TREASURY RENEGES ON 30 YEAR BOND HOLDERS

http://etherzone.com/2004/henr011904.shtml

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.

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.

The Bureau of Public Debt announcement http://www.uncle-scam.com/Breaking/jan-04/bpd-1-15.pdf 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. 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.

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 government—before the government decided to back out of their end of the contract.

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.

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.

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.

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?

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.

The action taken today could very well be the tip of the iceberg on the voyage to bankruptcy.

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.

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.

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.

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.

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.

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.

"Published originally at EtherZone.com : republication allowed with this notice and hyperlink intact."

Ed Henry is the founder of TUFF, the Taxpayers Union, and a regular columnist for Ether Zone.

Ed Henry can be reached at ctzcrank@mindspring.com