Straight Dope on the $11 trillion National Debt

The National Debt - currently $11 trillion

Borrowing money by the boat load

So I divided the $5 trillion number by the roughly 250 million people who lived in the USA at the time and I discovered that my share of the National Debt was about $20,000.

Wow! That’s a lot of loot I thought I owe $20,000 toward the National Debt, that half as much as the $50,000 I own on my home mortgage!

I am not married but for that mythical family of 4 people, mom, pop and two kids I thought wow! They owe $80,000 toward their share of the National Debt. In many cases that is more then the mortgage on their home!

I also figured the $20,000 figure that I owed toward my share of the National Debt was biased because it assumed children would be paying of the National Debt. I figured the share every adult in the USA owed toward their share of the National Debt was $40,000 because adults are roughly half the population of the USA.

For many years I was a little naive or perhaps very naïve and believed that the National Debt was a real debt that the government borrowed from some real person. That the National Debt was a real debt that the government would actually have to pay off at some time in the future.

You have heard of the fool who makes $1000 a month who keeps borrowing money on their credit cards and never pays a cent of the bill off. They just make the monthly interest payments.

When their misadventure in finance first starts out their monthly interest payment is very low. Maybe it is $10 a month. Then it they get up to a $100 monthly interest payment which is still manageable.

Then the debt starts to get out of hand and their monthly interest payments reach $500 a month or half their $1000 income. High but they still have time to save themselves from the debt.

Then their monthly interest payments on the debt reaches $750 a month or three-fourths their monthly income. And when their monthly interest payments reach $1000 and it is now impossible for them to get out of debt.

I naively assumed that the USA government was going to take the same path with our borrowing.

You know borrow so much money that they would never be able to pay it back. After all as I write this the National Debt is around $11 and a half trillion dollars. That is about $38,000 for every man, woman and child in the USA. Or $76,000 for every adult in the USA.

Printing money by the boat load

In the early 1970’s the US government stopped backing money by silver and begin printing money that was not backed by anything.

The current US dollars in your pocket or bank account are not worth anything except the paper they are printed on.

And I suspected that the American government was printing this worthless paper money by the boat load, in addition to borrowing money to increase the National Debt by the boat load.

I didn’t figure out that the borrowing of money and the printing of money are very related until I read the book

The Creature from Jekyll Island :
A Second Look at the Federal Reserve
by
G. Edward Griffin

Printing and borrowing is the same thing

The book “The Creature from Jekyll Island : A Second Look at the Federal Reserve” points out that Section 10 of the US Constitution says

No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;

The book also points out that nowhere in the Constitution is the Federal government given the power to:

emit Bills of Credit;

The book also points out that in Section 8 the Feds are given the power to

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

The last the book also points out that in Section 8 the Feds are given the power to

To borrow money on the credit of the United States;

But the book explains that the Fed’s don’t do that.

According to the book Congress plays this game where Congress or the Federal government borrows money from it’s self!

The game works like this. Congress needs $1 trillion so it prints up $1 trillion in pretty IOU’s called T-Bills. It then orders the Treasury to print up $1 trillion in new dollar bills. Then Congress swaps the $1 trillion in cash for the $1 trillion in T-Bills and pretends it has borrowed the money from it’s self.

Congress then gives the T-Bills to the Federal Reserve and has the Fed sell the T-Bills on the open market. The T-Bills pay interest and when that interest is due Congress will repeat the whole cycle to pay the interest.

According to the book the bottom line is that the current $11.5 trillion National Debt is money Congress borrowed from it’s self! Which is government double talk for saying Congress printed $11.5 trillion in money that is backed by nothing.

If this sounds like gobble gook that’s because it is gobble gook! It’s just a lame scheme Congress uses to get around the fact that it is prohibited from printing money.

What happens when the interest is due on the $11.5 trillion in T-Bills that currently exist? Congress prints more T-Bills and money to pay off the interest.

Congress doesn’t have the problems of the sap in the story I gave awhile ago who makes a $1,000 a month and has credit card interest payments of $1,000 a month.

Congress prints money to pay its bills. The sap in the story can’t print money. And that is why this scheme can go on forever.

Printing money out of thin air causes inflation. It's an indirect tax!

That’s why Congress loves to print money instead of tax people. It’s an indirect tax and people don’t get as angry when they are taxed by inflation.

Lets look at the roughly $2 trillion in corporate welfare Congress has handed out last summer in 2008 to now July 2009 which started off when McCain and Obama asked congress for about $800 billion in corporate welfare to give to the rich Wall Street bankers.

The $2 trillion is about $6,700 for each of the 300 million men, women and children in the USA. Since children don’t pay taxes it would cost every adult in the county about $13,400.

If Congress forced you to pay $13,400 in extra income taxes to pay for that $2 trillion in corporate welfare they handed out, you would probably be very unhappy.

Instead Congress didn’t tax anybody to pay for the $2 trillion handout. They just rolled the printing presses and printed the $2 trillion in corporate welfare. And nobody felt any pain like they would have if Congress hit every adult in the country with a extra $13,400 tax to pay for it.

Of course you were taxed indirectly because the $2 trillion the printed caused inflation.

The following is a blurb I wrote when I didn’t fully understand the National Debt. I am just leaving it around so when people click on it they can be redirected to my current blurb. I wrote it after I went to an event at the Chandler Library put on by the folks at The Concord Coalition. To go to the begining of my current and correct blurb click here.