Paul Volcker has coasted through his life being revered by most pundits. However, previous commentaries have not been so kind in evaluating this infamous central banker. Volcker recently penned a piece for the New York Times titled “Ignoring the Debt Problem” . In writing this piece; Volcker has demonstrated at the least that he is severely irony-impaired. At worst, Volcker has shown the world that he is a shameless hypocrite. As an aside, he is also apparently incapable of performing simple arithmetic.
Insults, invective and pandering have been poor substitutes for serious debate about the direction in which this country is going — or should be going. And a sound and sustainable fiscal structure is a key ingredient of any viable economic policy.
Yes, this country can handle the nearly $600 billion federal deficit estimated for 2016. But the deficit has grown sharply this year, and will keep the national debt at about 75 percent of the gross domestic product, a ratio not seen since 1950, after the budget ballooned during World War II.
The picture Volcker paints is relatively clear. The infantile politicians of the U.S.’s Two-Party Dictatorship spend their time engaging in pointless grandstanding and/or juvenile mud-slinging at their supposed opponents rather than focusing on prudent fiscal management of the nation. Meanwhile, the United States is developing a severe debt problem. Unfortunately, Volcker’s self-serving description of the state of the U.S. economy and the (lack of) fiscal responsibility of the U.S. government bears little resemblance to the real world.
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The U.S. national debt is about 75% of GDP? What year was that Paul?
Anyone capable of Googling the U.S. “debt clock” will already know that the current, U.S. national mega-debt totals $19.7 trillion – and is rising rapidly. U.S. GDP for 2015 was reported at just under $18 trillion. Even if we back up the U.S. debt clock to the beginning of this year, we see that the U.S. debt-to-GDP ratio is well over 100%, and has been at that level for many years.
However, for those living in the real world, even a debt-to-GDP ratio for the U.S. of slightly more than 100% is a ridiculous understatement. U.S. GDP is systematically padded with more than $2 trillion/year of imaginary economic activity, thus real U.S. GDP is at an annual level somewhere below $16 trillion.
Then we have the U.S. “national debt”. The only U.S. statistical measurements which have been more heavily and systematically falsified than this number are U.S. inflation and job-creation mythology . To begin with, several $trillions of this debt have been fraudulently altered into “liabilities” instead of official debt, in order to pretend that the U.S.’s national debt is much lower than it is in reality.
This budget-fraud has been accomplished primarily via the U.S. government ransacking what it calls its government “trust funds”. Normally, a trust fund is a sacrosanct pool of wealth, with a legal firewall which prevents any encroachment on those funds. With the U.S. government, it treats its so-called trust funds the same way that a child treats his/her piggy-bank: it raids the funds any/every time it’s looking for some spending money.
This accounting fraud is illegal. If the U.S.’s suit-stuffers in Congress ever attempted such accounting chicanery in the real world, they would be immediately prosecuted for fraud. Beyond this, the U.S. government is carrying somewhere in the vicinity of $200 TRILLION in unfunded liabilities. In the real world, corporations are also required to account for their liabilities on their balance sheets. In the fantasy-world of the U.S. government, this $200 trillion is completely ignored in calculating its fiscal status.
The real U.S. debt-to-GDP ratio is somewhere around 150% (even without the $200 trillion in unfunded liabilities), making the United States one of the Western world’s worst deadbeat debtors. The U.S. is well past merely having a “debt problem”, it is hopelessly insolvent. However, let’s put aside the phony numbers on U.S. GDP and the fraudulent numbers on U.S. debt. The real, salient point here as Paul Volcker accuses American politicians of ignoring the U.S.’s obvious insolvency is that Volcker himself was the original architect of that insolvency.
Volcker continues spewing fiction:
Our current debt may be manageable at a time of unprecedentedly low interest rates. But if we let our debt grow, and interest rates normalize, the interest burden alone would choke our budget and squeeze out other essential spending. There would be no room for the infrastructure programs and the defense rebuilding that today have wide support.
Manageable? What Volcker conveniently leaves out of his fairy-tale is that there is no one buying any of the fraud-bonds of Western governments except other Western governments – a daisy-chain of debt. It’s only through conjuring near-infinite quantities of (worthless) funny-money to buy each other’s bonds that these deadbeat regimes are paying the lowest interest rates in history at a time of mass insolvency. See what sort of interest rate your banker offers you, when you’re so broke you have to borrow money to pay the interest on your debts .
If Western interest rates were normalized today, virtually every Western government would be bankrupt within a year. Here it must be understood that “normal” interest rates for regimes which are carrying the highest debts in history mean interest rates which are above average, not far, far, far below average.
To suggest that essential spending would be “squeezed out” by normalized interest rates is absurd understatement. Normal interest rates would mean at least a quintupling of U.S. interest payments, to more than $1 trillion per year (and rising). As for infrastructure, there is hardly any (non-military) infrastructure being built in the West today – even with our fraudulent interest rates. Only the Western war machines remain fully funded.
Laughably, Volcker is celebrated as the central banker who supposedly vanquished inflation. Anyone comparing consumer prices in the 1980’s with consumer prices today knows that Volcker never accomplished anything more than a brief pause in the inflation rate — inflation created by central bank money-printing from people such as himself.
The Volcker policy which briefly blunted inflation was the most-draconian interest rate policy ever seen in the modern history of the global economy. Volcker drove up the U.S. benchmark interest rate as high as 20%, with interest rates around the world driven to similar levels. While Volcker was driving up interest rates to several multiples of the norm, he was simultaneously doing something else: driving up interest payments on sovereign debts, all over the world .
Paul Volcker is the Father of Global Insolvency. This one economic criminal did more to drown the world in debt than every other central banker he preceded. During the “Reagan era” (i.e. the Volcker era), the U.S. national debt tripled – in a mere eight years. However, this is only the tip of the iceberg in terms of Volcker’s economic crimes against humanity.
Retrospectively, Volcker now claims personal credit for being the single figure most responsible for assassinating the gold standard. Among the virtues of the gold standard is that it made it impossible for central banks to engage in the sort of reckless money-printing which is now standard across the Western world. It also made it impossible for governments to run large operating deficits, since the gold standard enforces a balance of payments.
It is these attributes of the gold standard which caused gold-hater, John Keynes, to derisively christen the gold standard “the Golden Handcuffs” . According to Keynes, the two greatest virtues of the gold standard are supposedly its two greatest flaws. We thus have the following chronology. Paul Volcker drowned the world in debt as a response to Paul Volcker drowning the world in inflation – the near-instantaneous consequence of Paul Volcker abolishing the gold standard.
Volcker the Vulture now sheds crocodile tears over U.S. indebtedness. Totally absent from his Revisionist fiction is that no one is more responsible for the current fiscal status of the U.S. economy than Volcker himself.
Seeing Paul Volcker “warn” the U.S. government about debt is much like seeing his successor, Alan Greenspan warning people about asset bubbles. Both of these former central bankers are shameless hypocrites, warning us about sins for which they were the worst perpetrators. The global economy was solvent before Paul Volcker. It has never been the same since.
Article by Jeff Nielson, Sprott Money