October 16, 2017 Bill Still

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Who Says National Debt is Good??

On Wednesday, President Trump – in a surprise move – supported a Democrat plan to raise the debt ceiling for 3 months to clear the way for other agenda items like Tax Reform. Trump knows that adding additional national debt is unnecessary, however, it’s a battle he has decided to at least postpone until things calm down inside the beltway. But outside the beltway, the battle rages over whether or not a national debt is – as the first U.S. Secretary of the Treasury, Alexander Hamilton, put it: “a blessing” – or as I would put it, a curse of the debt money system. ZeroHedge published an article recently that quoted a professor of economics who claimed that if the government paid off its debt, we’d sink into a massive depression. The implication was that the national debt was a good thing. According to Professor Randall Wray, a professor of economics at Bard College: Actually, Prof. Wray is right – as far as his understanding goes. If the debt were paid off we’d have no national money – because all money denominated in Federal Reserve Notes, or their electronic equivalents, is backed by an interest-bearing debt. Yes, it’s true. This country is saddled economically by the worst of all monetary systems – the debt money system. But the good news is it doesn’t have to be that way. Here’s why. First of all, in the current system, when Congress authorizes a rise in the borrowing limit, what happens. The Treasury Dept. prints up interest-bearing bonds, notes and bills and has bond dealers sell them into the worldwide market. People, corporations and sovereign nations the world over put up real cash to buy these bonds because they are considered the world’s safest investment and pay a fixed rate of interest. After the bond dealers take their cut, the cash raised goes into the national coffers to fund the government. But, this historic accumulation of national debt is not without consequence. Currently, we, the taxpayers of America pay over $267 billion dollars per year in interest on this national debt that Prof. Wray thinks is of trivial import. That’s 6.8% of annual federal spending, the 5th-largest budget item. So, if all our money is the creation of this debt/bond-selling process, if we were to pay it off, we would have no money at all. But, as Wray points out, what if we just paid off a third of our debt, that would reduce the money supply by 1/3rd. Well, as it happens that’s exactly what happened in the early 1930s and led to what? The Great Depression.