The National Non-Debt


Column by Paul Hein.

Exclusive to STR

Let’s look at a familiar aphorism: If a tree falls in the forest, and no one hears it, does it make a noise? Now let’s modify it: If an obligation is settled with an IOU, which is never to be paid, is there a debt?

In the first instance, we are asked whether there is a sound if no one hears it. In the second, if there is a debt if no one pays it. The first question is academic; the second of tremendous importance.

Our “monetary” system, which, incidentally, does not involve the use of money--a tangible means of exchange--provides no means of paying debts. True, you send a check each month to the credit card company, but you do not pay the debt--you merely settle it. That is because your check transfers bank liabilities from your account to your creditor's account. Bank deposits--checkbook “money”--constitute the liabilities of commercial banks, according to the Chicago Fed’s informative booklet, “Modern Money Mechanics.” How can your “deposit” into your bank account be regarded as a liability of the bank? Because the bank, which now owns the deposit, is “liable” to return it to you on demand.

Well, then, your creditors have merely to take your check to the bank, and demand that it honor its liabilities, right? With what will the bank honor its liability? Why with Federal Reserve Notes, of course. And what are they? According to law, they are “obligations of the United States.” So your “payment” has now gone from being a liability of the bank, to being an obligation of the United States. And will the United States honor its “obligation”?

Years ago, I sent a dollar bill to the Secretary of the Treasury with a note reminding him that the bill was an “obligation” of the United States, asking him to honor that obligation. He responded by returning my note, saying that his only obligation was to do so. Try it yourself if you need convincing that our “monetary” system is a gigantic swindle and con game.

So: If there is no actual means of paying debts, does the term “debt” mean anything? Does hunger mean anything if there is no food? Does thirst mean anything if there is no drink? Well yes, because food and drink are available to slake your appetite. But money? It doesn’t exist, having been replaced by promises. Very handy for the issuer of those promises! Of course, you, or anyone, could issue “liabilities” or “obligations” or, in other words, IOUs, to settle your debts. However, if you knew that you were not going to honor those IOUs, you’d be committing a crime. Fortunately for Uncle, he has, by virtue of the authority he has given himself, designated his own non-redeemable IOUs legal to tender, so if you have some of them, you needn’t worry about redemption--you can just go out and spend them--knowing them to be irredeemable--in lieu of money, with no fear of arrest and prosecution.

We are frequently warned that government spending is out of control, and will lead to the bankruptcy of the government unless the government can pay down its “debt.” That would be a disaster, however, even were it possible.

What passes for money today is not mined, or extracted from the earth. It is created by the banks with a few keystrokes. Obviously, the banks cannot run out of keystrokes, and the government, which the banks fund, cannot face bankruptcy as long as the banks continue to lend. The problem is not bankruptcy, but such increases in the amount of “money” in circulation--inflation--that its buying power shrinks to virtually nothing, as we’ve most recently seen in Zimbabwe. Then the whole con collapses.

Until that time, however, non-payment of the government’s debt is highly desirable for the banks and the government. Indeed, in my opinion, it was never contemplated that the government should pay its debts. The banks, after all, loaned the government “money” which they created at no cost to themselves. As long as the borrowing continues, interest payments will continue as well, running into the billions each month. Why would the banks want that to stop? And since the amount borrowed is always less than the amount to be repaid (thanks to interest), all the money in existence would not suffice to pay the debt, which is permanent and growing. In other words, if the government could, somehow, settle its debts, it would require every dollar in existence, and then the interest would still be owed. The system is designed to make indebtedness permanent, and profitable.

The extent to which you will suffer in the forthcoming economic collapse is directly proportional to the amount of “money” you’re holding. Tender it—legally--for something tangible while you still can.

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Paul Hein's picture
Columns on STR: 150


Thunderbolt's picture

Dr. Hein: Beautiful explanation of the perfect con game. Of course the government will, post collapse, try to steal anything tangible, to pay themselves.

Paul's picture

"What passes for money today is not mined, or extracted from the earth. It is created by the banks with a few keystrokes."

What is amazing to me is how long this farce continues. Print up some paper notes with dead presidents on them, and people continue to take them indefinitely - because others continue to take them as well, and because they can "always" be traded for things of actual value. Until they can't. And even those who understand the farce won't last forever, continue to use them.

We are like those cartoons of Wile E Coyote, who has just run off the cliff in pursuit of that annoying bird, standing in mid-air with nothing beneath us.

Glock27's picture

If you do not mind Paul. Would you share with us what form of monetary exchange you are using. Some say I am stupid, but I am collecting bottels and bottle's of liquor as my medium of exchange for what I need. I just picked up a bottle of 12 year old scotch for half the price listed. In times to come I am guesstimating it will be worth three times the face value. Of course if you don't drink I could be poop out of luck. I would go tobacco, but that goes bad in a short period of time unless you can freeze it. Toilet paper is a good one also, but for now I an standing over the edge of the cliff with an alternative under me.

eugenedw's picture

Around here (South Africa) there are lots of jewelry stores that sell necklaces made of 9 carat gold. These are fairly cheap, and the chains are rather simple in design and machine-made, so I would guess that most of the value resides in the gold itself rather than the value added by turning it into chains.

It seems to me that these may be an affordable way for people who live on a very low budget (like me!) to invest in gold, and should there be an economic collapse, bits of such chains can easily be snipped off and used as medium of exchange.

But I don't really know - would be interested to hear further comments on this.