The eternal curse of debt money
OK, Fairfield, here we go again. This is the third in a series of Daily Republic articles written about America's absurd, senseless, debt money. So far, we have seen that our nation's entire money supply has been borrowed from the Federal Reserve and other private banks, who loan us dollars that they create out of thin air; that we must provide the Federal Reserve with collateral for their loans and pay interest on every dollar in circulation; that this system of debt money is the only reason why we have our national debt; and if we ever started paying down this national debt, our money supply would contract and throw us into another depression. Have I missed anything?
Last week, I promised to tell you about a better way to create money, by having our own government make it, without debt. Now this isn't some wild idea I just thought up, it's actually part of our Constitution: "Only Congress shall have the power to coin money and regulate the value thereof." Unfortunately, private bankers have always issued our nation's currency and have charged us interest for the privilege, except on two occasions.
In 1862, with the United States in a state of disunity, President Lincoln traveled to New York City trying to obtain financing for the Civil War. With stovepipe hat in hand, Lincoln asked the patriotic bankers for loans, which they were willing to give at 24% to 36% interest per year. The bankers were hoping to trade their paper bank notes, which they had no intention of ever redeeming for gold, for U.S. Treasury Bonds which provided years of interest payments and payment of the principal, all in gold coin.
Lincoln declined their "generous" offer and instead instructed the U.S. Treasury create its own money. The U.S. Treasury printed 450 million dollars of new bills, using green ink on the back: "greenbacks." For the first time in the history of the United States, our nation had its own national currency; money not borrowed from banks.
Real U.S. Notes, issued by our Treasury, are available even now from some coin dealers. I have a two-dollar bill that I bought on Ebay for five bucks that doesn't say "Federal Reserve Note" at the top, it says "United States Note." It's actual debt-free money issued by our own U.S. Treasury, not the Federal Reserve. These notes don't circulate much anymore, they are curiosities. My $2 U.S. Note was issued in 1963, one hundred years after Lincoln's greenback dollars. President Kennedy had the Treasury issue U.S. Notes too, and suffered Lincoln's fate.
So what's the advantage of having our Treasury Department issue our nation's money instead of borrowing it from banks? If Lincoln's $450 million in U.S. Notes had been debt money, borrowed from banks at an average 4% interest for 150 years, the total interest cost to the U.S. Taxpayers would have been $171 billion. This is interest we taxpayers didn't have to pay. But, consider that the actual debt of the Civil War was $2.6 billion, which, similarly compounded, produced an interest cost of nearly $1 trillion. Fairfield, we are still paying for the Civil War to this very day. Finally, consider our current $16 trillion national debt and how much interest we American taxpayers pay each and every year, for endless generations, just for the "privilege" of having banks issue our nation's money instead of our own government. Is this eternal curse the legacy we bequeath our children?
If debt-free U.S. Notes are so great, why didn't they ever become our national currency? That story, next Monday, right here in your Daily Republic.