It Is Now Mathematically Impossible To Pay Off The U.S. National Debt

Discussion in 'Economics' started by Tauvros, Feb 5, 2010.

  1. Tauvros


    A lot of people are very upset about the rapidly increasing U.S. national debt these days and they are demanding a solution. What they don't realize is that there simply is not a solution under the current U.S. financial system. It is now mathematically impossible for the U.S. government to pay off the U.S. national debt. You see, the truth is that the U.S. government now owes more dollars than actually exist. If the U.S. government went out today and took every single penny from every single American bank, business and taxpayer, they still would not be able to pay off the national debt. And if they did that, obviously American society would stop functioning because nobody would have any money to buy or sell anything.

    And the U.S. government would still be massively in debt.

    So why doesn't the U.S. government just fire up the printing presses and print a bunch of money to pay off the debt?

    Well, for one very simple reason.

    That is not the way our system works.

    You see, for more dollars to enter the system, the U.S. government has to go into more debt.

    The U.S. government does not issue U.S. currency - the Federal Reserve does.

    The U.S. government cannot simply go out and create new money whenever it wants under our current system.

    Instead, it must get it from the Federal Reserve.

    So, when the U.S. government needs to borrow more money (which happens a lot these days) it goes over to the Federal Reserve and asks them for some more green pieces of paper called Federal Reserve Notes.

    The Federal Reserve swaps these green pieces of paper for pink pieces of paper called U.S. Treasury bonds. The Federal Reserve either sells these U.S. Treasury bonds or they keep the bonds for themselves (which happens a lot these days).

    So that is how the U.S. government gets more green pieces of paper called "U.S. dollars" to put into circulation. But by doing so, they get themselves into even more debt which they will owe even more interest on.

    So every time the U.S. government does this, the national debt gets even bigger and the interest on that debt gets even bigger.

    Are you starting to get the picture?

    As you read this, the U.S. national debt is approximately 12 trillion dollars, although it is going up so rapidly that it is really hard to pin down an exact figure.

    So how much money actually exists in the United States today?

    Well, there are several ways to measure this.

    The "M0" money supply is the total of all physical bills and currency, plus the money on hand in bank vaults and all of the deposits those banks have at reserve banks. As of mid-2009, the Federal Reserve said that this amount was about 908 billion dollars.

    The "M1" money supply includes all of the currency in the "M0" money supply, along with all of the money held in checking accounts and other checkable accounts at banks, as well as all money contained in travelers' checks. According to the Federal Reserve, this totaled approximately 1.7 trillion dollars in December 2009, but not all of this money actually "exists" as we will see in a moment.

    The "M2" money supply includes everything in the "M1" money supply plus most other savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000). According to the Federal Reserve, this totaled approximately 8.5 trillion dollars in December 2009, but once again, not all of this money actually "exists" as we will see in a moment.

    The "M3" money supply includes everything in the "M2" money supply plus all other CDs (large time deposits and institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements. The Federal Reserve does not keep track of M3 anymore, but according to it is currently somewhere in the neighborhood of 14 trillion dollars. But again, not all of this "money" actually "exists" either.

    The truth is that the U.S. government is in much bigger financial trouble than we have been led to believe.

    For example, according to the report (which remember is an official U.S. government report) the real U.S. budget deficit for 2008 was not 455 billion dollars. It was actually 5.1 trillion dollars.

    So why the difference?

    The CBO's 455 billion figure is based on cash accounting, while the 5.1 trillion figure in the 2008 Financial Report of the United States Government is based on GAAP accounting. GAAP accounting is what is used by all the major firms on Wall Street and it is regarded as a much more accurate reflection of financial reality.

    So needless to say, the United States is in a financial mess of unprecedented magnitude.

    So what should we do? Does anyone have any suggestions?
  2. All along, you've wrongly assumed that there would be an expectation of paying off that debt, instead of merely repudiating it. :eek:
  3. See Weimar Germany and the RentenMark.
  4. 1.1B+ in reserves with the Fed. If the Fed merely made a new regulation charging a penalty for excess reserves past a threshold, you'd see enormous money creation on the credit side of the money supply. That would be more than enough to soak up any near term funding shortfalls of the US govt.
  5. Great article and website! Thanks.

    Just to clarify one statement in the article:

    "As you read this, the U.S. national debt is approximately 12 trillion dollars, although it is going up so rapidly that it is really hard to pin down an exact figure."

    What to do?

    Buy gold and silver, especially with the current pullback. The US dollar will eventually start to decline in value again and ultimately be replaced with a less valuable currency.

    Become more self-sufficient.

    Hope for the best, but be prepared for the worst.
  6. Don't forget ammo.
  7. I read an article the other day about two kinds of investment portfolios.

    The public has a distribution portfolio, which is being consumed while it grows, while the accumulation portfolio continues to grow only slowed down by Market events.

    Due to recent Market volatility there are a number of distribution portfolios i.e pensions, IRAs, etc owned by the public that may never reach their equity peaks again given the effects of recent Market events, and of course their own distribution properties (assets taken out each year to support their retirement).

    So aside from manipulated Markets, for some people its simple math that their savings are gone for good.
  8. This will lead to war. I don't know how but it will......
  9. This article is misleading. The debts of sovereigns, especially those that control their own currency, do not have to be paid off all at once - ever.

    The real issue is can a government continue to service its debt? That is, rollover the debt as it comes due and pay the interest?

    That's the issue.

    Why people think that government debt is the equivalent of a commercial real estate balloon loan is beyond me. The debt is never due all at once. Portions of the debt can be rolled over as well.
  10. Let me correct your statement. Its mathematically impossible to pay off the US national our lifetime. All we have to do is have a 1% surplus in the budget every year that can go to paying off our debt and in about 80 years or so, it could be paid off.

    But if we continue to spend more than we bring in, then is mathematically impossible to pay it off.
    #10     Feb 5, 2010