In 1985, I was a resident of Rancho Sante Fe, California, and a member of the prestigious Rancho Sante Fe Golf and Country Club. I often played golf with “Jack” (not his real name), who was listed in Forbes magazine as one of the 400 richest people in America. On one occasion, as we were walking down the fairways, I talked about the evils of a rising federal debt, then about $1.8 trillion.

After some 20 minutes of talk (mostly mine), Jack stopped walking and said, “Gus, you worry too much about the federal debt. I hold $15 million worth of federal T-bills. They’re risk-free, and they’re paying me over a million dollars a year in interest. The higher the debt goes, the more T-bills I will buy, and the more interest I will get. Anyway, tomorrow, Madge [his wife] and I are flying to Tahiti for two weeks, and I’m not going to worry about the federal debt. It’s a money- maker as far as I’m concerned.”

Today, the federal debt is over three times as large as it was when Jack told me what the debt is really all about. His message was: “There is big money in it for the financial elite . . . individuals with considerable discretionary wealth, banks, insurance companies, securities brokers, currency speculators, and others who build fortunes on debt and on the backs of people who pay the interest.”

Without the general populace being aware, the monetary system of the United States has been transformed. Today, the gap between rich and poor is wider than at any other time in American history. We are gradually becoming a two-tier society, like most Latin American countries.

The federal debt functions as a mechanism to transfer the wealth of the “poor and middle class” to ten percent of our population, who already own or control 90 percent of private wealth. The federal debt is a gold mine for money lenders!

Today, the federal debt is about $5.6 trillion, of which $2 trillion is owed to various trust funds, such as Social Security, Medicare, veterans’ benefits, highways, railroad, etc. The balance, about $3.6 trillion, is “publicly held” debt, against which T-bills have been issued by the Treasury Department. Of that amount, about $2.3 trillion is held by U.S. citizens and institutions who already own, or control, 90 percent of our national wealth, and the federal government pays them over $140 billion a year in interest.

The balance (about $1.3 trillion) is owned by citizens of foreign countries (Japan, Germany, Britain, Taiwan, Communist China, etc.) with whom the United States has racked up $2.6 trillion in merchandise trade deficits since 1971. Up until that time, foreign holders of our dollars could “cash them in” at a rate of $35 for one ounce of our gold, under the terms of the 1944 Bretton Woods monetary accord.

As a result of rising imports in the late 1960’s and early 1970’s and the consequent outflow of U.S. dollars, our gold reserves were being depleted at an alarming rate. So, on August 15, 1971, President Nixon announced we would no longer honor our Bretton Woods commitment.

Now that they could not convert our currency into gold, the foreign beneficiaries of our $2.6 trillion trade deficit cashed half of the dollars that they held in on federal T-bills. Today, our government pays them over $70 billion a year in interest to get our own money back!

Thus, the federal government is now paying over $210 billion in interest each year to finance the debt, a large part of which was caused by immoral trade policies that sabotaged our industrial tax base, closed thousands of factories, and shipped the jobs of over ten million law-abiding workers to countries that do not abide by our laws.

In order to pay that interest, the government must collect taxes from U.S. citizens at a rate of about $2,000 per American household. This money is siphoned out of the wallets of average Americans and then transferred to those who already own or control 90 percent of our nation’s private wealth, thereby steadily widening the gap between rich and poor.

The most outrageous part of this scam is that over $70 billion per year is being paid to foreigners in order to get our own trade deficit dollars back. If that $70 billion of interest were retained in our country and applied against future obligations to Social Security and Medicare recipients, the worries about the solvency of those programs would disappear overnight.

The prudent use of the projected federal budget surpluses could also reduce the interest burden on the American taxpayer. The projected surpluses may simply be “smoke and mirrors,” caused either by windfall tax revenues created by record capital gains in an unsustainable stock market or by temporary surpluses in Social Security that will have to be paid out in a few years. Still, let’s assume that the surpluses do materialize. What should be done with them?

There is strong pressure in Congress to “give the money back to the American taxpayers” through various tax cuts. But there is a heavy dose of demagoguery in such proposals, political posturing to gain voter support in upcoming elections. Furthermore, the proposed tax cuts offer little benefit to those most in need—”the working and middle classes. But they provide a double benefit to the rich: While their taxes are reduced, the wealth-transfer mechanism of the federal debt is left intact.

The working and middle classes would benefit more if all budget surpluses were applied against the federal debt until it is completely eliminated. In addition to saving the average household about $2,000 per year in taxes, elimination of the debt would avoid a massive drain on our capital resources. Mortgage rates, interest on car loans, credit cards, etc., would fall drastically. These lower interest rates would save American homeowners and consumers thousands of dollars a year.

Such a plan would be a blessing for the average American and for our entire social and economic order: It would inflict a mortal wound on a devious scheme that transfers a good part of the meager wealth of the poor and the middle class to the ten percent who already own or control 90 percent of our private wealth. It would stop the widening polarization of our society. It would liberate average citizens from servitude to the financial elite. Surely these benefits far exceed any that might result from the tax cuts currently proposed by Congress. But don’t hold your breath: Our “representatives” don’t really want to reduce the national debt, because it means easy money to their cronies in the financial world —”people like my friend Jack!

I am a capitalist by virtue of many years as a top executive in American’s largest corporation, General Motors, with responsibility for the capitalization, profitability, and market penetration of thousands of dealers from San Francisco to Boston. Having “been there,” I know that the end products of capital (profits, interest, dividends, and capital gains) are made possible only by people who work to produce the goods and services we all want. Those who control capital should never assume that they are the “be-all and end-all.”

History tells us that when capitalists presume they have a right to control money supplies and to exact unwarranted interest payments from the general populace, the people will rise up in protest, even to the point of physical rebellion. Paying down the debt may be the best way for our political elite to avoid a repeat of 1776!