It’s common knowledge that our national debt is well over $14 trillion and rising rapidly. What most people don’t realize is that this debt is an integral component of our nation’s economy. It is, in effect, the lifeblood of our monetary system and if we were to pay it off, we would have no money in circulation. In fact, merely starting to pay it down would swiftly abort our embryonic recovery by gutting our nation’s money supply.
To truly understand the economic significance of our national debt, we need to go back to 1863.
America was a house divided, at war with itself and in critical need of a great deal of money. As any banker will be happy to tell you, wars are expensive. Using the extreme duress of Civil War, Northern bankers pushed their National Banking Act through Congress — and what a scam it was! Yes, they would be happy to supply Lincoln’s army with bank notes, colorful little pieces of paper that were printed and issued by their banks, in exchange for an equal amount of U.S. Treasury Bonds, which would pay the bankers both principal and interest in gold.
Our national debt, which had been paid off by Populist Andrew Jackson in 1835, exploded from a manageable $60 million in 1860 to nearly $3 billion by 1865. This debt was in the form of U.S. Treasury Bonds held by the bankers and these bonds formed the “fractional reserve” basis for their bank loans. Using fractional reserves, the bankers were able to issue and loan out $10 in bank notes for every dollar of U.S. Treasury Bonds stored in their vaults.
After the war, almost all the currency of the entire U.S. economy consisted of bank notes issued by privately owned banks and paying down $1 of national debt contracted the U.S. money supply by $10. When virtually every dollar in circulation has to be borrowed from banks, this is called “debt money.” In addition to the obvious banker’s interest fees, payable on every dollar, debt money also results in a hidden, additional cost built into every product and service.
Luckily for us modern Americans, the National Banking Act of 1863 is simply a sad page in our history books and we can rightfully laugh at our ancestors’ wasteful folly. Today, we have the Federal Reserve! But, believe it or not, the Federal Reserve Banks are all privately owned banks, they issue their bank notes, Federal Reserve Notes, dollar for dollar in exchange for U.S. Treasury Bonds and now, exactly as in the past, if we pay down our national debt, our economy is drained of its lifeblood.
As ridiculous as it sounds, to this day, our great nation still lacks government-issued money.
It is impossible to eliminate our national debt without first eliminating our absurd debt money system. How? Easy! All we need to do is have our dollars issued by the U.S. Treasury — as specified in our Constitution. These Treasury dollars could be used to buy back our Treasury Bonds which, in turn, would retire the Federal Reserve bank notes in circulation. Replacement of Federal Reserve bank notes dollar for dollar with U.S. Treasury Notes would not cause any inflation as the same total number of dollars would be circulating. Our national debt could be paid down rapidly without imploding the economy and the very real problems of debt money — the hundreds of billions of dollars we taxpayers waste on interest payments every year and the hidden costs imbedded in all products and services — would rapidly evaporate.
Unfortunately, every president to try this has been shot in the head.
Published in the Daily Republic, July 15, 2011