Q: What is it called when the Government borrows money to cover the excess spending versus the revenue raised?

A: Issuing public debt – This takes the form of Treasury securities and has been the preferred path in recent decades. However, these securities are supposed to be paid off when they mature, but in reality they are perpetually rolled into new debt offerings, thus actual full payment never occurs. New debt pays for the old debt.

Q: What is it called when the Government issues new money to cover the excess spending desired versus the revenue raised?

A: Printing money – This direct approach tends to be perceived negatively by the public because it cheapens the money they hold and creates an inflationary environment. Overtly printing money in this fashion is not politically popular because of the backlash that it creates.

Q: What is it called when the Government borrows money by issuing public debt and the Federal Reserve Bank subsequently purchases that debt from the market with printed money?

A: Laundering printed money – This has the effect of providing cover for the Government while money is being printed, it gives them plausible deniability by claiming that they simply issued public debt and that the Federal Reserve is independently buying that debt for monetary policy purposes. This activity is being pursued as a normal monetary policy tool for the Federal Reserve to help ease the economy through this difficult downturn by providing plenty of cash. Upon successfully lifting the economy, the debt purchased is supposed to be resold back into the market thereby absorbing the excess cash before inflation appears. Quantitative easing is the policy name given for this buying of debt securities and its recent completion provides a good time to ponder a possible subsequent plan that would conveniently suit the Government’s inclination for expediency.

Being that Congress is currently in a heated battle over raising the debt ceiling in opposition to a reduction in spending, plus the Federal Reserve is simply printing the money needed to purchase the trillions of dollars worth of Government debt securities, then what prevents the Federal Reserve from just deleting the debt securities it purchases? This action will effectively erase the debt as if it never existed therefore permanently sealing the excess printed money into the economy and forever eroding the value of dollars held by the public. Alternatively, the Federal Reserve can accomplish this same thing by holding the securities and allowing them to expire without demanding interest or principal settlement from the Government upon maturity. Opting to delete the securities should be particularly appealing to politicians. Suddenly, the debt ceiling becomes a non-issue as trillions of dollars worth of debt vanishes having been replaced by printed money thereby allowing the reckless spending to continue unabated. The Federal Reserve should be indifferent because they just simply created the money needed to buy the debt anyway. This would be an ideal result in the minds of our elected officials; effectively deficit spending will have been paid for by laundering printed money through the Federal Reserve. The Government gets what it desires in usual fashion, and the public is once again the patsy that suffers the consequences of deceitful politicians who will then spin the message of “it is not what you think-we are not printing money” explanation. This will likely prove too great of a temptation for a Government that does what it wants for its own purposes while lying to its people. It will be interesting to see if any indications of this ploy begin to develop as the future unfolds.

The best way to resolve this disparity of opinion concerning the National Debt is to amplify the public’s interest regarding the amount of debt currently held as well as any additional future increases. This process must make the debt tangible and concrete in the overall public’s mind to make it an effective control mechanism politically hence no politician will ever consider further expansion as smart policy. Here is how it can be done. Zero out the entire $14.3 trillion National Debt and send a bill to each and every citizen in our nation for their respective share of that debt. That would equate to approximately $46,000 for every man, woman, and child in America today, so a typical family of four would receive a consolidated billing of $184,000 as an example. In reality, this is exactly what already exists in America today, all that would change is the actual allocation of the current National Debt and the obligation of its payment. Once this is accomplished, we can be confident that any continued fiscal irresponsibility going forward will be severely diminished as everyone in America will suddenly become focused on it. Make it painfully real to the public and their expressed rage will make it painfully real to the politicians. Problem solved.

One of the favorite proposals advocated is that we need to raise taxes on the wealthy because they can most afford it, and the belief is fostered that they do not pay their fair share of the tax burden. It is amazing how in actuality that the top ten percent of income earners pay the overwhelming majority of all federal taxes paid as widely publicized by the IRS, however this is very inconvenient when it comes to political posturing. This proposal of taxing the wealthy as a solution is deceitful at best because it still would not be sufficient even if they are taxed at 100 percent, but obviously playing this class warfare makes good politics. Simply raising taxes on this group will not adequately raise the necessary revenue needed, only broadening the base of those paying taxes can possibly begin to make this a legitimate option, but any suggestion of that will surely not improve election results. Besides, just how much tax from any dollar earned will Americans presume to be a fair share, is there a limit?

Another favorite proposal supported is that we will just grow our way out of the debt problem. We are doing nothing but fooling ourselves believing this nonsense. We have had many years of strong growth over the last several decades and we have barely even attempted to reduce the debt, instead we continued to run it up overall. The truth is that when times are good we simply spend more and very little attention is given to debt reduction. Our history has shown the propensity to continuously accumulate debt versus restraining our standard of living, and those entitled habits will die very hard. Additionally, common sense dictates that growing our way out of the debt will require huge leadership positions in the industries of the future thereby creating wealth. This becomes difficult to imagine since other nations have recently emerged both economically and technologically, and they are not likely to sit on the sideline while we dominate industries as we have in the past.

That leaves the only certain alternative to effectively reducing the National Debt without defaulting. It is the one choice that nobody wants to acknowledge because it is the most unpleasant one. We must concede that Government spending has to decrease so we can make headway on debt repayment. This is the only logical choice available that will prove effective, it must be the centerpiece of any credible policy. Some blending of the other options may be incorporated, but any policy not materially reducing our Government and its spending is pointless. Our nation has been recklessly accumulating debt for decades, and the time has come to live within our means based on what we produce. Anything short of recognizing this truth is simply ignoring the evident until such time that it becomes painfully forced upon us by creditor nations. We continue down this same perilous path knowing instinctively that something is incredibly wrong, and choosing to believe the propaganda as opposed to embracing this obvious reality becomes nothing more than deception and delay. Hopefully, we all arrive at this conclusion soon so we can move forward on what must be done before the suffering it creates becomes catastrophic.

Aside from businesses failing or restructuring to better compete and provide a better product or service to the public, capitalism certainly is not the cause of cities, states, and nations failing that we are starting to see around the globe including here in the United States. This has been triggered by the destructive debt loads that Governments have burdened their citizens with in order to buy favor, create entitlement, and to control economic outcomes to serve their own purposes. Another way of stating this is Governments encumber their citizens with debt to facilitate their objective of controlling and subjugating them so that bureaucrats can determine the outcomes in society according to their preferences. This practice continues to the point of insolvency thus being unable to pay debt back or borrow more, and this is of no concern to politicians as long as their power and control are maintained in the process. The destruction of once prosperous nations is what we are beginning to witness throughout the world, and it makes one ponder these questions…

If capitalism is responsible for the hardships upon individuals and businesses in society since it is directly practiced by them, then what system is practiced by Governments that are destroying the various cities, states, and nations? What system allows Government to determine what is done in society and how it will be accomplished? What system has Government in direct control of decisions, planning, and the allocation of resources? It is this system that will unleash destruction to such an extent as to impoverish citizens or at least severely lower their living standards. Identifying this detriment should be our greatest concern, and obviously it has nothing to do with capitalism since Governmental entities do not practice such. If people honestly believe capitalism has failed them, then the failure resulting from a Government directed society may just change their views once it is realized that their future has been sold down the river by politicians, and it is being done by promising a false utopia using the system of their preference that begins with an “S” and ends with an “ism.”

The Government has ballooned in recent history simply to perpetuate and execute its objective of redistributing money between citizens while its function should be to provide for the common good of all by collecting from all and nothing more. Any policy that diverges from this sole purpose becomes divisive and creates an atmosphere of animosity and distrust from the ones being leaned on so heavily to pay the toll. Plus, there are always the unintended consequences of any Government action or intervention that usually plants the seeds for some future calamity that imposes its damage on society. Fortunately, the current course is not sustainable and it may not be too long before it all collapses back on itself as the payers become overwhelmed by the payees through the expansion of these redistribution efforts, thus becoming a burden for all once again. It will serve as yet another lesson to be ignored by a future ambitious politician vigorously buying votes of the many by promising the money of the few.

We have a unique opportunity to witness the outcome of irresponsible Government that promotes a sense of entitlement, and this harsh lesson will continue to unfold all over the globe in the coming months and years. All we have to do is heed this lesson and change course before we suffer the same hardship. We are not too big or too important to avoid the same consequences, however, such attributes may provide additional time for us to make the necessary adjustments to sidestep much of the adversity. The worst case scenario is for us to continue down this same path of thinking that the problems in Greece and Europe are isolated, and that it will never occur here. In fact, it is already emerging in California and a host of other states that are in untenable situations which are expected to only get worse. Our attitude seems reminiscent of the recent mortgage market calamity; we would be hard-pressed to find anybody that thought the destruction would be sitting squarely on the doorstep of the Treasury as it steadily mowed through every level of the financial industry. It seemed impossible, yet there it sits for all of us to enjoy the losses for years to come. This tragedy alone almost brought us to our knees, how many more of these created disasters can we withstand? Our irresponsibility will find its reckoning in one form or another, either we can take corrective actions now and suffer the effects that will be painful yet manageable, or we can continue whistling by the graveyard thinking everything will somehow work itself out without any sacrifice. It is a fantasy to expect that decades of living above our means should continue unabated because of entitlement. Greece has just reluctantly become the canary in the coal mine regarding irresponsible Government for all that will listen and heed such warning.