Look at the photo of a dollar below:

See where it says “Federal Reserve Note” and where it says “This note is legal tender…”?   Dollars are notes or debts, that is, obligations of the Federal Reserve.  When the Federal Reserve buys US Treasury Bonds from the open market  and pays for them with dollars (a process some refer to as “monetization” or “printing money”), it and the marketplace has simply exchanged one form of debt for another.  The supply in the hands of the market of one kind of debt (dollars) increased while another (Treasury Bonds) decreased.   Long before the Federal Reserve got involved to exchange dollars for Treasury Bonds – when the Treasury bonds were first created and sold to the public – that’s when the notional value (that is, the proceeds) of those Treasury Bonds was attached to goods and services.  Increases in government debt, as well as increases in private debt (net), are inflationary.  But not the monetization of the debt by the Federal Reserve.

At present, we have a situation where private debt is being reduced faster than government debt is being increased so that, in aggregate, total debts are declining – this is deflationary.

Technically, the total supply of debt can increase in an amount equal to the amount which society saves each year without inflation.  Conversely, total debt (including new equity shares) must increase by the amount of savings each year, or… we will have deflation.

A China Business New survey shows that about 71% of Chinese economists believe China will favor gold over US debt:

“In a survey of major Chinese economists, more than two-thirds are reportedly bearish on the prospect of China increasing its holdings of US government bonds, and believe instead the nation should putting more of its hard-earned into gold.
According to a China Business News survey of 70 Chinese economists (including one foreign economist), the exact figure is 71.4% anti-bonds and pro-gold.

75.7% of the economists asked believe that China should increase its holdings of gold, with 48.6% opting for a slight increase while 27.1% think China should pile in.”

The survey also brings to light the question of whether China’s gold reserves should be increased.”

Oh well, the Federal Reserve will just have to buy all those T-bonds, the administraion will be selling this summer…no prob.

ml-implode.com reports that according to the CBO, social security will run out money much sooner than projected even last year due to reduced payroll tax receipts:

Last year, the CBO figured the surplus would be $80 billion this year and next, rising from those levels before falling to zero in about ten years. The most recent projections are for a slim $16 billion surplus this year and just $3 billion next year but, given the rosy predictions that usually come out of Washington, a deficit is certainly within the realm of possibilities.

This is bad. We were supposed to have until 2012 that Social Security would still be in a “surplus” — meaning more SS taxes were being taken in than outlays. Thus, Social Security would be contributing to the government’s general operating revenue until that time (the Social Security money taken in is not segregated in any way — it is just “tracked” through the holding of Treasury Securities).

Apparently, that “lucky” state of affairs is all but over — now the fund will have to start selling off its trillion or so of accumulated Treasuries, contributing to the overall funding problem of the Federal Government, at the worst possible time.

The US is bankrupt, folks. Its time to acknowledge it and deal with it.”