Resetting The Federal Debt

Resetting the Federal Debt

According to the US Treasury, the federal government owes $28.2 trillion. It crossed the “28” threshold on the last day of March. The debt was just under $25 trillion at the end of April a year ago. There’s no question it’s growing at a faster and faster pace, and now there’s the excuse of Covid to spend more.

US Federal Debt

Keep in mind, this is only that part of the total liabilities that the government chooses to acknowledge. If it reported its financials the way all substantial businesses do, then the number would not be a mere $28 trillion but well over $100 trillion.

An eighth-grader can see that this debt cannot be paid.

The problem is debt, which cannot be paid

Leaving aside that there is no political will to even attempt it—most people seem happy to borrow more to spend more—it isn’t even mathematically possible. $28 trillion is an additional debt burden of about $280,000 on each and every person who works in the private sector. This is on top of their respective burdens of state government debt, county, city, and municipal water district, plus corporate, business, home, car, credit card, and student loan debt.

That the debt is unpayable may be obvious, but the endgame is not obvious at all. At first glance, it looks like the government will default. However, as the issuer of its own currency—and the world’s reserve currency at that—there is no reason to default.

The government can always get as many dollars as it needs. It can always sell more bonds.

This was the (evil) genius of President Roosevelt’s move in 1933 to make the dollar irredeemable to Americans. And President Nixon’s move in 1971 to make it irredeemable even to foreign central banks. It traps the nation’s savings (the world’s savings). It makes everyone a creditor to the government.

If you own a Treasury security, then you are directly lending to the government. If you own a Federal Reserve Note or have a bank deposit, then you are indirectly lending to the government through an intermediary.

You can buy real estate, stocks, or even gold. But the seller gets the dollars, and he is trapped in the same closed system. He is trapped into lending to the government.

With such a scheme, there is no way that the Treasury can ever run out of dollars. So long as the Treasury is selling more bonds to borrow more to increase its spending, there is no way that the Fed can run out of Treasuries to buy either.

Where does the purchasing power of the dollar come from?

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Disclaimer: The content in this article is provided as general information and for educational purposes only and should not be taken as investment advice. We do not guarantee the accuracy ...

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