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by Public domain image by Photos8.com
First a bit
of history to let you see how we got to where we are:
The federal
government has been paying ever more interest on its ever growing indebtedness
for more than 200 years. James Jackson,
Congressman from Georgia, predicted in 1790 that this would happen in a speech
he made to the First Congress. Jackson
warned that passing Alexander Hamilton's plan to base the country's money
supply on the existing federal debt of $75 million would "settle upon our
posterity a burden which they can neither bear nor relieve themselves
from." He further predicted that "in the
course of a single century it would be multiplied to an extent we dare not
think of." More specifically he clearly saw that Hamilton's plan would put in
place an exponential process of debt growth. To support his warning he cited the
experience of Florence, Genoa, Venice, Spain, France, and England.
Hamilton's clever
(but unrealistic) plan was for Congress to commit the country to pay interest
on the debt until the debt was paid off.
In the meantime the debt certificates would circulate as money. He argued that this would turn the $75
million debt into a $75 million money supply.
The problem was that interest
payments on this indebtedness would have to come out of the money supply. And this would steadily reduce the quantity of
money that remained in circulation -- and thereby cause recession -- unless ever
more new borrowing forever returned
the paid-out interest money back into circulation. Thus the history of federal government
finance revealed early-on the periodic swings that were in store for us --
swings between debt reduction-and-recession,
. . and debt increase (further
indebtedness) and temporary recovery, which have plagued us ever since.
The power to deal with this problem, which
Congress has neglected all these years, is the power "to "coin' (create) money
and regulate the value thereof," as stipulated in the U.S. Constitution
Congress has
overused its power to borrow money on the credit of the United States. According to the Federal Reserve, 98% of the
U.S. money supply is borrowed, and only 2% is "coined,' i.e. created by the
government.
Conclusion: The First Congress got us off on the wrong
track. It should have simply created (coined)
$75 million in currency and paid off the debt!
So why did the First Congress borrow instead of "coin' (i.e. create) the money the country needed?
Newspapers
at the time accused members of Congress of acting to serve their own
interests. And in retrospect, this does
appear to be the case: Congress sent agents into the countryside to
buy up debt certificates that the general public thought were worthless or
nearly so. Once this was done, Congress cleverly
passed the Funding Act, knowing that it
would give themselves and their heirs a source of income that would grow
exponentially with the debt.
For every
debtor there is a creditor. What the
members of Congress understood, but which the gullible public did not, is that
a $4 trillion debt for debtors, represents $4 trillion in claims for the creditors!
And the members of Congress were the creditors.
To get us out of this historically-set trap,
today's Congress has a range of options
First, it
could simply stop paying interest on the debt.
Keep in mind that interest is
the fuel that is exploding the debt. So
cut off the fuel and stop the
explosion. Since 1790 over $3 trillion in interest-payment obligations
have been added to the original $75 million debt. So, cutting out interest payments would
immediately cut the annual deficit (that taxpayers must pony up each year) by
about $300 billion. (Experience
shows that all other conventional actions, no matter how painful, do no more
than slightly slow the rate of debt growth.) Then Congress could actually and
realistically begin the process of paying
off the debt, using newly created, government-issued
(not borrowed) money.
One thing that will make it difficult to
stop the payment of huge amounts of interest that cripples our economy
As we all
know, the monied elite control politics.
And with the cessation of interest payments to those who have loaned the
country money (by buying its treasury bonds), many amongst this monied elite
would have their incomes significantly reduced.
Insurance companies and pension funds, too, are invested in federal debt,
i.e. they too own treasury bonds -- and foreign holders would also be upset, for they likewise are heavily
invested in these status-quo financial arrangements, corrupt though these
arrangements may be. Economically, however, we as a country
simply cannot for very much longer continue to add compounding interest payments
to our existing and gargantuan indebtedness.
Another set of problems
The biggest
debtor is not the federal government. It
is business corporations, and it is impossible for them to forever increase the
physical production of goods and services in order to keep up with the exponential
debt growth that plagues them. And yet,
if they are to remain profitable, their production and sales must keep
up with the debt growth. Problem is,
many of them will, in the long term, not be able to do this. Why not? Because the wages they pay their workers will
never be enough to let them (the workers) buy all of the growing amounts of
products and services the business owners must sell, in order pay the rising
amounts of interest on their exponential debt growth.
The result
of all this will be that many of
these businesses will necessarily fail, and layoffs will consequently continue
at a high rate. Unlike the indebtedness
of these businesses, the physical economy has limits. So the result is not only going to be growing
unemployment and therefore shrinking wages (as ever larger numbers of newly
unemployed workers compete with each other and attempt to underbid each other). The
result is also going to be inflation that constantly reduces the buying power of
wages. (The more interest payments these
businesses have to pay, the more they are going to have to raise their prices
in order to stay in business.)
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