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The American National Debt & The Dangers of Monetizing

Updated on July 23, 2015

Could The American Economy Be Destroyed?

In the last few months a, seemingly, new catch phrase has entered the national discussion-"monetizing the debt". While attempts have been made, by some commentators and "experts", to address this issue most explanations offered have fallen short in detail or common sense. While I will not attempt to rewrite the book on "American Economic Principles " I think I can clairfy some of the points of the Monetizing policy that is already underway and perhaps shed some light on just what is being attempted by the Fed and the US Government. You need to know what is going on. It is important to educate yourself and, through your elected representative, make your voice heard. Let them know you are watching them and that you understand what they are attempting to do.

Just what is "Monetizing the Debt"?

Like you the Government must pays it's "monthly bills". It does this with the currency it has on hand. However unlike you when the government finds itself short and needs to raise "cash" to pay it's debt it does so through the sale of government bonds. Debt financing through the sale of government bonds is a multi trillion dollar business worldwide.Most nations engage in this decades old practice and under normal circumstance the system works, for the most part, as intended.

There is a government monetary policy known as "Quantative Easing" This policy is used by the Fed to increase the money supply by buying from the securities market in an effort to promote increased lending and liquidity. It is a tool for stimulating the economy. By flooding the marketplace with fresh cash the intended consequence is that companies will use that cash to make capitol investments thereby creating jobs which will jump start a stagnant economy and help pull the nation out of recession. It does not always work, as intended, but it has been an effective tool during past recessionary periods.This policy tends to be used when low interest rates have failed to stimulate the economy. One of the dangers of using Quantative Easing is inflation. With all the "extra" cash pumped into the economy there is a natural upward pressure on prices and the economy has to be monitored closely or the very thing that was used to stimulate the economy could send it into recession again. It is a very complex balancing act.

Sometimes, because of high deficits or out of control spending , governments can become desperate and do foolish things. Although, instinctively, they know it is wrong and, indeed, can be the worst thing a country could ever do in dealing with a financial crisis they give in to temptation and begin printing money. They simply increase the amount of currency into the system and use this new currency to pay the debt. This is called Monetizing the Debt. When a nation finances it own debt by printing more of it's own "money" they are in fact entering into the world of "the Ponzi Scheme" and as we all know Ponzi schemes, in the end, always fail because at the heart of a Ponzi is deception and greed. When Bernie Maddoff's ponzi scheme collapsed it followed the natural progression of all such schemes. The whole scam uses new investors money to pay off old investors. The end comes when you run out of new investors and the whole fund collapses and everybody loses. The government is playing the same game. Printing money to pay off old debts will eventually collapse the currency.......and everybody loses!

To give an oversimplified example of monetizing.... it would be a little like you paying off one credit card with a cash advance you got from another credit card while using a third credit card to go on vacation all the while being unemployed with no income. It might put off the inevitable, for a short time, but eventually that type of fiscal irresponsibility will end in the loss of everything your own...or....'s only a queston of when not if.

By printing money to pay old and new debt you set in motion a set of circumstances that will quickly devalue your currency in the short term and create sustained inflation in the long term. You will also make the nation states that currently buy your bonds, so you can raise the money needed for your budget programs, very nervous and less likely to continue buying your bonds. Monetization also devalues wealth based on currency, which would include most of the wealth and assets you now have, and in essence becomes an "Inflation Tax" as the end result is sustained inflation. Everything will cost more and your dollar will continue to to lose value as time goes on. Some would say that there are benefits to a devalued currency and in some instances they are correct... .but only to nations that export the majority of their goods, like China, worldwide. To nations like the United States, the largest consumer nation in the world who imports much of what it needs, a devalued currency would be devastating. Everything we import would become much more expensive and inflation would soar. Eventually, if the government could not recover it's control of the economy, the currency would collapse and a terrible consequence known as hyper-inflation would begin.

In the mid 1960s the Federal Reserve began a campaign of buying up the government bonds that had flooded the securities market as a direct result of President Johnson's attempt to finance the Vietnam War.The Reserve printed money to accomplish this undertaking which turned out to be not only a fiscal disaster but ultimately led to the recession of the late 70's. What resulted were job losses, inflation, high unemployment, and crushing interest rates of 20% that took another ten years to moderate. This was the result of monetizing on a relatively small scale. Unfortunately for the nation it is happening again.

The Federal Reserve under Chairman Ben Bernanke has already begun the process of Monetizing the national debt. He recently announced that the Fed would , over the next six months, begin printing new currency to facilitate the purchase of 600 billion in government bonds. Once they start down this road it will be very difficult to stop and at the end of this particular road is financial ruin....national bankruptcy. The arrogance of these people will not allow them to stop what they are doing. They believe they can control the consequences, as all others who came before them believed, but it is folly and what these fools are doing is, in my opinion, criminal!

Many economist believe that the United States is in the middle of the worst financial crises in it's history. What the government does next is of vital importance to the nations survival. If it chooses incorrectly this nation will collapse under a debt load that is both historic and staggering in it's immensity. It is a place we have never been before as a nation and it is also a place where no nation has ever escaped unscathed. The unknown changes this nation may have to endure could easily be enough to destroy it. The political and philosophical divisions within the United States have been tearing at the fabric of this nation for ten years now and if a financial collapse is added to the equation the future of this country would be bleak indeed.

It is past time to get involved. You must educate yourself about what is going on and get involved. Get your family, your friend and neighbors on board as well. Drive your congressman AND senator nuts with phone calls and e-mails. Call the White House and voice your it as often as it takes. Speak to groups or write letters and emails to newspapers....become an activist for the nation and speak for those who can't speak for themselves....your children! This is your country-if you do nothing it can , and quite possibly will, be taken from you. It is not too late but the American People must take back control. Elections are only one step in the process of taking back the control the Constitution gave "The People" in the first place. The politicians and the bureaucratic nightmare that is government must be put on a very short leash.

The "People" can still prevail but we have to get into the fight. All of us, regardless of politics, are in this together.....It is time to raise your voice and be heard....It is time for you to take back control of your country. Don't let them steal the future from your children because that is exactly what they are now trying to do!


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    • point2make profile image

      point2make 4 years ago

      Great observation Tom. We have been operating without a recognizable fiscal policy for some time now and it is getting scary. Long term QE is a place we don't want to go. Hopefully the Fed recognizes the "cliff" and doesn't wander off into the abyss. I can see some slight improvements in the economy but we must tread very, very carefully especially during the next two or three quarters. . Thanks for the comments Tom....I appreciate them very much.

    • Tom Schumacher profile image

      Tom Schumacher 4 years ago from Huntington Beach, CA

      Unfortunately without the Fed's decisions regarding monetary policy this country would be worse off. However, the caveat with this is, of course, the damaging affects of QE long term. So, the reality is a catch 22 - having to choose the lesser of 2 evils now knowing that both evils are an unavoidable experience. The bigger question to ask is, where is fiscal policy in all of this?

    • point2make profile image

      point2make 5 years ago

      I appreciate your comments JohnfirmCleveland. I have read it over and realize that my respnse will require more than a simple answer. We, I suspect, will end up agreeing to disagree. I do appreciate your position but to assign any future value to a T-bill from a country with 16 trillion dollars in debt is a real leap of faith. Printing money to stilulate an economy has been successfully done in the past but to print with an open ended plan is not only dangerous but, in my opinion, foolhardy, it have not created the "jobs" the Fed had hoped for so now they are going to print money until it does!!!!! What they are not telling everyone is this is all they have left..thereis no back up plan. If this doesn't work unemployment will soar , the dollar will collaspe and runaway inflation is very possible. I will attempt to expand on my answeri in a new hub but at the moment my compter is off for repairs and I am using one at work. I hope you will be patientwith me until I am back "hubbing" again real soon. Thanks again for your comments and I'll respond very soon.Pleae forgive any errors as this old computer does not work very well and I cannot review my typing.

    • JohnfrmCleveland profile image

      John 5 years ago from Cleveland, OH

      I have to disagree with you on this, point2make. Monetizing the "debt" (which is not really debt) would have little or no effect on the economy. Holders of t-bills are free to exchange them for dollars any time they wish. T-bills are incredibly marketable - they are still auctioning off at about 1-2% yield, so it's pretty obvious that people/banks/businesses are looking for a safe place to park dollars, and not an investment. If your bank suddenly decided to shut down your 1-2% savings account and move your dollars to your checking account, would that induce you to do something else with your money? If you were looking to spend or invest it, you could have done so when it was in your savings account - but you chose not to. So there is no reason to believe that anyone would move their dollars to a risky investment if t-bills were taken off the table. That's also why QE didn't do anything.

    • point2make profile image

      point2make 6 years ago

      Thanks for the comments Brett. Our monetary system, as we know it, will change in the future. How drastic that change will be is unknown at this time but even a small change can easily cause chaos. We will all have to be watchful and not be caught unaware.

    • Brett.Tesol profile image

      Brett Caulton 6 years ago from Thailand

      This does not sound good. However, by all normal standards, the monetary system as it exists today should have been closed down decades ago, as it simply doesn't have the assets to back its value.

      Up and interesting, thanks for SHARING.

    • point2make profile image

      point2make 6 years ago

      Thank you cclitgirl for your comments. They are appreciated. I'm glad you enjoyed my hub. This is a scary time but things are slowly beginning to change. There is still hope and I am writing a new updated hub which will be published soon. I would appreciate your opinion on the new hub when it is finished. Thanks again for the comments.

    • cclitgirl profile image

      Cynthia Calhoun 6 years ago from Western NC

      Well-written, informational hub. I'd heard about this, but thank you for clarifying. Scary times. Is it 2013 yet? :)

    • point2make profile image

      point2make 6 years ago

      Thank you for your comments breffoo. You are right we do need to find a way to hold the elected representatives accountable. Perhaps we could start a movement whereby if any candidate wants our vote they first must show us their plan to deal with the crisis we are in. Secondly they must sign a pledge to resign their office if we, their bosses, decide their activities and actions are too partisan and self serving making them part of the problem not the solution.

      Talk to your representative and those running against them. Decide for yourself who would be the best person to represent you and your area. Most importantly look them in the eye and ask them who their political masters are. If they do not convince you that they know the "voters", not the party leadership, are the masters then DON'T vote for that person.

      If we, as voters, expect our representatives to be better and represent us properly then we must make them accountable and subject to our discipline not the parties. We are the political masters in this country and it's time we took this country back.

    • profile image

      breffoo 6 years ago

      I agree completely. I believe there should be a strict monitoring system put into place over the FED. And I believe that the only way for that to happen is for the American people to rise up and not only be heard, but take a stand. We have to put the right people in place to make the necessary corrections this country needs, but with all the lies flying around at election time, many don't know who to believe and, therefore, who to vote for.

    • point2make profile image

      point2make 6 years ago

      You are welcome WBA.I appreciate your comments. You make a good point. It is getting very difficult to distinguish who the real criminals are. In my opinion monetizing the debt is a criminal act committed against all of us and the government, itself, is an accessory before and after the fact!

    • profile image 6 years ago from upstate, NY


      Thank you for bringing these crucial issues to light! Monetizing the Debt kind of sounds like a fancy way to pick your pockets! Printing money to pay for things is what criminals do. If the government prints money to pay its bills, what their really doing is stealing money from the people! Regards-WBA

    • point2make profile image

      point2make 7 years ago

      You are very welcome AJAPONTE.

    • AJAPONTE profile image

      AJAPONTE 7 years ago

      Thanks for the info.

    • point2make profile image

      point2make 7 years ago

      Thanks Mr Happy your comments are always welcome. You make a great point. The Fed is a large part of the problem.

      While the Bank of Canada is your federal reserve system it does operates a little differently. The Canadian government is actively involved in oversight and the Bank is regulated, albeit at arms length, by the Finance Ministry.

      The Federal Reserve system in the US operates much more independently, than the Bank of Canada, from political or government control. There are, however, some facts you may not be aware of.

      The Fed's authority is derived from Congress and it is subject to congressional oversight. The Chairman of the Fed and the board of governors are appointed by the President and they all must go through confirmation hearings. The "bankers" are all appointed by and given their powers by "politicians". It is these same politicians that later claim they "didn't know what was happening". Politicians and Bankers are, I think you would agree, a toxic mix and a hazard to the people.

      The other fact you may be surprised by, as most Americans are when they learn it, is 94% of the profits of the Fed are paid to the United States Treasury. The Fed itself is alloted 6% as their share. In 2008 the Federal Reserve contributed 46 Billion in profits to the US Government.

      The system is corrupt and the bankers and politicians are right in the middle of it.

    • point2make profile image

      point2make 7 years ago

      Thank you for the comments KevinNye I appreciate them very much.

      You are right the path the US is on will take it down the same road as the EU but it should be noted that by the time the Spanish Economy collapses there is a very real chance that the EU itself will fiscally implode. The country to watch is Germany. The key to the survival of the EU is ultimately in the hands of the Germans. It should be interesting in the next 18 months or so. Keep watching!

    • Mr. Happy profile image

      Mr. Happy 7 years ago from Toronto, Canada

      The Federal Reserve Bank is the main problem. Those who operate it are not resposible to anyone. Nobody tells bernanke what to do, so he does what is best for him and his banker friends. It makes complete sense: if you give the control of the monetary system of a country to a bunch of bankers they will fatten their pockets.

      I am not in the States and I have my own battles to fight here in Canada but you guys down south should get together on the lawn of the Federal Reserve Bank and camp-out. There is no other way. Financial slavery will not end as long as the Federal Reserve Bank is in the hands of corporate crooks. The country works for them.

    • profile image

      KevinNye 7 years ago

      Excellent! It's wonderful to see that there are people that understand what it happening with our economy. Unfortunately, this only scratches the surface. The end result of our current fiscal plight will be what's happening with Greece, Ireland, Portugal and Spain, except we don't have an EU to bail us out.