- The U.S. Treasury will default on contracts with investors,
mostly individuals, who loaned the government money in 1979 on the agreement
that they would receive 9.125 percent interest every year until their bonds
mature in the year 2009.
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- No longer will politicians and appointed bureaucrats
be able to brag that the United States has never failed to live up to its
obligation as the safest investment in the world. Investment is no longer
guaranteed.
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- The Bureau of Public Debt announcement claims that this
recall applies to about $4.6 billion in 30 year bonds issued on May 15,
1979 and calls for their redemption by May 15, 2004.[1] Of course, investors
holding these bonds are not forced to cash them in and can hold them until
2009 if they want, but they will no longer receive the interest promised,
the main reason for investing their money in the first place.
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- That means that if you loaned the government $10,000
in 1979 you will lose $912.50 a year, $4,562.50 in the next 5 years, in
interest you would have been due from the governmentóbefore the
government decided to back out of their end of the contract.
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- The Treasury claims that these bonds are being called
"to reduce the cost of debt financing" and will result in the
government saving $544 million, an amount equal to what the national debt
increases every five and one-half hours or so nowadays.
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- And just where do you think the federal government will
get the $4.6 billion to buy these bonds back? They'll borrow it, of course.
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- At a time when the International Monetary Fund (IMF)
is already warning the Bush administration about its fiscal irresponsibility,
and the Treasury is selling less than half of all securities put up for
auction, this action is bound to reverberate negatively through the bond
market.
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- How long will it be before the United States loses the
credit rating it has enjoyed for years and investors, particularly foreign
nations that hold a significant portion of our national debt, decide it's
safer to buy Euros or something else instead of loaning us money?
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- And don't forget, those on the honest side of our national
debt can cash-in their securities at any time. It's not like the bogus
nonmarketable bonds the government gives us when they borrow/steal our
Social Security and other dedicated entitlement money.
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- The action taken today could very well be the tip of
the iceberg on the voyage to bankruptcy.
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- The government has previously, under the Clinton administration,
tried to reduce the national debt by redeeming long term debt before maturity,
but investors have usually refused to turn in their holdings without a
settlement on the interest due. This time, it's being done by demand. Those
holding the bonds have no choice. The government has announced that it
is going to stop paying interest on May 15, 2004, no ifs, ands, or buts
about it.
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- Secretary of the Treasury John Snow and the Bush administration
may be willing to risk the nation's Triple-A credit rating and its constitutionally
authorized ability to borrow in order to save $544 million. A drop in the
bucket considering that this is coming from the same people who ran up
the national debt more than a half trillion ($555 billion) last year, fiscal
2003, and have already accumulated another $215 billion in borrowing, stealing,
and interest unfairly handed entitlement trusts during the first quarter
of this year.
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- Some people may think that 9.125 percent interest is
an unfair amount to be shelling out during times when current interest
is below five percent and the government cannot be blamed for refinancing
or putting an end to this unfair usury. After all, these lenders have already
more than doubled their original investment and are still due the principal.
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- It may also be that the fine print of these contracts
has a clause allowing for the "call" of these securities at a
certain date with sufficient notice or even the remote chance that they
are part of a "sinking fund" arrangement. For instance, it may
be perfectly legal if the contract contains wording where the government
can recall these bonds five years prior to maturity, which would account
for the resistance in the Clinton years, and a four month notice of such
recall which would account for the January 15th to May 15th exact dates.
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- When these bonds were purchased, when the money was loaned,
the nation was in recession and times were hard for everyone. Mortgage
rates were in the 18 percent range, we had long lines at the gas pump,
Iran had just revolted, and the Ayatollah Khomeini was holding our embassy
people hostage until we returned the Iranian Treasury they claimed the
Shah ran off with and we were keeping while sheltering that dictator.
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- No matter how you look at it, the little old ladies,
pension houses, insurance companies and others who purchase long term bonds
(the 30 year bond no longer exists) are very liable to think that the federal
government contracted to pay interest at 9.125 percent for 30 years and
is now defaulting on that contractual agreement.
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- [1] http://www.uncle-scam.com/Breaking/jan-04/bpd-1-15.pdf
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- http://www.uncle-scam.com/Breaking/jan-04/br-7.html
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