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With Congress reconvening, members will soon be battling over discretionary-spending levels for fiscal year 2014, which begins October 1. They will decide whether to abide by current federal budget caps, which are designed to keep discretionary spending roughly flat over the next few years. The problem is that many lawmakers have become so used to rising budgets that a spending freeze seems impossibly tight-fisted to them.

During long periods in American history, flat budgeting was the norm. For the first 150 years of the nation’s existence, federal policymakers generally restrained spending and reduced debt between wars. Today, the war in Afghanistan is winding down and the economy is growing, so lawmakers should be cutting spending or at least holding it flat.

Debt Default and Hyperinflation. Alternatively, policymakers might renege on the terms of existing debt or monetize the debt, thus boosting inflation. Both options are extremely unlikely to achieve the intended result of lightening the U.S. debt load. They are too economically costly. Defaulting on the debt is creditors’ worst fear. In most cases, it results in widespread financial chaos. Even if lenders would be willing to extend additional credit, they would demand much higher interest premiums, putting the U.S. government even deeper into the debt hole. The other bad option of inflating away the debt would worsen overall economic performance by reducing the purchasing power of the dollar and by being a de facto tax on savings and other investments. It would also quickly become priced into future bonds as investors would require higher interest rates to make lending profitable. In the worst case, monetizing the debt could lead to Weimar‐​style hyperinflation and economic collapse.

Debt is already at economically damaging levels. According to a review of recent economic literature by the Mercatus Center’s Jack Salmon on behalf of Cato, high public debt—defined as a debt‐​to‐​GDP ratio above 78 percent—has a consistently negative effect on economic growth. As America’s publicly held debt climbs above 100 percent of GDP, the United States is already experiencing slower economic growth from lower productivity through the crowding out effect, elevated interest rates, and less investment due to expectations of higher future taxes to service the debt. Lawmakers should adopt a concrete plan to stabilize U.S. debt as a percentage of GDP through fiscal restraint to unleash economic growth and boost American incomes before a potential fiscal crisis forces their hands. The debt limit is one such leverage point to significantly change the U.S. fiscal trajectory for the better.

Treasury Secretary Janet Yellen recently warned Congress that the United States could default on its debt as early as June 1. As the deadline approaches, Congress’s inability to reach a compromise over raising the debt ceiling threatens to catapult the United States—and the world—into an unprecedented financial catastrophe. A default could trigger a falling dollar and a flight away from U.S. securities, and sound the death knell for the “full faith and credit” that undermines U.S. financial hegemony.

When the debt ceiling was created in 1917, it was meant to give the U.S. Treasury more flexibility to borrow money, not to put a limit on it. In practice, the debt limit allows the government to finance existing commitments made in the past. Put plainly, it allows the government to pay its bills.

What would be the consequences if the United States breaches the debt ceiling?

The debate over the debt ceiling has caused economists such as CFR’s Roger Ferguson to consider the once unthinkable prospect of a U.S. default—that is, Washington declaring that it can no longer pay its debts. Some experts say that would herald chaos for the U.S. and global economies. Even short of default, hitting the debt ceiling would hamstring the government’s ability to finance its operations, including providing for the national defense or funding entitlements such as Medicare or Social Security.

A government debt default would be catastrophic for the US economy, sparking mass unemployment, payment failures, and interest rates rising "into perpetuity," according to US Treasury Secretary Janet Yellen.

"Since 1789, the United States has paid all of our bills on time, and it should stay that way," Yellen said at a Washington conference on Tuesday, warning of an economic disaster if the US failed to meet its debt obligations.

(Romina, MA and BS degrees in economics from George Mason University, Romina Boccia is director of budget and entitlement policy at the Cato Institute, where she specializes in federal spending, budget process, economic implications of rising debt, and Social Security and Medicare reform. Boccia was previously director of the Grover M. Hermann Center for the Federal Budget at the Heritage Foundation, “The Debt Limit and the High Costs of Debt,” pg online @ //um-ef)

If policymakers delay action until a fiscal crisis is on their doorstep, they could be forced in‐​between a rock and a hard place of massively cutting spending and or aggressively raising taxes. Studies reviewing the experience with European austerity measures and other measures taken by select OECD countries to stabilize their government finances indicate that the most successful deficit reduction strategies focus on spending cuts, especially to social programs and government bureaucracies. Increasing taxes was less effective at reducing deficits and more economically harmful.

"Earlier this year I came to the Senate floor and outlined a number of foreign policy principles that have served our nation well in the past and which I believe would serve us well in the future. In doing so, it was my hope that these principles would serve as the basis of steady bipartisan cooperation between the Senate and the new administration. These principles transcend party; they're time-tested; and they can be summed up in a single sentence: the cornerstone of national security policy lies in maintaining a strong and ready defense and in keeping our alliances strong. "As the Senate continues to debate the Defense Authorization bill, I'd like to take the opportunity to reiterate the importance of this fundamental principle of action and to highlight something that seriously endangers our ability to uphold it. I'm referring to our nation's staggering national debt. "The national debt threatens our way of life; it threatens the value of our national currency; and it threatens our ability to pay for entitlements that millions of Americans depend on. Yet, just as importantly, the national debt also endangers our position in the world, the long term capabilities of our military, and the long-term viability of the all-volunteer force that is currently serving us so ably and courageously in two very challenging wars. And that's why it's increasingly urgent that we focus on this growing threat -- and do something about it. "Let's put the current situation in context. The story of the American military over the past century reflects what historians have described as a feast or famine approach to defense. The pattern goes back at least as far as our entry into World War I, and extends through our involvement in World War II, the Korean War, and . In every case, the military underwent an abrupt expansion of manpower and armaments only to be followed by calls for a drawdown in the size of our force and a reduction in defense spending. This pattern, though not always well-advised, may have been understandable in some cases in the past. But the nature of our current threats and position in the world makes it indefensible today. "With developments in weapons technology, America no longer has the luxury of isolation. And September 11th showed us that we can no longer leave ungoverned territories unwatched. The demands on today's military are constant. We're either on offense, or we're at risk. Feast or famine and isolationism no longer work. "And this is why our ever-growing national debt is so perilous -- because even those who believe as I do that a strong and ready defense is the cornerstone of our security won't be able to guarantee it if current fiscal trends persist. Put simply: if we do nothing to pay down this debt and address the needs of Social Security, Medicare, and Medicaid, then America risks finding itself so weakened financially that some day in the not-too-distant future we just won't have the resources we need to equip and maintain our forces in the places they're needed most. "Consider the fact that the federal government is now spending an average of $100 million dollars a day just to pay the interest on a single piece of legislation, the Trillion Dollar Stimulus Bill that Congress passed earlier this year. Or that it's estimated we'll pay $347 billion in interest on just this one bill over the next ten years. At current rates of spending, that's enough to provide health care for our nation's veterans for more than five years. It's enough to cover the salaries and benefits of all our active duty and reserve forces for two and a half years. Or it's nearly $350 billion we could put back into the pockets of the American people at a time when they could really use it. "And that's just one piece of legislation. Now imagine what it costs to finance our entire national debt. By the end of the decade, it's estimated that under the President's budget we'll spend nearly $800 billion dollars a year just to cover the interest on the national credit card--not reducing what we owe, but just keeping the creditors from knocking on the door. Here's the frightening part of where we are: by 2017, the amount of money we're expected to spend on interest alone will exceed the amount of money we're expected to spend that year on all of Defense. "The implications of this for our national security are clear. More and more, our ability to deploy forces with state-of-the-art weaponry is in competition with our financial obligation to the countries that hold our debt, and we get closer to the day when countries that hold large amounts of debt, such as and , could directly influence the foreign policy decisions of a future president. "We also get closer to the day when our allies and partners will rethink the value of a relationship with the United States. "Sooner or later, we'll have to face the fact that we're on a path that leads to some very unpleasant choices. Either we default on our debts, which we will not do, print more money to cover those debts and tempt a massive inflationary spiral, or be forced to withdraw from our security commitments, just as did at the end of the Second World War. 's all-volunteer force costs a lot of money to maintain. Indeed, one of the major reasons we've been able to avoid conscription in this country since the Vietnam War has been our ability to maintain recruiting and retention policies through an attractive retirement system, recruiting bonuses, incentive pay and sensible housing allowances. In current dollars, military personnel costs have increased from $69 billion to $131 billion a year over the past decade. "But these necessary expenses will soon be crowded out by the growing cost of long-term entitlements and the growing principal and higher and higher interest payments on our debt. And spending increases we now regard as necessary may no longer be possible. The choice is clear: in order to provide for the common defense, we must reform entitlement programs that are consuming a larger and larger share of our budget and reduce the national debt. "Cutting $100 million dollars here or there in discretionary costs won't do the trick. In 1965, discretionary spending accounted for 62% of the budget. Today, it accounts for just 38%. As discretionary spending has become a smaller and smaller part of the pie, mandatory spending on entitlements and debt has become a bigger and bigger part of the pie. In 1965, mandatory spending and interest accounted for 38% of the budget. Today, they account for 62% -- or nearly two-thirds of the entire budget. "This means that in order to face our problem head on, we'll have to address the problem of entitlement spending. And the only serious option on the table is the Conrad-Gregg proposal, which would provide a clear pathway for fixing these long-term challenges by forcing us to get debt and spending under control. I've had a number of good conversations about this proposal with the President. Based on those conversations, I'm hopeful it will be given serious attention. For the safety and security of our nation the Conrad-Gregg proposal deserves broad bipartisan support. "Every Secretary of Defense must confront the tension between 's near-term readiness and future investment. But some future Defense Secretary will no longer be able to make either choice if we do nothing to address the problem of long-term debt. Regardless of the global threats we face, we will be forced to field a smaller and less capable force. The money just won't be there. When most Americans think about threats to our security, they come up with a standard list. But few people include our growing national debt. They should -- because it's real, and it's serious. "Based on current trends, it's quite possible to imagine some future Chairman of the Joint Chiefs of Staff walking into the Oval Office one day and informing the Commander in Chief that he has a choice: he can either protect the sea lanes in the or he can protect the sea lanes in the . But he can't do both. And on that day the United States of America will no longer be the guarantor of the international trading system, sea lines of communication, the security of our allies, or even our own independence.

Increased vulnerability to crises. A large debt burden also constrains the U.S. government’s ability to respond to domestic and international crises. CBO explains:

“Having a small amount of debt outstanding gives policymakers the ability to borrow to address significant unexpected events such as recessions, financial crises, and wars. A large amount of debt, however, leaves less flexibility for government actions to address financial and economic crises, which, in many countries, have been very costly to the government (as well as to residents). A large amount of debt could also harm national security by constraining military spending in times of crisis or limiting the ability to prepare for a crisis.”

(Rudolph, Phd in economics from the Johns Hopkins University, Institute fellow at the Urban Institute, frmr assistant director for economic policy at the Office of Management and Budget, “A U.S. FISCAL CRISIS?,” pg online @ https://www.urban.org/sites/default/files/publication/99224/a_u.s._fiscal_crisis.pdf //um-ef)

The U.S. is unusual in that defense spending constitutes a significant share of its budget at 15 percent. That amounts to 3.1 % of GDP as opposed to a NATO target of 2% for its members. If a fiscal crisis comes, it is difficult to predict what may happen to the U. S. defense budget. It will very probably be cut, but the size of the cuts are likely to depend on international risks at the time. One can, of course, find waste in defense and nondefense discretionary spending and in entitlements dominated by the non-aged population, but such programs have been squeezed for decades by the inexorable growth of Social Security and health programs. Nevertheless, I would expect discretionary programs to bear some of the pain.

Increased vulnerability to crises. A large debt burden also constrains the U.S. government’s ability to respond to domestic and international crises. CBO explains:

“Having a small amount of debt outstanding gives policymakers the ability to borrow to address significant unexpected events such as recessions, financial crises, and wars. A large amount of debt, however, leaves less flexibility for government actions to address financial and economic crises, which, in many countries, have been very costly to the government (as well as to residents). A large amount of debt could also harm national security by constraining military spending in times of crisis or limiting the ability to prepare for a crisis.”

As the global economy appears headed toward recovery, concerns are growing that the United States' addiction to massive fiscal stimulus as an economic panacea could eventually lead to an even bigger crisis -- a loss of confidence in the U.S. dollar. Prominent voices are sounding dire warnings, worried that a gradual return to normalcy could undermine the political will needed to control deficit spending and prevent a disastrous long-term decline of the world's primary reserve currency. Nobel Prize-winning economist Paul A. Samuelson, for example, raised the specter of a "truly global financial panic" if countries funding the U.S. deficit, particularly China, decide their investments in U.S. Treasury securities are no longer safe. Similarly, Warren Buffett warned in The New York Times that side-effects of the current fiscal intervention could be as dangerous as the financial crisis recently averted -- in the form of inflation eroding the dollar's purchasing power. Preserving the dollar's strength has importance far beyond protecting American tourists from the shock of paying the equivalent of $25 for a hamburger in London or Tokyo. The U.S. dollar exchange rate is a key indicator of the nation's economic health relative to other countries. A declining dollar leaves Americans worse off by driving up the cost of living, making imports of manufactured goods and commodities more expensive, and reducing the value of foreign investments when converted to dollars. Economic experts are concerned about the dollar's health for a number of reasons. Most importantly, the scale of current trade and spending imbalances puts heavy downward pressure on the dollar's value over the long term. The U.S. imports far more goods and services than it exports, flooding international markets with dollars and undermining their value. The current account deficit -- the net balance of trade in goods, services, income and transfers -- was $700 billion in 2008. The U.S. trade deficit remains by far the world's largest, although it declined 35% in the first quarter of 2009 as the recession dramatically reduced demand for oil and other imports. "I see the potential for the dollar to deteriorate quite substantially in the long run," says Wharton finance professor Richard C. Marston, unless Congress and the Obama administration quickly reduce spending as the economy recovers. "If we continue to borrow from foreign countries to sustain our spending, eventually there will come a time when asset holders around the world will begin to wonder whether the U.S. is credit worthy," adds Marston, director of the Weiss Center for International Financial Research. Reflecting the size of the fiscal stimulus, the federal budget deficit is projected to be $1.6 trillion in 2009 -- the highest level since World War II -- amounting to 11% of gross domestic product (GDP), a dramatic increase from 3% in 2008. To fund its deficit spending, the U.S. depends on the willingness of major trading partners, such as China, Japan and Korea, to purchase and hold Treasury securities paying low interest rates. China has recently voiced serious concern about the potential inflationary impact of the U.S. fiscal stimulus on the value of China's $1.5 trillion in U.S. government securities and other dollar-denominated reserves.

On January 19, U.S. borrowing exceeded $31.4 trillion, the statutory debt limit. To continue borrowing, Treasury Secretary Janet Yellen began using so‐​called extraordinary measures (debt limit loopholes), buying the administration and Congress time to negotiate. Both parties are now amid a political showdown that may determine the future of U.S. fiscal policy.

Beyond click‐​bait headlines about a debt default, lawmakers and the public should know that if the debt continues to grow rapidly, it will bode ill for the U.S. economy, business investment, and government policy. High and rising debt slows growth, crowds out private investment, limits the government’s ability to respond to unforeseen emergencies, and elevates the risk of a sudden fiscal crisis where investors would lose confidence in U.S. Treasury bonds and the U.S. dollar.

The last time the U.S. government went to the brink of defaulting on its debt — in 2011 — the stock market tumbled and there was something close to a panic across the economy before Washington came to its senses and cut a deal.

Much the same scenario is unfolding now, with potentially even more dire consequences, and there are major differences between then and now that make a bad outcome far more likely.

Should the U.S. fail to pay its debts, in addition to creating havoc in global stock markets and sending the American economy into recession, it would trigger a sell-off in U.S. Treasury bonds, weakening the dollar and raising interest rates. This would affect foreign currency reserves held by other countries and make the costs of borrowing more expensive, potentially leading countries with already high levels of borrowing into a debt crisis.

"If interest rates in the United States go up, it's going to take all other interest rates up with it. It's going to make all other risk assets look very shaky," said Desmond Lachman, former deputy director at the International Monetary Fund and now a fellow at the American Enterprise Institute.

If Congress does not raise the debt ceiling, many problems can ensue. The government would default on its legal obligations, namely the interest on its current debt. In 2011, U.S. government spending reached the debt ceiling, and the economic fallout was considerable. The cost of government borrowing increased for two interrelated reasons: private bond holders' uncertainty about the asset encouraged them to sell off U.S. Treasury bonds, and credit rating agencies downgraded U.S. debt. This triggered downturns in the U.S. stock market, as uncertainty about the U.S.'s ability to honor its obligations generated uncertainty about other aspects of the nation's economy. Since many investors, pension funds, and states hold U.S. Treasury bonds as safe assets, these events spread the distress across the economy and internationally.

In the event Congress does not approve an increase of the debt limit, the Department of the Treasury would work to use 'extraordinary measures' to meet its obligations. This might include canceling certain spending commitments and spending all available cash it has on hand. If the government has committed to new public programs, failing to increase the debt limit will keep the government from being able to pay for those programs, assuming it doesn't scrap spending on other existing programs.

Trouble is brewing in the world of U.S. Treasury bonds, prompting concern among investors and some Washington policymakers.

U.S. Treasury bonds are a key pillar of the global financial system, but there are signs that the pool of interested buyers could be in danger of drying up as an unintended consequence of rising U.S. interest rates.

(Committee for a Responsible Federal Budget, Mitch Daniels Leon Panetta Tim Penny President Maya Macguineas Directors Barry Anderson Erskine Bowles Charles Bowsher Kent Conrad Dan Crippen Willis Gradison Jane Harman William Hoagland Jim Jones Lou Kerr Jim Kolbe Marjorie Margolies Dave Mccurdy James Mcintyre, Jr. David Minge Michael Nutter June O’neill Marne Obernauer, Jr. Rudolph Penner Robert Reischauer Charles Robb Isabel Sawhill Alan K. Simpson John Spratt Charlie Stenholm Gene Steuerle David Stockman John Tanner Tom Tauke Carol Cox Wait, “Risks and Threats from Deficits and Debt ,” pg online @ https://www.crfb.org/sites/default/files/media/documents/Risks_and_Threats_From_Deficits_and_Debt_July_2022.pdf //um-ef)

MMT has widely been panned by economists on the left and right, ranging from Paul Krugman to John Cochrane.7 Its proponents often articulate a contradictory framework that doesn’t withstand even the most basic scrutiny.8

In Why they are making an enemy of Russia? we looked at two of the key reasons why the US is making an enemy of Russia, namely the promotion of conflict by the powerful Defense industry lobby in order to keep its order books full, and the value of conjuring up an external enemy as a hate figure for the masses, in order to take the heat off the government. In this article we are going to look at what is arguably an even bigger reason, that was largely omitted in the earlier article, which is that Russia, in alliance with China, is threatening to bring an end to the dollar as the global reserve currency, which would mean the end of the American empire. We are witness to the greatest struggle of our age – the battle to maintain global dollar hegemony, and with it US economic, military and political dominance of the entire planet – and this struggle is now coming to a head. Notwithstanding its undeniably great accomplishments of the past hundred years, the relationship of the United States to the rest of the world is parasitic. This is because it creates money and debt instruments out of nothing, requiring virtually no effort, which it then swaps for goods and services with other countries. Because the US dollar is the global reserve currency, it is able to rack up astronomic deficits that would be untenable for any other country. US debts are now at such levels that if the US dollar loses its reserve currency status, the United States economy will implode and it will quickly be reduced to the status of a banana republic – hence the sense of urgency in the face of growing threats. Any state that moves to opt out of using the dollar as a medium of exchange is dealt with, forcibly if deemed necessary. The tactics are threefold – economic blockade (sanctions), the funding of an internal revolution, perhaps assisted by US special forces, and an outright military invasion, or perhaps a combination of the three. This is what happened in Iraq and Libya, both of which planned to trade their oil in currencies other than the dollar. Perhaps the greatest irony of all is that the world’s savings, via the Treasury market, are used to fund the vast US military machine with its hundreds of bases spread across the world which forcibly makes sure they stay yoked to this system. Enter Russia (and China), the biggest threat yet to dollar dominance. These large powerful neighbors have entered into various major currency and trade agreements in the recent past that do not involve the dollar, and therefore pose a serious threat to the dollar’s reserve currency status that left unchallenged would bring it to an end. Once you understand that you understand the reason for the recent propaganda blitz against Russia. In addition China has been busy mopping up the global gold supply for several years, as early preparation for the eventual backing of its currency by gold, which will put the final nail in the US’ coffin, as the unbacked dollar will collapse completely when this happens. A sad irony for the American people is that even though the US has the ability to swap unlimited intrinsically worthless paper for goods and services from the the rest of the world, the infrastructure of the country is crumbling and many Americans already live in poverty on “food stamps”, and even the great US middle class is being squeezed. This is because the elites don’t care about the country or the masses – all they care about is power and the amassing of personal fortunes. If you are any good at playing chess you should find it very easy to understand the power game as it now stands. The US wants to “deal with Russia” which has made substantial moves to operate outside the confines of the dollar based trading system. If it could attack it militarily and bomb it into submission, as it has done with various smaller states, it would, but because Russia is a big powerful country with a sizeable military of its own, and nukes, that is not an option. Efforts to subvert the Russian government from within and foment revolution probably wouldn’t work, because the Russian secret services are good at rooting out subversives, and probably as ruthless as the US black ops. That only leaves the option of an economic blockade – sanctions, in an effort to isolate and mortally weaken the Russia economy, and as we know, these sanctions are already in place. But what excuse do you use to impose sanctions? - after all, it doesn’t sound too good to go on BBC World News and say “Russia has decided to implement trade agreements that don’t involve the US dollar, so we are going to blockade it economically” - enter the Ukraine. The US searched for a geographic doorway through which to attack Russia – the North and east routes don’t work because they are either ocean or China, countries like Poland in Europe wouldn’t do either, because they are firmly in the Western camp now, but the Ukraine was perfect for the job because of its being a large country on the SW flank of Russia that is torn in two directions, having old loyalties and blood ties to Russia, and aspirations to a closer union with Europe – the perfect place to foment a pro-Western revolution and perhaps a civil war that would draw Russia in and could then be used as an excuse to implement sanctions. That is exactly what has happened. So now we have sanctions, but the problem for the US is this – they probably won’t work. They will cause damage, especially to the fools in Europe who have slavishly followed their orders from Washington to implement them, but they probably won’t destroy the Russian economy as the US is hoping. This is because the Russian economy is very big and can if necessary operate on a self-sufficient basis, especially as it has its own oil and gas, and an important supportive factor is that it has a big powerful neighbor in the form of China which knows it will be “in the firing line” after Russia, and is thus quite happy to enter into a mutually supportive relationship with Russia. China and Russia look set to form a “dollar free” axis and tough it out with Washington. The Chinese have worked all this out in advance, as has Putin, which is why, in addition to mopping up all the gold available on the market in recent times to later back its currency, it has been beefing up its military in readiness to counter future threats from the US military, which is already making moves to reopen bases in the Philippines, and engaging in other expansionary measures in the west Pacific. Meanwhile, in the Mid-East, we have the Islamic State movement, which appears to have arisen spontaneously to fill the power vacuum that was created when US forces quit Iraq. We should not forget that although Iraq has existed for many decades, the country is an artificial creation of the British after the collapse of the Ottoman Empire in order to control the region and its oil reserves. The US is trying to stop them with air power, but without “boots on the ground” they are unlikely to succeed. Although Israel is looking on with satisfaction as Arab kills Arab, it had better hope that the dollar doesn’t lose its reserve currency status, or they could be in big trouble as the conveyor belt of money and arms across the Atlantic from the US could grind to a halt. The situation between the US and Russia (and in the future China) is potentially very dangerous – is already very dangerous. Are they (the US elites and NATO) crazy enough to start a World War? – World War III? Sure they are and you can see the potential for it in the continual provocation and brinksmanship that is already going on, a fine example of which being the rabid and almost hysterical reaction to the Russian aid convey that just went across the border into eastern Ukraine. What they could have said to Russia, if they were reasonable, is “Thank you for going to the trouble and expense of organizing a big relief convoy for the besieged people of the cities of eastern Ukraine, who have no electricity, food or water.” Instead their reaction was one of sanctimonious outrage – “How dare you cross the border of this sovereign state without the permission of their government? – This is a grave escalation.” etc and are using it as an excuse to crank up sanctions even more. The situation in eastern Ukraine and involving the Russian aid convey is a classic example of how propaganda can be used to turn white into black. The way it worked is this; the humanitarian situation for countless thousands of people holed up in big cities in eastern Ukraine, like Donetsk and Luhansk, is dire. They have been relentlessly shelled and have little or no electricity, food or water. Many of these people are either Russian speaking or of Russian descent, so it is natural for Russia to want to go to their aid. So Russia went to the trouble and expense of organizing a big relief convoy. The controlled Western media have downplayed this crisis which affects countless thousands, hardly reporting on it at all, but they have had plenty of airtime – much more – for one American reporter gruesomely executed by a British Jihadist. They have done this because they don’t want people to be aware of the attacks being carried by the Ukraine government against its own people, which they back, and they don’t want people to understand the reason for the Russian aid convoy, so that they can then misrepresent the reasons for the aid convoy. The allegations by the Western media that the aid convoy has military objectives is absurd – you don’t need to be a truck driver to know that it’s very difficult to squeeze a tank or an armored troop carrier into an average sized truck. The protest that Russia is “violating Ukraine’s territorial integrity” by driving the trucks on through without permission is hypocritical cant and humbug, especially coming from a country that invaded Iraq on false pretenses, the mythical “weapons of mass destruction”. If Kiev wasn’t massacring its own citizens in eastern Ukraine, the aid convoy wouldn’t be necessary, and the reason that the trucks pressed on into Ukraine is that they were being deliberately messed about for a week at the border, when vetting the trucks should have taken 2 days maximum. So there you see a fine example of propaganda by omission, the purpose being to misrepresent the objectives of the Russian aid convoy, in order to present it as an act of aggression by Russia and therefore as a justification for a further tightening of sanctions. Let’s go back to first principles for a moment and ask ourselves why the US is so concerned about what happens in the Ukraine, which is a country on the other side of the world from the US and therefore none of its business, unless that is it fancies itself as the new Roman Empire – perhaps Barack Obama believes himself to be a latter day Julius Caesar, which conjures up the vision of him entering Congress as if it was the Coliseum, dressed in a white robe and sandals, with a laurel wreath on his head. The US does in fact command an empire, and uses the dollar reserve currency system and its massive military to control its dominions, punishing severely any that try to break out of it. However, its dominions do not include China and Russia, which cannot be subjugated due to their big economies and their ability to physically defend themselves with nukes, if need be, and they are destined to dethrone the dollar and collapse the empire, which is completely rotted out internally, stricken as it is with massive debts and hopelessly corrupt government, as evidenced by the recent train of deplorable leaders. It is hard to overstate the stupidity of Europe in toadying to the US and imposing sanctions on Russia (in other words starting a trade war). Russia is not some Third World banana republic, it is an important world power, and the act of imposing sanctions on it by Europe and the US is a gross insult and extreme provocation that will have disastrous consequences, particularly since it is now allied with China, with which it will now work assiduously to completely bypass the dollar. China knows that if the US succeeds in destroying Russia economically and subjugating it, then it’s next, so we can expect China and Russia to forge a very powerful alliance. Europe’s economy is already extremely fragile, and it stands to lose far more over the short to medium-term than the US by picking a fight it can’t win with its huge neighbor. Europe now faces a plunging currency and disintegration with the rise of far right political parties leading eventually to tribal wars – European countries have a long tradition of idiotic destructive attritional wars. Russia will probably get along alright, with its big internal economy and new trade agreements with China. The rabid propaganda now being bandied about in Western media, especially with respect to Russia, is so crude and primitive that it would have even made the Nazi propaganda maestro, Dr Goebbels, blush with embarrassment, and you couldn’t accuse him of underestimating the stupidity of the masses. We haven’t seen this sort of thing since before the 2nd World War. What does it mean? – it means that the Western elites are DESPERATE, desperate in the face of a looming collapse of the dollar caused by its losing its reserve currency status – so desperate that you can practically see the perspiration running down their faces. It’s true that the dollar is rallying now temporarily because of the gathering collapse of Europe, and may continue to benefit from this for a while, and possibly soon from stockmarket liquidation too, but they are looking beyond that. Once the dollar goes their empire is finished – it will no longer be possible to maintain careening astronomic deficits, there will be no more limitless funds for the military machine many of whose bases could end up looking like the town of Pripyat near Chernobyl, no more imposing their will by force anywhere in the world, no more imposing fines on foreign banks and institutions for not doing things their way, no more money and arms for Israel, no more massive bonuses on Wall St etc. The rapid spread of destitution and poverty amongst the masses in the US means that a state of anarchy could well erupt that sees the mansions and citadels of the elites ransacked by the mob, and they are well aware of this possibility, which is the reason for the militarization of police forces across the country, as recently demonstrated in Ferguson, Missouri, and the stockpiling of vast quantities of ammo. The biggest danger arising out of all this is that desperate people do desperate things, and the recent crude “gloves off” propaganda blitz is certainly a sign of desperation. It’s been a long time since a really big war and you can see from their increasingly reckless words and actions that they are lusting for it. It is one of the supreme ironies of this time that amidst all the maudlin sentimentality over the start of the 1st World War exactly 100 years ago, they are bringing us to the brink of another. Could it cross the line and go nuclear? – given the reckless aggression and brinksmanship already being displayed, that is certainly a possibility. They can mass all the arms and missile batteries along Russia’s western border they like, perhaps promoting the paranoid notion that Russia wants to take back Eastern Europe, which it doesn’t, but it will never amount to anything more than a costly bluff, because if they ever dared attack Russia, then European cities would disappear under mushroom clouds. The underlying reason for such operations would probably be more lucrative contracts for the defense industry. Remember, it wasn’t the elites who got killed in the 1st World War, it was the hapless young fools who thought they were doing the honorable thing going off to fight for their countries. So you’d better get good at seeing through the thick smog of propaganda in order that you understand what’s really going on and can take the necessary steps to protect yourself – if you don’t it could cost you and your loved ones more than just your property and investments, it could cost you your lives. Many people suffer from vague uncertainties – they know something is wrong, but can’t put their finger on it. This is because they are not privy to “The Grand Plan” and believe the lies and misinformation carefully and skillfully served up to them by the compliant media, whose masters view the masses as sheep and treat them like mushrooms – “Feed them shit and keep them in the dark”. But once you become aware of the game plan, it is liberating, and spotting the lies and misinformation in the media becomes a kind of sport. Knowledge is power, and if you figure out that the dollar is going to collapse after its current rally – which could have quite a way to go incidentally – then you know to position yourself to escape the catastrophic effects of its eventual collapse and even profit handsomely from it – that is when gold and silver will do their moonshot of course, and it could coincide with the Chinese backing their currency with gold. In conclusion, the answer to the question posed by this article “Will the US succeed in breaking Russia to maintain dollar hegemony?” is: “No, it won’t”, which means that the dollar is going to collapse, probably right after its swansong “death of Europe” rally, which is currently in progress.

A GOVERNMENT with debt denominated in its own currency need never default, or so the theory goes. It can simply print more money to pay off the debt. In practice, however, countries do default on local-currency debt: six have done so in the past 15 years, including Jamaica, Russia and Ecuador. Before this week’s budget deal, markets had feared that America could join the list, if only in a technical sense. From the point of view of a creditor, however, the ability of a government to print money is of little comfort if the result is higher inflation (for domestic investors) or currency depreciation (for foreign ones). Investors who bought Treasury bonds in 1946, when yields were around current levels, did not suffer a formal default. But over the following 35 years they lost money in real terms at a rate of 2% a year. The cumulative real loss was 91%. By that standard, Greek creditors, who recently suffered a 50% loss via default, were lucky. Given this baleful history, the idea that sovereign debt is “risk-free” is puzzling. When it comes to the purchasing power of an investor’s money, what does it matter if the loss comes in the form of a formal default or erosion in real terms? The answer to that conundrum may be that default happens suddenly, whereas inflation and depreciation are slower, giving investors more time to adjust by demanding higher interest rates to compensate for their losses. This is particularly true in the case of short-term debt, such as Treasury bills; inflation is unlikely to do serious damage to a portfolio in the course of a few months. Twenty years ago there was much talk of “bond vigilantes” who would respond to irresponsible fiscal policies by forcing up the interest rates on government debt. With the bond vigilantes on the prowl, any short-term real loss suffered by investors would be recouped in the form of higher real rates as the government’s debt was refinanced. But by buying bonds in the name of “quantitative easing”, central banks are influencing interest rates of all maturities these days. By holding down bond yields, the authorities are employing a policy some have dubbed “financial repression”, in which real returns on government debt are reduced. The idea is to make investors buy riskier assets, such as equities and corporate bonds. In effect, the bond vigilantes have been neutered. One way of protecting the real value of investors’ bond holdings is to buy inflation-linked debt. The repayment value and interest payments on such bonds are normally tied to a well-known inflation index. But even these bonds may not be completely risk-free; it is possible to imagine that future governments may find ways to redefine the inflation measure for their own benefit. And foreign buyers of inflation-linked bonds are still at risk from currency depreciation. Inflation-linked bonds are extremely attractive to pension funds, since they are a neat match for the funds’ liabilities. So such bonds are snapped up quickly and tend to trade on low real yields; sometimes, those yields are even negative. An asset is hardly risk-free if it guarantees a real loss. The concept of a risk-free asset is quite useful in finance. For a start, it provides the base from which other assets can be priced. Corporate borrowers pay an interest premium over the risk-free rate; equities have offered a higher long-term return than government bonds to reflect their higher risk. But what is the true risk-free rate? Multinational companies can borrow at a lower rate of interest than some governments: compare Apple with Greece, for example. And although America is the world’s biggest economy, its government does not borrow at the cheapest rate on the planet: Japanese yields have been lower for many years and German long-term yields are now significantly below those of Treasuries. Where America does have a substantial advantage is that it borrows in the world’s reserve currency—the dollar—and that its debt market is by far the most liquid. The result is that Treasury bills, in particular, play a vital role in the system as cash equivalents and as collateral for short-term loans and derivative contracts. Treasury bills are seen as risk-free in this context in that they are instantly and universally acceptable to all participants in the system. They are the oil that lubricates the global machinery of finance. That was the real risk of the latest stand-off: not that America would not pay its bills, which it could easily afford to, but that the system would grind to a halt.

(William G. Gale, Samuel Brown, and Fernando Saltiel, “Carbon Taxes as Part of the Fiscal Solution,” pg online @ https://www.brookings.edu/research/carbon-taxes-as-part-of-the-fiscal-solution/ //um-ef)

Containing deficits matters for several reasons. Sustained deficits may enhance the risk of a financial crisis. Even in the absence of precipitating a financial crisis, however, sustained deficits have deleterious long-term effects, as they translate into lower national savings, higher interest rates, and increased indebtedness to foreign investors, all of which reduce future national income. In addition to the growth impacts, sustained deficits may impose unfair burdens on future generations and may constrain U.S. foreign policy or defense positions, especially as they relate to creditor nations. Gale and Orszag (2004b) estimate that a 1 percent of GDP increase in the deficit will raise interest rates by 25 to 35 basis points in the United States and reduce national saving by 0.5 to 0.8 percentage points. Engen and Hubbard (2004) obtain similar results with respect to interest rates. Thus, relative to a balanced budget, this study suggests a deficit equal to 6 percent of GDP would raise interest rates by at least 150 basis points and reduce the national saving rate by at least 3 percent of GDP. The IMF (2010) estimates that, in advanced economies, an increase of 10 percentage points in the initial debt/GDP ratio reduces future GDP growth rates by 0.15 percentage points. Hence (if this result is extrapolated linearly, and we do so with caution, since it would be easy to think of reasons that would make a larger debt change have more-than-proportional or less-than-proportional effects), the increase in the debt-to-GDP ratio from about 40 percent earlier in the decade to 85 percent by 2022 (Auerbach and Gale 2012) would be expected to reduce the growth rate by a whopping 0.675 percentage points. Thus a deficit reduction plan that included tax increases (at least on that did not primarily rely on raising taxes on savings and investment) could, on balance, help spur economic growth in contrast to continuing policy as normal.