Nonmarketable Bonds a sweet deal for the government

..........What are nonmarketable bonds? We know that 168 federal trust funds are loaded with them. We know that's all these trust funds hold. We know that they are certificates of indebtedness. We know that they account for 34 percent of the national debt. But what are they really? How do they differ from normal marketable bonds? ..........The federal government claims that the only major difference between marketable and nonmarketable Treasury bonds is that the nonmarketable variety may not be traded on the open market. ..........The People's Open Opposition Party believes that there are more differences than similarities. In fact, about the only thing these two types of bonds have in common is that they both must be paid off by the general public.

Marketable Bonds including Treasury Bills, Notes & Savings Bonds

Nonmarketable Bonds

1) Are they valid contracts?

YES: They are entered with the full knowledge and consent of both parties. With the approval of Congress and the Administration, the U. S. Treasury offers bonds at periodic "auctions." Lenders are free to enter into contract and to examine content subject to the requirements of good faith and fair dealing.

NO: Lenders are completely unaware of the terms of the contract and given no choice or voice in the matter. In fact, this money, taken by the government and spent elsewhere, was originally contributed by the lenders for entirely different purposes. Specifically, it was collected and intended for entitlements such as Social Security, Medicare, Highway upkeep and many other purposes.

2) Are the terms clearly understood?

YES: Lenders are fully aware of the advertised price of offerings, the maturity date and annual interest to be paid.

NO: Lenders do not understand the maturity date, if there is any. Nor do they understand the interest rate since it's figured on a four or five year model of the interest paid on comparable marketable bonds. The public can only determine price paid by working backwards from the total dollar amount of nonmarketable bonds deposited in trust funds for the individual entitlement, less interest. Either that, or go through the Treasury's cumbersome reports.

3) Is there a profit involved?

YES: Lenders profit by the annual interest gained over the period of the loan, plus the amount they initially paid if purchased at a discount rate. In order to attract lenders, the Treasury will frequently offer bonds at less than their face value. For instance, if lenders had purchased 30 year long term bonds in July of 1999, they could have paid as little as $87 for a $100 bond at 6.2 percent annual interest. This means that the purchaser would have made 13 percent at maturity on every $100 invested--plus considerably more than 6.2 percent in annual interest. Since interest would be paid on the basis of $100 and actual investment was only $87, this translates into annual interest of about 7.2 percent on money invested and $216 return over 30 years, plus the $100 pay-off at maturity. $316 on an $87 investment is not bad.

ABSOLUTELY NOT: In point of fact, lenders not only lose the benefit this money might have were it applied to the entitlement for which it was collected, but they are made responsible for the return of this money on a straight one-to-one basis, plus interest. In other words, they go more than 100 percent in the hole. The annual interest piled on top of the original loan simply becomes further liability. In the case of many of these obligatory promissory notes such as the $850 billion the Social Security Trust Fund now holds, it's the very same workers who contributed the money in the first place, their children or grandchildren, who must pay it back or pay again. This is double taxation, plain and simple. Given the choice, what lender in his or her right mind would accept notes that make the lender responsible for repaying the money? Would your bank do it? It's absolutely ludicrous.

..........Federal trust funds hold nothing but nonmarketable bonds, and the federal government's definition of a trust fund is not the same as that of the private sector. ..........In the private sector, a trust fund is a legally defined mechanism handled by one or more people entrusted with the management of property. That property may be a building, land, farm, business, investment such as stock, actual cash or any combination or collection of valuable and marketable items or what is commonly known as wealth. Property that is meant to be kept safe and available at some point or points to the beneficiaries of the trust; i.e., the individuals who put the property into trust, their heirs or designees. It is expected to at least keep pace with inflation and, hopefully, to gain profit as well. The latter from sound and conservative investment by the trustees. ..........To the federal government, a trust fund is a method of debit accounting. Nothing of positive value to the original donors or lenders is held here. And it is useful only to tell the Treasury how much may be legally withdrawn from the general account (current taxes) when necessary or directed; i.e., the pay-off money comes from your personal income and corporate taxes in any given year. Everything "in trust" is part of the national debt. The 168 various federal trust funds currently account for 34 percent of the national debt, a grand total of $1.9 trillion, all in "special obligation nonmarketable bonds." ..........The implications for this sort of mistrust are as follows:

ENTITLEMENT THEFT: The excess/surplus money taken/stolen from entitlements like Social Security, Medicare, gas taxes and others, to be spent as "off budget" revenue by Congress and the Administration, is nothing more than DOUBLE TAXATION and OUTRIGHT THEFT of the original money--what the pirates have chosen to label "surplus." First, it is taken and spent wherever Congress and the Administration please. Nonmarketable bonds are then deposited in entitlement "trust" funds totaling the amount taken from the general fund. And finally, it will be replaced from general taxes (income and corporate taxes) paid in any given year that the government decides it is necessary to draw on these bonds. In most entitlement cases, this is double taxation. The same people who originally contributed the money now replace it. And it is happening today, as you read this, with the Department of Transportation's Highway Trust Fund. Everyone who purchased gas paid the excess that was stolen, and now the general public is repaying that tax a second time as the Highway Department draws down its trust. Do you know any working families that have not purchased gasoline and paid income tax? Other taxes are paid as user fees, stolen by the government, issued nonmarketable bonds, and then repaid by the general working public with future income and corporate taxes. Superfund trusts, Inland Waterway trusts and Airport and Airline trusts are examples of this category. Congressmen confess to the theft of this money. They do not yet confess to the final double taxation part of the rip-off, not yet. Confronting their guilt, Congress proposed the so-called "safe deposit" or "lock-box" bill, H.R. 1259 that passed the House May 28, 1999, by a 416 to 12 vote. It has been in the Senate ever since. They are also almost two months into the new fiscal year without resolving the year 2000 budget because they are trying not to touch Social Security's expected $80 billion excess during this new fiscal year. They are, however, doing nothing in regard to the other entitlement excesses. Both actions have the survival probability of O.J. Simpson finding the real killer but it makes good publicity for the upcoming election year. No presidential candidates are even mentioning this rip-off or offering solutions. Oh well, we're still a year away from elections.

Real Solution: Take all nonmarketable bonds out of circulation. Bankrupt them, delete them or put them in a real lock-box. Make it illegal to issue any more. The initial money donated by the public is already gone anyway. This would at least eliminate double taxation; i.e., the general tax-paying public would not be paying again, a second time, when the money is needed by the various entitlements. It amounts to starting over but the longer we wait the worse it gets, the public loses more money. This way, we would at least have the chance to begin building real trust funds and turn a profit on investment. We would need to set up real trust funds in the private sector. Such trust funds would be many and handle all excess entitlement payments. They would make true investments and increase the amounts in the fund. There is no reason why this cannot be accomplished in the same, but improved, way that the federal government already does so for itself and its employees. The new Federal Employees Retirement System (FERS) has a Thrift Savings Plan that permits retirement investment in the stock market. And they do this through Barclay Bank of Great Britain. Isn't that cute? If anyone's interested, taking these bonds out of circulation would also reduce the national debt by 34 percent--to the rightful $3.8 trillion held by the public. The following practically guarantees that such action will never be taken.

OLIGARCHY PERKS: In an absolute slap in the face, without any cash involved, Congress and the Administration have set up hundreds of trust funds that are nothing more than perks for themselves and their employees. These include insurance of all types, medical care, retirement and even gift accounts established by simply handing these various trusts nonmarketable bonds. When necessary, when someone retires or needs medical care for instance, this allows the Treasury to cash these bonds in by taking cash from the general fund Treasury. Perks become a normal part of every annual budget. (see: Good For The Goose) For instance, the old Civil Service Retirement Trust Fund is the second largest trust on the books with a grand total of about $480 billion in nonmarketable bonds. Even though this retirement system has been replaced by the Federal Employees Retirement System (FERS), it still draws annual interest to the tune of more than $30 billion per year and it is still drawn upon by the older Congressmen, Cabinet members and staff that are retired or have been around long enough to have contributed to this system. Contributions, by the way, were "matched" by the government at the rate of 8-to-1 or better, all in nonmarketable bonds of course while the cash contributed went into the general fund coffer.

More Normal Trust Funds: Established by philanthropic foundations or other organizations, trusts like the Morris K. Udall Trust Fund or the Railroad Retirement Trust Fund taken over when the government nationalized railroads, are all treated the same. Any cash or assets involved were treated as revenue, used by the government, replaced by nonmarketable bonds, increase with annual interest in the form of more nonmarketable bonds, and will be redeemed with personal income and corporate taxes if and when a payout is necessary.

..........The federal government has such a flagrant sweet deal going with these nonmarketable bonds that, when told about it, the general public simply cannot believe it's possible. When they begin to suspect what's going on, the normal tendancy of wanting to trust in their caretakers and lawmakers will cause most people to think that it's just too outlandish to be true. Within the context of the many, many other lesser elements of waste, mismanagement, corruption and political blunderbuss that the average person finds or hears about in government, this simply becomes, at best, yet another violation that may or may not be arguable. ..........The day that the people really do find out and accept just how and how much they are being ripped off will be a sorry day indeed. Every member of the federal government knows this. It's one of the main reasons we are on the path to a totalitarian state. The Oligarchy will do everything possible to preserve itself, including sham acts at correction. ..