So let me see, the United States federal government is over $13 trillion in debt and racking up over a trillion dollars more each year. Now we learn that in order to try to finance this deficit spending the federal government is going to buy its own debt. Huh? Run that by me again, slowly and with clarity. Let me think, how can the federal government get money to finance its deficit spending? Well, it can raise taxes on the citizens; and it does. But there is a point of diminishing returns that we have certainly already passed. The Laffer curve is real. At high levels of taxation business growth slows, job growth slows, people defer or shelter income and returns to the federal government coffers actually start to shrink. Lower the tax rates and the opposite happens, tax receipts actually grow. This is what Reagan did in the ‘80’s. But that is a discussion for another day.
The next way that the federal government can obtain funds is to sell bonds, T-bills and the like to U.S citizens, people in other countries and governments of other countries. Sell our debt, indenture the nation to a variety of creditors, don’t worry about ever really having to pay off the principle; just keep rolling it over and over to new creditors and pay the interest out of current tax receipts or borrowed money (is there a never-ending loop here?); or via new printed money added to the current money supply. This brings us to the third source of federal revenue: the printing presses.
This is the latest development being announced in the media-- monetizing the debt. The government is the only entity which can legally print its way out of debt. But can it really?? Dumping newly printed money into the current money supply doesn’t really add any new wealth, it’s not backed by anything of substance or value (except the federal government’s promise to pay, to make good on its debt. I know; ROTFL!). All this does is look good for a brief flash in the pan, then the effects ripple out through the economy, artificially inflating the money supply which ultimately only devalues the currency to the extent it was expanded and inflates the cost of everything-- labor and goods and services to the extent of the expansion. The final outcome is runaway inflation. Can you say Weimer Republic? Wheelbarrows full of worthless paper just to buy a loaf of bread. This can happen because our currency is not backed by anything tangible and universally accepted as valuable, such as say, oh something like gold. It’s only backed by the federal government’s, ahem promise to pay. Here we go again.
What would happen if you or I tried to buy all of our debt back? Could we? Well, if we actually had the money to buy our debt back then we really wouldn’t be in debt would we? (Hint Uncle Sam) We can’t raise taxes on our neighbors to buy our debt back. In our case that would be called theft! We probably can’t just keep rolling it over to new creditors because our credibility to pay it back, our promise to pay (which is in reality our credit rating score) would plummet and no one would eventually take our credit. Sort of like the Chinese getting skittish about buying our bonds. Something about that promise to pay thingy. There has actually even been talk about lowering the federal government’s credit rating. Hmmm. Now you and I certainly can’t print money and monetize our debt, well legally anyway. So we’re stuck, we actually have to pay back our debts with real money or file for bankruptcy.
Time to start burying gold in the backyard?
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