Roland C. Eyears

The Six Ways Government Pays Its Bills

As published in the current edition of Our Town

As Chairman of the Federal Reserve, which is neither federal nor possessed of reserves, Alan Greenspan wields an obscene, even unlawful, amount of power over our nation. He's also very old and fireproof. So he had nothing to lose by testifying on February 25 that there's a funding problem with Social Security/ Medicare. But we must not increase taxes, he said. Instead, we should cut payments to recipients.

The principal way our government finances obligations, lavish benefits, wars, and journeys where no man has gone before is by taxing. Pay or go to prison. It's private debtors' prisons that belong in the distant past. Many taxes are embodied, that is, buried in product cost. For example, a loaf of bread contains over 100 different taxes. Nearly half a new Cadillac is taxes. There are income taxes, some legal and some not. Excise taxes are levied on licenses, privileges granted by government. Some taxes are called user fees. When tax levels get so high there is talk of revolt, peaceful or otherwise, government backs off. According to the Office of Budget and Management, taxes account for 85 percent of spendable funds.

The second way is borrowing. On a typical day, the national government floats billions in treasury bonds, notes, etc. That draws down the money pool, leaving fewer dollars for private, job building borrowing while forcing rates up. The OMB says this is the other 15 percent.

Number three is simply printing more paper. Money has three basic functions: medium of exchange, measure of value, and storage of wealth. Start-up societies go through stages. Initially, scarce commodities are used as money. One would attach higher value to a tiger's tooth than a more easily acquired rabbit's tooth. People distrust young money. Will anyone accept it in payment? Will it hold value? Next comes full-bodied money with intrinsic value. Even if a $50 gold coin is not acceptable as money, it will work if it contains $50 worth of gold. Eventually, politicians insist on lightening people's load by replacing such coins with paper - promises to pay on demand, secured by gold in storage. Then they drop the ratio. Fifty dollars might be backed by only two dollars of gold. On August 15, 1971, Nixon took the country completely off the gold standard. Since then our currency has been "fiat" money, token bucks backed only by the promises of politicians. The great importance of this is that paper currency can be printed without limit. And every new dollar added to the money supply makes every other dollar worth less. This may be the cruelest, most devious way to finance.

Can this trigger runaway inflation? The Weimar Republic of post-World War I Germany saw inflation soar to a factor of 26,000 to one. I heard first-hand from a man who sold his home to fund retirement. Four months later that money would buy him a sweater. Since taking office, Alan Greenspan has expanded the money supply more than it previously grew since the birth of the Fed in 1913, over $5 trillion just within the last 9 years.

Number four is privatization and mandates. National assets, infrastructure, are sold to individuals and corporations. Further, the private sector may be ordered to perform services without compensation.

Number five is the repudiation of debt - telling creditor nations to go pound sand. What are they going to do, invade? The Russian Bolsheviks did it in 1917. Argentina repudiated $110 billion in 2002. Mexico verged on default in the nineties, but the New York bankers had too much money in that rat hole. So U.S. taxpayers bailed out another corrupt regime.

Number six is plunder. Using this system the Roman Empire prospered for most of its last two centuries. For hundreds of years the crowns of Europe sent soldiers across the globe to conquer the natives and ship treasure home. Have we done this? We started the Spanish-American War, so we could seize territory. We sponsored Panamanian rebels so we could cut a canal deal with a more cooperative government. We almost occupied Saudi Arabia in 1973.

Domestic plunder takes the form of civil forfeiture, greatly expanded by the Comprehensive Crime Control Act of 1984. Since then, assets exceeding $10 billion have been taken from Americans, often without anyone having been charged with a crime.

The temptation to buy elections and respect with other people's money is irresistible to elitist politicians. After all, there's plenty where that came from. Or is there?