I have heard countless people from both sides of the isle talk about balancing the Federal budget and paying off the national debt.  It’s a common topic among concerned and caring citizens who see the flaws in our national government and its out of control spending.  They consistently complain about the reckless printing policy that seems to be endless.  They always wonder why their elected officials, who run on the auspice of balancing the budget, eliminating the IRS, and reigning in spending, always fail to do so.  It is a common frustration shared throughout the country.

I hate to be the bearer of bad news to the well-intended and caring individuals out there, but the Truth of the Matter is, the U.S. debt will NEVER be paid off.  It CANT be paid off.  It is IMPOSSIBLE!  But no one will ever tell you that.  The very nature of our U.S. currency and economic system makes it so!  Most people know the government has been and continues to print endless supplies of money.  Glenn Beck has even talked about the ‘digitization’ of money which is easier and cheaper than printing.  But everyone fails to explain how the printed or digitized currency gets into circulation.  If you can answer that question you will understand why the U.S. debt will NEVER be paid off!

Currency circulates every day through transactions.  It is traded for a product or service.  This can occur between individuals, an individual and a business, business to business, even countries get involved.  Regardless of who or what the individual or entity is currency is exchanged for a product or service.  But those are the bills already in circulation.  The currency that has been printed or digitized are exchanged, but not for a product or service.  To enter circulation, unused currency is exchanged for one thing, and one thing only viz. debt!

That is right, currency is put into circulation through debt!  It is not done through tax refunds from the IRS, gifts from the government, or Christmas bonuses from Santa.  It always has been, and will continue to be, through debt.  In order for a bank or the Federal Reserve to release those funds it MUST be exchanged for something.  In this case it is a fat IOU.  The Federal Reserve gives Congress money in exchange for government bonds; banks provide loans to customers, for houses, cars, and other expensive purchases, through fractional reserves (money they do not have).  Both loans and bonds come with a price, which is always interest.  That interest is a profit to the bank, but anytime principle is repaid it destroys the accompanying debt and with it the currency used.  Why, because that bill, the currency, was created in order to issue that loan.  It is not backed by a commodity like gold or silver therefore it cannot be redeemed for anything of tangible value.

This is precisely why the Federal Reserve kept interest rates so low while simultaneously pumping money into the economy through quantitative easing.  In order for the QE money to get into circulation, the debt had to be cheap to acquire.  If it weren’t, QE would have merely been a waste of paper and processing power.  Now that the Fed feels the economy has been sufficiently boosted, it is raising interest rates in order to discourage lending.  This will also lead to people paying off more debt thus deflating the inflated currency.

So, while I commend everyone for wanting to pay off the debt and return to prudent financial principles, I’m sorry to say that it is not possible.  Pay off the debt and the currency vanishes and there is no more dollar!  Destroy the dollar and you destroy the U.S. economy and very likely the rest of the world that relies on it as well!  And no politician, no matter his honor in keeping his word, will go down in history as the politician that destroyed the U.S. dollar by paying off the debt