Yesterday Zero Hedge published "Charting US Debt and Deficit Since Inception", meaning since the first year of such US government statistics in 1792. The chart and comments speak quite well for themselves on both current US Government budget debt as a percent of GDP and total government debt as a percent of GDP.
Neither current huge tax increases nor current huge budgetary cuts can reduce the projected trillion dollar per year budget deficits projections of the Congressional Budget Office for EACH of the next four years. Only the Federal Reserve can do that and only by "buying" any and all new debt offered by the government, and in in return creating money out of thin air for the Treasury, as Zero Hedge tells us J P Morgan has predicted for 2013.
This milestone is much like what faced Germany in the early 1920's when a weakened economy collided with massive increases in social welfare government obligations (pensions, health care, disability payments, etc.) and potential war reparations.
As Max Warburg, Hamburg banker (and a signature founder of the Fed) and Reichsbank director, said in 1922, "the dilemma was whether one wished to stop the inflation and trigger the revolution, or continue to print money. Reichsbank head, Rudolf Havenstein, loyal servant of the state that he was, had no wish to destroy the last vestiges of the old order. If he had forced the government to raise taxes or cut expenditures he would have been accused of doing the work of the foreign collectors of war reparations OR of the recipients of government transfer payment .... [As it was]... von Havenstein elected to play for time, supplying the government with whatever money it needed. Contrary to popular myth, he was perfectly aware that printing money to finance the government deficit would bring on inflation, but he hoped it would be modest.... "
(from Lords of Finance: The Bankers Who Broke The World, Liaquat Ahamed, eISBN: 9781101403228, 2009; gently edited here by TED.) Not for the first time I recommend reading and re-reading many times this superb, very balanced book.
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