Guest post by Richard Kotlarz:
There is no combination of taxing and spending priorities that will remedy the Federal “debt” problem. This is because, fundamentally, the “deficit” is not a fiscal (i.e. budgetary) phenomenon, but rather a monetary (i.e. how money is created, issued and controlled) problem.
To understand this, we must recognize that within the current system the money supply is not created and issued by the public treasury as a “common good,” but rather “loaned out” as “private credits” conjured “out of thin air” by a stroke of a bankers pen. The money to “pay back” the “loan” is thus made available as circulating currency, but the money to pay the “interest on the loan” is not. As a practical matter, the national economy can only be maintained if its participants (individuals, corporations or governments) go back to the bank at an increasing rate to “borrow” more money so that the “interest” on old “debts” can be paid, and an adequate money supply maintained in circulation.
This process of creating the money supply as private bank “loans” is the engine that is driving the “national debt,” and it is a voracious practice that will consume our lives, our nation, and ultimately the earth if we as a citizenry do not address it squarely.
It makes little difference to a banker whether the “borrowing” is done by persons from the private or the public sectors. The overriding fact of life within our present system is that someone has to bite the bullet and take on more “debt.” The struggle over who will ultimately feel obliged to be that party is the hidden engine that drives the fractious nature of our political life. There are compelling factors that make it virtually certain that it will fall to the Federal government to do much of the borrowing. The taxing and spending policies of the Congress and President can affect this balance, but realistically only to a limited extent.
Theoretically, it is not mandatory that the Federal government assume as large a share of national “indebtedness” as it has done, but as a practical matter the private and sub-federal public sectors combined cannot forever be counted on to take on more “debt” at a continuously increasing rate for the nation to avoid a disastrous contraction of the money supply.
There are underlying social, monetary and political cycles that drive the numbers associated with the “debt.” For complex reasons, during the Clinton administration the private sector took on “debt” at a rapid rate, and so the Federal government did not have to. During the Reagan/Bush/Bush years, in contrast, private borrowing decreased and the government found itself in the position of having to step in as the borrower of last resort to keep the economy supplied with enough money.
None of these Presidents, as far as I can see, gave any indication that they understood the monetary wave that they “on their watch” were riding. Instead, their spokespersons spent their energies manufacturing spin by which they attempted to take credit for whatever favorable numbers emerged, and explain away those that put them in a bad light.
In the meantime, the nation continued its uninterrupted combined private and public descent into “debt,” and has arrived now at a point of reckoning where the situation can no longer be denied or papered over.
None of this is a condemnation of bankers per se. They are generally fine people who are carrying out the task we as a society have assigned to them as well as they know how. Nor is it to say that fiscal discipline is not important, but no amount of budgetary juggling will eliminate the “debt” if buying power is continually being drained away due to the “interest” charged for the maintenance of the nation’s very money supply.
The question of how, for what purpose and by who our money supply is created, issued and controlled is, I suggest, the issue that the new crop of Presidential candidates need to be talking about.
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Richard Kotlarz is a self-taught seeker after the “Truth about Money”, who is in the process of founding a monetary institute centered in the Minneapolis/Saint Paul metro area.
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This guest post was submitted in response to my query about how the best way to deal with the current economic situation. This post does not necessarily reflect my thoughts and feelings nor do they represent any views held by Forbes.
Your comments and reactions are, of course, appreciated. Just play nice. I have standards. And I don’t want to have to delete you.
