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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