Interest Payments, China & Fort Knox

If you consider how people loan money it soon becomes evident that no one wants to loan money to someone who does not have the means to pay the money back. Money is loaned out so that interest can be earned. There is no other business reason for making a loan. This applies to individuals, banks and countries. A country that applies for a loan from another country must have a reputation for repayment and some collateral. A country that is destitute or war torn may get a loan as an act of benevolence and an expectation that the country will recover and increaser its economic well being enough to repay the loan but no country makes the kind of loans China has been making to the U.S. unless China had some assurance the interest payments would be made and if needed the principal.

China knows that the U.S. has a huge stock of gold in Fort Knox. This gives the Chinese a sense of comfort that the loans will not default and there is some real worth that is backing the loan. As long as the interest payments are timely and continuous there is not a reason to worry. If the interest payments become late or stop there is the prerogative to call in the loan which means a claim on the gold stores the U.S. has in Fort Knox. Without gold stores the dollar will deteriorate, hyperinflation will emerge and violence and chaos will reign setting the stage for dictatorial government .

As the U.S. government continues to spend and amasses debt through continuing deficits the point of defaulting on interest payments to China becomes closer. When the interest on the debt reaches the point where it is the dominant amount owed in the national debt the issue will come into focus even to the most obtuse politician that our actions will be limited to dipping into our gold reserves, printing worthless dollars or losing all credibility as a country to loan money to. None of these options are pleasant. The politician´s hope that the economy will be so robust to avoid such a scenario is a pipe dream wiped out by political policies that are anti-business such as regulation and taxation.

There is not any alternative to the above scenario given the current and proposed policies from existing politicians. The solution is so radical there is not a politician alive that would dare stand up for what is needed to prevent the demise of the United States. There is not a Republican or Democrat or Libertarian solution blowing in the wind. All current parties are counting on a robust economy to save the day, create budget surpluses and pay off the debt. Ain´t gonna happen.

The solution is to rescind the power of the government to tax. The elimination of government intervention in the economy is the only road for America to recover and this includes taxation i.e. forced payments from the private citizens. The private citizens are the source of wealth and surplus and the drain on their productivity is the parasitical actions of a government empowered to tax and spend without limitation.

Every concerned American realizes the government is running amuck and most do not realize what it will take to reverse it. Many think some mystical prayer will change things, others believe they can get away with it long enough for it to not affect them and others simply wait for smeone else to think up a solution and implement it for them. What do these views offer for hope for America? Nothing. An election will not change the drift no matter who gets elected. The dominant ideas are wrong and all the candidates hold them in some form. The inevitable clash with China is unavoidable given the current political climate. This is not the way the Americans of old thought although they did implement many of the bad ideas we are seeing bankrupting the country today. Their errors were made in the spirit of improvement although many of the improvements they envisioned were in actuality simple entitlement programs that are unworkable , expensive and must eventually be abandoned. That spirit placed behind a realistic goal of financial solvency, a nation of wealth and opportunity and self reliance would be well placed and accomplish much. Can that spirit be revived in a manner that will lead us to achieve such goals? Only if the right ideas prevail. To prevail the ideas that have brought us to this precipice must be critically examined and discarded. New ideas that may have been too easily dismissed must be reconsidered. Nothing must be discarded simply because it has not been popular. If the proper changes are to be made the proper ideas must be exposed,debated, accepted and implemented. There is still time for this process to materialize. Whether there is a will is the only question.