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.