National Debt and the Federal Reserve: An Economic Implosion Awaits?

Most Americans have no idea what the Federal Reserve actually gets up to.  If they truly knew, I suspect that many of them would be in the street waving fists and rabble-rousing with their neighbors; instead, people take note of the fact that they have raised or lowered rates, if even that much, and go about their lives as though nothing has changed.  Most people don’t know what the trade deficit is, except perhaps viewing it as ‘Oh, the country is a bit in debt.  Oh well!’ 

The vast majority of the American people truly don’t understand what that means.  The Current Account Deficit is in excess of about eight hundred billion dollars per year.  This translates into the fact that the American people as a whole is spending far more than it is making – and ravaging the US Dollar in the process.  The US economy currently requires more than two billion dollars of foreign investment per day just to stay afloat – take away even a fraction of that and we are up the proverbial creek.

It is common knowledge that current trade imbalances are unsustainable in the long term.  When things get to a certain point, US policies will likely trigger major economic chaos that could push the world into a global recession.  However, politicos in Washington and the Fed currently are stubbornly resisting any change in policy that might reduce the deficit or reverse current over-consumption trends.

It is of course impossible to fully anticipate the effects of a collapsing Dollar.  The US Dollar is unlike any other currency in the world – it is the current cornerstone of almost all of global economics and is certainly the centre of American economic power, not to mention political and military.  Without the US Dollar being of value as the internationally accepted reserve and trade currency, there is no way to predict what sort of economic repercussions there could be. 

Because of just this acceptance, the Federal Reserve is able to create credit without backing – out of thin air, as it were.  The Fed issues a baseless scrip in the purchase of goods and services of value from foreign countries.  This effectively puts a body of unelected bankers in charge of setting the interest rates which directly affect the entire global economy.  Except for coins, which only compromise about 0.1% of the total US money supply, all of our money is created by banks.  Federal Reserve Notes, which we know as dollar bills, are printed by the privately-held Federal Reserve and loaned to the US Government.