alternative financial structure that the USA must have would be one in which the “new money” will have no debt obligations attached to it.  That “new” financial structure will not be new at all, but simply a return to the gold and silver based money that is called for in the Constitution and that enabled America to grow and prosper until 1971 when the last vestiges of silver and gold were removed from USA currency.


It is likely that until the inevitable dollar destruction that lies ahead, politicians will continue to create ever higher mountains of dollar denominated debt to kick the proverbial can further down the road (and to increase their chances of getting reelected).  After the dollar dies, only silver and gold will be accepted as payment in full (because only precious metals will be free from unacceptable debt obligations attached).  A transition is necessary from the current fraudulent financial system in which debt obligations are multiplied (without any corresponding transfer of real wealth that is needed to pay for those debts) to the honest financial system (based on debt free silver and gold) that will be required in the future.  If that transaction is not planned and implemented before the dollar crashes, then the abrupt destruction of buying power for the dollar will be accompanied by severe financial and social chaos throughout the USA and around the world.  This commentary proposes one way to manage the transition in advance of the time when the dollar will lose all of its value.



What must be done to change our path away from financial and social destruction


Many people have looked at where the USA is and where its going, and have concluded that there no longer exists a solution to the financial problems.  The pessimists conclude that it is impossible for the USA to kick its addiction to the free money it receives by “borrowing” as much as it needs, and promising to repay loans, but knowing full well that all debts will be defaulted upon because it is impossible to ever repay any of the loans.  The pessimists also point to politicians since 1981 who never even talk about balancing budgets, but who focus instead only on moderating the rate of increase in USA debts.  Now that the debt levels are so high that it is impossible to ever consider repaying those debts, pessimists are sure that politicians will continue to push the USA higher up the debt mountain until the economy eventually falls abruptly into the default cavern below.  This commentary will outline a more optimistic possibility in which a planned and orderly transition to use of silver and gold as money can be implemented before a dollar crisis destroys the dollar as money.


If our political leaders can stop their political bickering long enough to focus on the dreadful financial and social state that America has deteriorated into, and if those leaders will exercise the required statesmanship instead of perpetual partisanship, then a solution exists to provide America with a more gradual transition than an abrupt fall off the disastrous debt and default cliff that looms ahead.  This commentary outlines that hopeful transition process, and explores some of the many changes that must be implemented as an essential part of the process.



Structural changes required in America


The next topic below this one will offer a half percent solution to the transition problem of converting the American economy from one with a disastrous dependence on dollar debt to one which can be healthy and stable, with a debt free basis in precious metals.  Part of the essential transition, however, requires more than simply replacing the doomed dollar with precious metal alternatives.  It is also necessary for the USA to correct several fundamental errors in the way the nation has been steered by politicians over the last half century.  Although the financial problems in the USA accelerated after 1981 when politicians perceived a green light to “borrow” whatever amount was needed to enable them to spend as much as they desired without concern about ever repaying the “loans”, there are also other structural problems within America that must be resolved so that the USA can once again stand proudly as a strong and free nation.  Here is my list of changes (copied from my commentary Stop the theft!) that need to be accomplished within the USA:


1) Return jobs to America.  That must be accomplished by moving away from the disaster called “Free Trade”, and replacing it with Fair Trade.  Free Trade may sound good to those who want a one world government, and it did result in cheaper imports, but it has cost the USA too many jobs.  As USA industries relocated to Asia where people work for much lower wages than in America, our citizens are left with only a small fraction of the jobs we once had here.  It is essential for Congress to impose sufficient tariffs on the imports from each nation to insure that we have an equitable balance of payments with that nation.  No doubt, all prices would rise substantially when we implement the essential fair trade approach that America needs, but jobs that left the USA to nations where people work for much lower wages would return to America, and USA workers would then have a level playing field on which to compete based on work quality instead of slave wages.  National strength flows from production, and fair trade would return production to the USA.


2) Reestablish gold and silver as legal tender.  Precious metals would not replace the paper Federal Reserve Notes (FRNs) that are currently legal tender by fiat decree, but would instead offer an alternative method of transacting business.  Precious metals as legal tender would not have fixed “prices” compared to FRNs, but would instead be valued as ounces for transactions and contracts.  The comparable FRN prices would float with market action.  Government could facilitate re-acceptance of silver and gold by posting daily prices for physical metals, with intra day price adjustments as needed.  Those physical prices would likely be different than the futures prices that flow from paper trading.  Government could backstop their posted prices by agreeing to purchase physical metals at the posted price minus a few percent and agreeing to sell physical metals at the posted price plus a few percent.  Merchants would be free to sell their products in FRNs, and/or to list sale prices in ounces of silver or gold.  Similarly, any employer could offer to pay workers in any combination of FRNs and silver and gold that the workers agreed to accept.  In the same way that government protects the paper FRN by prosecuting forgers, government would also prosecute all who try to sell fake metals disguised as silver or gold.  As an essential step in correcting the previous fatal problems with the USA economy, precious metal transactions or wages would not be taxed.  Taxes in the precious metals portion of the economy would be limited to tariffs needed to balance payments in international trade, a tax on energy consumption in the USA to promote energy efficiency, and the estate tax described in a link below.  Although silver and gold would be legal tender so that new contracts or agreements could specify payment in silver or gold, there would not be any retroactive requirement to pay real silver or gold for obligations implemented with paper FRNs.


3) Print the Federal Reserve Notes (FRNs) needed to pay all current obligations.  The USA has one get out of jail free card.  As Allen Greenspan said at least twice, the USA will never default on repaying its debts because those debts are denominated in US$.  The USA can simply print any dollars needed to pay its debts.  That statement by the previous chairman of the FED reflects the reality that USA debts are denominated in promises to repay only paper FRNs.  As a necessary action to stop the theft!, the USA should immediately cease “borrowing” (of value that can never be repaid) and instead simply print FRNs in sufficient quantity to satisfy all previous and current FRN obligations.  The USA will meet its “full faith and credit” promises to repay FRNs by printing enough FRNs to fulfill all claims.  There would then be no need to perform triage on insurmountable debts by trying to decide which debts should be defaulted on, or whose promised benefits would be denied.  By printing FRNs as needed to meet all obligations, there would be sufficient FRNs at all levels of governments and businesses to pay all obligations the full number of FRNs that were previously promised.


Yes, overtly printing enough FRNs to pay all of the USA obligations in full will inevitably reduce the value (measured in purchasing power) of FRNs to near zero.  All entities who previously borrowed will deliver the full number of FRNs that were agreed to be repaid.  Nations, businesses, and individuals who loaned valuable funds will receive the agreed number of paper FRNs, but those FRNs will have little if any real value.  Some people might argue that printing worthless FRNs now to repay debts would be a new theft from lenders who expected to receive value in return for the value they loaned, but that would reflect a misunderstanding of the default timeline.  The actual thefts already happened over the previous decades when politicians “borrowed” more than can ever be repaid, and made promises that cannot be kept.  Repaying those loans and fulfilling the promises now by printing a huge number of FRNs not a new theft.  Printing FRNs is only a way to close the circle on old theft that was done through loans and promises that cannot otherwise ever be repaid.  In contrast, any new borrowing of value now, but which cannot ever be repaid with comparable real value later, would be a new theft even if some the new proceeds are used in a Ponzi scheme to repay older debts.  It is long past time to stop the theft!, and that requires the USA to refuse to “borrow” additional value that can never be repaid.


4) Eliminate the inequitable income tax and property taxes.  Since any reasonable approach to stop the theft! will essentially re-boot the financial system into a smaller one which can function properly again, that will also be an opportunity to realign the approach that the USA uses to raise needed funds for government operations into a fair and equitable structure.  My basic cornerstones for fair and equitable are that every person should have equal rights and equal responsibilities.  The government must not use force to take wealth from some individuals so that some of the loot can then be given to other individuals.  On the contrary, government can and should refuse to take hard earned wealth from anyone.  Instead of paying income and property taxes on wealth that has been earned or saved, individuals should be able to keep their wealth without risk of government confiscation.  Instead of taking earned or saved wealth from the people who generated that wealth, government income should be derived from inheritance taxes on the wealth remaining after the owners of that wealth pass away.  The current system of taking wealth from workers, while allowing wealthy families to build and pass on huge amounts of wealth to children who may have not yet even been born, is clearly inequitable and unfair.  While we petition our government to stop the theft! from foreigners, we should also demand that governments stop the theft! from hard working people in the USA. There is much more detail about this approach to eliminate the unfair and inequitable income and property taxes in this link: Eliminate the national income tax


5) Limit the role of government to enforcement of responsibilities.  One of the reasons that government finds it difficult to stop the theft! is that government seems to think that it has a mission to do everything that anyone wants done.  To succeed with a stop the theft! approach, We the People must demand that government operate only within the framework of its available income, and that it does only the things that are necessary to enforce responsibilities.  Government does not have the resources needed to police the world or to interfere with foreign governments, so it is necessary to restrict the military mandate to only protection of the USA borders and coastal waters.  Phase out and eliminate government sponsored “insurance” (including Flood, Social Security, Medicare, Medicaid, unemployment, and programs of other government agencies that do not enforce responsibilities, and could easily be performed by private businesses).  Government cannot “give” anything to anyone because government has nothing to give.  Instead, government takes by force from other people, wastes a significant portion through inefficiency or fraud, and then redistributes the remainder.  The new vision here is that government should return to the basics of doing only those actions which are required to enforce responsibilities.  Only by limiting the scope (and power, and expense) of government to the essentials which are required to enforce responsibilities can we hope to stop the theft!


6) Demand responsibility from all citizens.  Government power should continue to deter (when possible) or to punish (for future deterrence) criminal or fraudulent activities in which some people abuse or abandon their responsibilities.  Government should also act to protect children who cannot otherwise protect themselves.  People who cannot meet their responsibility to their children should not be parents.  One of the primary obligations of government is to enforce the responsibilities that people have to their children.  By properly enforcing parental responsibilities, government can phase out and eliminate the unfair and inequitable giveaway programs like welfare.  The reduced population that will result from government enforcement of responsibilities will mitigate many problems with pollution, energy, and jobs.  People also have an obligation to spend less than they earn so they can save some for difficult times ahead or for their older years.  Government must assist people to meet that financial obligation to themselves by eliminating costly government giveaway programs like Social Security, Medicare, and Medicaid which motivate people to depend on the government instead of taking care of themselves.  We the People must demand that government stop the theft! by eliminating giveaway programs which distract and discourage people from meeting their financial obligations by living within their means.


7) Enforce responsibilities for all businesses.  One of the responsibilities that government has is to prevent any financial organization from becoming too big to fail.  The super sized banks and insurance companies that are so grotesquely huge that they can threaten the entire USA financial system must be brought under control.  One orderly way to do that would be for a financial tax to be placed on very large businesses.  That tax could be low at first, but increased frequently so that it would be advantageous for very large firms to divest some of their subsidiaries and to shrink others that remain so they will not exceed the size threshold for taxes.  Then all businesses will have the same freedom to take prudent risks, and to fail if the risks do not perform adequately well.  Government funds (even if they are “borrowed” from foreigners and never repaid) must not be given to banks or any other business because of their size or their stranglehold over the USA economy.  Also, banks must not be allowed to continue the practice of theft through fractional reserve creation of new money for loans.  It is long past time to restore sound banking principles within the USA, so that banks will migrate back to the time honored method of honestly borrowing money from savers and then loaning those same funds back out to people who can qualify for real loans.  Allowing banks to flood the USA with paper money that they have created without limit is an obvious recipe for financial disaster.


8) Restore America to the Republic under which the USA offered freedom and enabled its citizens to achieve prosperity.  This essential restoration must be accomplished as government shrinks to live within its means.  By embarking on a mission to stop the theft!, our elected representatives will return to the honorable work that they swore an oath to perform.  Many people will discover personal responsibilities that they did not know about during the transition to freedom, but the rewards of living in  a free society again will far surpass the inconveniences imposed by personal responsibilities.



Solving the transition problem at half a percent per month


Assuming that We the People have succeeded in electing politicians who will rise above the political party distractions and even above their own desire to get reelected, so that they are willing to assist in beginning the essential transition from a disastrous dollar debt debacle to a solid and stable economy based on debt free precious metals, the problem then becomes how to manage the transition.  The approach I outline below will create a structure that can allow the markets and the people to adjust to an honest money system over time.  All U.S.$ denominated debts will be paid the full amount of $ that were owed, so it will not require painful decisions about whose benefits would be reduced or which contracts would be broken.  People who depend on salaries or fixed payments, like Social Security for example, will see the purchasing power of those payments drop substantially over time, but those people will at least have more advance warning about the dwindling purchasing power than they would if the dollar plummets off a cliff and leaves many people with no shelter from the subsequent financial apocalypse.


The Federal government should begin the necessary conversion process by cutting expenses and reducing government staff (including military).  For the remaining staff in the first month of conversion, the government would convert one half of one percent of the take home pay for each person to gold or silver, using the then current market price to compute the exchange rate.  To minimize the hassles of moving fractional amounts of physical silver and gold around, new bank accounts could be created and limited to precious metals deposits or withdrawals.  The current evils of fractional reserve banking and printing of unbacked fiat paper would be eliminated by making the proceeds in the new bank accounts fully convertible to physical precious metals on demand.  Each person would receive the same value for their pay as they received before the conversion, but some of it would be in precious metals account deposits and the amount of fiat would be correspondingly reduced by ½ percent from the previous month amount.  In each successive month, the process would repeat, so each person would receive ½% less fiat than in the previous month, but would also receive precious metals account deposits into accounts that would have the amount in the previous monthly deposits plus the additional amount computed from the ½% of fiat divided by the new market price of gold and silver minus any precious metals the account owner withdrew.


Although all fiat received as pay would continue to be taxed as before, the metals account deposits would not be taxed, and this ½% process would also phase in implementation of the no income tax provision.  The ½% fiat reductions and subsequent conversion to precious metals account deposits would apply only to the salary of employed staff.  The government fiat payments people receive for benefits (retirement, unemployment, social security, Medicare, welfare, etc.) would not be reduced, and none of those payments would be converted to precious metals account deposits.  Although the number of fiat dollars in each payment would not be reduced, the purchasing power of those payments would diminish over time as inflation debased the value of the fiat dollars.  Similarly, government obligations (retirement payments, bond redemptions, social security, etc.) for future payments that were determined before the conversion process began would also be paid in the full number of fiat dollars that were promised, and would not be converted to precious metals account deposits.


The ½% conversion process at the federal level would set a template for comparable conversions for state and local governments, and for private businesses throughout the USA.  All preexisting contracts denominated in fiat dollars would be fully paid in the appropriate number of fiat dollars.  New contracts negotiated after the conversion process begins could include a conversion process to precious metals account deposits.  All fiat dollar payments would be taxed as before, while precious metals account deposits would not be taxed.


As this conversion process is repeated each month, workers would receive fewer fiat dollars (which would continue to be taxed) and more precious metals account deposits (which would not be taxed).  Businesses across the USA would respond by offering products with prices in either fiat dollars or in precious metals, so workers could save or spend the precious metals they receive.  People who receive government benefits or pre-conversion private retirement payments would continue to get the same number of fiat dollars, but the purchasing power of those dollars would likely decrease over time.


This ½% per month conversion plan offers a possibility that the USA could gradually restore good value to the nation’s money supply, and also gradually wean recipients of benefits programs from the national teat, so a solid and healthy economy can once again develop within the USA.  The only alternative to a gradual conversion program is an abrupt plunge off the economic cliff to a painful crash into the rocks below for the dollar and the people of the USA.  Readers are encouraged to strongly request any political representative who will listen to support a gradual conversion program which should begin as soon as possible so the health and the vitality of the American economy will have the potential to survive the inevitable transition that lies ahead.


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