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Debt ratios U.S. & Japan


Growth in GDP is mainted by growth in debt



Can the USA debt-spend its way out?

Posted by Steven Keen, Economics Professor, November 29, 2008




Reports that the USA government’s total financial commitments from the financial crisis now top US$5 trillion raise the obvious question “Can they afford it?”.

The answer isn’t obvious. Some economists, from a range of schools of economic thought, argue that the government sector (lumping the Treasury and the Federal Reserve together) has a limitless capacity to pay debt as a consequence of its status (especially since the US dollar is still the world’s reserve currency).

I don’t dispute the capacity of the government sector to issue debt. But if it is to service that debt then there are financial issues for both the government and taxpayers if the debt it takes on is huge.

The bailout may amount to swapping a small amount of private debt for a larger amount of public debt in the future. This certainly seems to be the history of Japan’s attempts to “pump prime” its way out of the collapse of its Bubble Economy.

I’ve recently managed to find official Japanese data on debt levels and long term US debt data (with some problems about series breaks, which are obvious in the following charts).  Japan has followed a traditional “Keynesian” approach to its crisis–running government deficits and on one occasion (2002) drastically increasing base money (by over 30 percent in one year). It is still mired in a long-running low-level Depression; inflation did start to pick up in the last year, but the economy has once again fallen into recession.

When its Bubble Economy burst at the end of 1990, aggregate Japanese debt was equivalent to 162% of GDP–consisting of a 108% private debt to GDP ratio and a 54% government ratio. In 2008, aggregate debt was 259% of GDP–made up of a slightly smaller private ratio of 94% and a much larger government ratio of 165%.

On this empirical record, the portents to the USA to be able to get out of this crisis by debt-financed government spending and direct financial sector bailouts–which effectively swap private debt for government debt–are not good. The latest Flow of Funds data records the aggregate US Debt to GDP ratio as 381% of GDP (with the private sector’s share of that being 290%). This is more than twice the level that the Japanese economy started with when it entered its Lost (Two?) Decade(s).


A must listen to this AUDIO CAST if you want to know what is and what will be: 

Pod Cast by Steve Keen, Australian Economics Professor, http://www.debtdeflation.com/podcast/debt,

Keen describe a $4 trillion dollar per year growth in debt/year, which can’t be paid off by a loan of $1 trillion to banking.  Moreover banking will use the funds not to stimulate the economy but to pay down their debt.   



Has Debt-Deflation Begun?


More Steve Keen (an Australian economist), November 20. 2008 at


Today’s CPI data from the US Bureau of Labor Statistics reveals that consumer prices fell by 1 percent in the month of September. This is the steepest monthly fall in the index since January 1938, and comes after two previous monthly falls (of 0.4 and 0.14 percent). It is therefore possible that a debt-deflationary process is underway.

There is no doubt that we are in a debt-induced economic crisis; America may now have entered a deflationary crisis as well. The combination of the two is the motive force that sets in train a Depression, as Irving Fisher explained in 1933, in his academic paper “The Debt-Deflation Theory of Great Depressions” (Econometrica, 1933, Volume 1, pp. 337-357).

According to Fisher, the steps that lead from a debt crisis, to falling prices, and a Depression are:

“(1) Debt liquidation leads to distress selling and to

(2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes

(3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be

(4) A still greater fall in the net worths of business, precipitating bankruptcies and

(5) A like fall in profits, which in a “capitalistic,” that is, a private-profit society, leads the concerns which are running at a loss to make

(6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies, and unemployment, lead to

(7) Pessimism and loss of confidence, which in turn lead to

(8) Hoarding and slowing down still more the velocity of circulation. The above eight changes cause

(9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.” (Econometrica, 1933, Volume 1, p. 342)



This process is starkly apparent in the US data. After 1930, everyone in the USA was trying to reduce debt–but the debt to GDP ratio rose nonetheless.


The ratio rose because prices fell by up to 10 percent per annum, and real GDP also collapsed by as much as 13 percent in one year (the GDP data is yearly and therefore understates the steepness of the fall in output). Attempts by individuals to pay down their debts were swamped by prices and incomes that fell faster still. The phenomenon that, as he put it, “the more debtors pay, the more they owe”, deserves to be named “Fisher’s Paradox” in his honour.



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For the best account of the Federal Reserve  (http://www.freedocumentaries.org/film.php?id=214).  One cannot understand U.S. politics, U.S. foreign policy, or the world-wide economic crisis unless one understands the role of the Federal Reserve Bank and its role in the financialization phenomena.  The same sort of national-banking relationships as in our country also exists in Japan and most of Europe. 


A democracy exists whenever those who are free and poor are in sovereign control of the government; an oligarchy when the control lies in the hands of the rich and better born.”—Aristotle

“All for ourselves, and nothing for anybody else,” Adam Smith called this the vile maximum of the masters of mankind.  Neoliberals call it, “trickle-down economics.” 


In 1963, John F. Kennedy issued Executive Order 11110 which would have removed the power of money creation from all US private banks, including the privately-owned Federal Reserve, and invested that power in the US Government. Unfortunately, Kennedy died suddenly a few weeks later and his plans died with him.


The Problems of Debt

In the USA 100% of the money supply is created by the private banks. In Britain the figure is over 97%. In the rest of the world, the figure is estimated to be over 95%. All this money is created as a debt. It is created when people borrow money, as banks do not lend existing money; they just create new money out of thin air to lend.

Money created as a debt by the banks bears a charge of interest. This increases the amount of money that the economy owes by an amount greater than the amount in existence. This means that the economy is a saddled with a debt that can never be paid off, merely passed around like a game of Pass-the-Parcel in a Belfast pub. It is like a game of musical chairs, where someone has to lose out.


A Solution

Money does not have to be based on debt, nor indeed does it have to be based on precious metals. Real wealth is the goods and services that people create for each other. Money is merely a means of exchange. It could be created by HM Treasury and spent on providing public services, saving us all a modicum of taxation, and then the economy would not have to be saddled with large debts.

Executive Order 11110 issued by John F. Kennedy on June 4th 1963, from Wikipedia

This executive order allows the U.S. Secretary of the Treasury to issue $4.29 billion in silver certificates ($2 and $5 Notes) against silver bullion based on authority delegated by the President to the Secretary under the Thomas Amendment to the Agricultural Adjustment Act.


Silver certificates were printed without interest. The Order was for the Treasury to issue silver certificates against all silver held by the government which did not already have certificates against it. The Order was needed due to the passage of Public Law 88-36 which repealed the Silver Purchase Act and other related monetary measures. One result was that after the repeals, only the President could issue new silver certificates.  The Federal Reserve System could replace the certificates, but only in larger denominations. The thrust of the Order returned the authority to issue new silver certificates (and specify denominations) back to the U.S. Treasury.


This theory was further explored by U.S. Marine sniper and veteran police officer Craig Roberts in the 1994 book, Kill Zone.[28] Roberts theorized that the Executive Order was the beginning of a plan by Kennedy whose ultimate goal was to permanently do away with the United States Federal Reserve, and that Kennedy was murdered by a cabal of international bankers determined to foil this plan.  [jk finds this the most plausible of a dozen theories.  Kennedy had expressed extreme frustration of the Bay of Pigs failure and other issues with the CIA.  But it is hard to believe that the CIA would on its own, for to protect its power structure, kill the President.]

This executive order allowed for the Federal Reserve System to distribute and exchange currency at lower denominations that met the growing economic need. The authoritative basis for the Order was substantially nullified in 1982 with the passage of Public Law 97-258. The Order was never directly reversed, but in 1987, Executive Order 12608 [by Ronald Reagan] revoked the section that added by Executive Order 11110[1], essentially nullifying it.


Kennedy was killed by more than one shooter, and from 2 directions.  See Wikipedia Kennedy assassination conspiracy theories.


1)  Former U.S. Marine sniper Craig Roberts and Gunnery Sergeant Carlos Hathcock, who was the senior instructor for the U.S. Marine Corps Sniper Instructor School at Marine Corps Base Quantico in Quantico, Virginia, both said it could not be done as described by the FBI investigators. “Let me tell you what we did at Quantico,” Hathcock said. “We reconstructed the whole thing: the angle, the range, the moving target, the time limit, the obstacles, everything. I don’t know how many times we tried it, but we couldn’t duplicate what the Warren Commission said Oswald did. Now if I can’t do it, how in the world could a guy who was a non-qual on the rifle range and later only qualified 'marksman' do it?”[13]

2)  Robert McClelland, a physician in the emergency room who observed the head wound, testified that the back right part of the head was blown out with posterior cerebral tissue and some of the cerebellar tissue was missing. The size of the back head wound, according to his description, indicated it was an exit wound, and that a second shooter from the front delivered the fatal head shot.[11]

3)  Kennedy's death certificate located the bullet at the third thoracic vertebra — which is too low to have exited his throat.[14] Moreover, the bullet was traveling downward, since the shooter was by a sixth floor window. The autopsy cover sheet had a diagram of a body showing this same low placement at the third thoracic vertebra. The hole in back of Kennedy's shirt and jacket are also claimed to support a wound too low to be consistent with the Single Bullet Theory.[15][16]

These three facts are sufficient to prove that the Warren commission was a high-level cover-up




The Secrets of the Federal Reserve - Eustace Mullins
The Creature from Jekyll Island - the Federal Reserve - G. Edward Griffin
Web of Debt - The Shocking Truth About Our Money System - Ellen Hodgson Brown
The Case Against the Fed - Murray N. Rothbard

Naked Capitalist, The - W. Cleon Skousen
Wall Street and the Rise of Hitler - Anthony Sutton
A History of Money and Banking in the United States - Murray N. Rothbard

excerpts from the book 'Tragedy and Hope' - A History of the World in Our Time by Carroll Quigley, 1966


Follow the Money to Citibank
Dirty Laundry-Multinational banks as bagmen for global crime syndicates
U.S. Banks and the Dirty Money Empire
Shell Game - Citibank attacks money-laundering regulations
Explosive Revelations - banks, tax havens, and money laundering
Servicing Citi's Interests - GATS and the Bid to Remove Barriers
to Financial Firm GIobalization
Give Us 0.01 Percent - Tobin tax
The Federal Reserve (6/06)

Confessions of a banker - Following money trail through offshore operations of Citibank (8/06)
Federal Reserve Bank (3/07)
Credit as a Public Utility: the Key to Monetary Reform (5/07)

Who Owns The Federal Reserve? (10/08)
What Banks, Academics, the Media and Politicians Don't Tell You About Money - November 2008
The Federal Reserve Abolition Act (12/08)
Ground Zero on Wall Street - Nationalize Federal Reserve (12/08)
The Wall Street Ponzi Scheme called "Fractional Reserve" Banking (12/08)
Nationalize the Federal Reserve - "American Monetary Act" (2/09)
President Obama: Nationalize the Fed and Create Our Own Money (2/09)
A New Monetary System (3/09)
Thinking Positively About Monetary Policy - Nationalizing the Federal Reserve (3/09)

The Big Takeover - how Wall Street insiders are using the bailout to stage a revolution (4/09)
Revive Lincoln's Monetary Policy - an open letter to President Obama (4/09)
Top Senate Democrat: Bankers 'Own' the US Congress (5/09)
The Weimar Hyperinflation? Could it Happen Again? (5/09)
Manipulation: How Markets Really Work (5/09)
Ending Today's Economic Crisis Simply and Easily, in America and Globally (5/09)
What the Big Banks Have Won [Wall Street Bailout] (6/09)
Great American Bubble Machine - Goldman Sachs & market manipulation (7/09)



Teddy Roosevelt's advice that, "We must drive the special interests out of politics. The citizens of the United States must effectively control the mighty commercial forces which they have themselves called into being. There can be no effective control of corporations while their political activity remains."