debt and inflation


Well-Known Member
Feb 24, 2007
By next February the United States Federal government will be $12.4 trillion in debt.

By July 2007 State and local governments owed $2 trillion (and this would be around $5 trillion by now if state and local debt has increased by the same percentage as the federal debt has from July 2007 to now).

Government in America at each level is allowed to rack up financial liabilities that a corporation is bound by law to count as current debt, but which state, local and federal governments don’t count yet. Including what the federal government would owe in the future for things like Social Security and government pensions would put the federal debt somewhere around $60 trillion by July 2007. At the same time the average American household owed $112,043 in mortgage, credit card, auto loans and other consumer debt obligations.

As of last month the physical U.S. currency in circulation was worth just under $2074 trillion. The amount of U.S. money in existence is 3 times the amount of money that this country owes to foreign countries.

The American economy is hogtied by debt. Our economy cannot get out of recession, let alone grow, as long as Americans carry their current debt load. Other than declaring bankruptcy and allowing our creditors to seize our physical assets, the quickest way to reduce our debt is to inflate the money supply. Printing money would mean more money in circulation so more money would be available to pay off debt.

But, paying off debts with inflated money means that debtors will not pay back as much as they borrowed since the money that was borrowed could buy more than the money that is paid back can because of inflation. Loaning a dollar that could buy an 8 ounce cup of coffee and getting paid a dollar that could only buy a 7 ounce cup of coffee means that the lender has lost money.

Having lenders take a hit wouldn’t necessarily be a bad thing since lenders that have offered easy credit for the past thirty years deserve some of the blame for the economic bubble that burst in 2008. Both lenders and borrowers were equally greedy. They fed off of each other and they took equal advantage of each other.

However, I still have vivid memories of the Carter Administration. What had been an annual inflation rate averaging 6 to 8% or so under Nixon and Ford became a monthly inflation rate that was often measured in double-digits under Carter. Carter’s economic fiasco was based on printing money (as opposed to the Reagan/Bush/Clinton/Bush/Obama economic fiasco that is based on borrowing). I fear inflation more than I fear any other disaster, natural or manmade short of a WMD attack. Intentionally inflating the money supply to pay off our debt could also increase consumer prices to the point that the economy would be just as bad off.

As a conservative I support sound money, but more and more I worry about what our debt will do to our future. We are in a hard place and it will likely get harder no matter what we do or don’t do. But if our future is to be destroyed, perhaps an inflationary money supply, that we may be able to recover from, will be better than being foreclosed on by the likes of the Red Chinese.

1. Establish a currency ratio by law so that the amount of physical money in circulation is based on the amount of gold and silver owned by the U.S. government, state and local governments, banks and private individuals (that is deposited in banks). This ratio would be set in a way to increase the amount of physical money in circulation, but money would not be redeemable in gold or silver while the government would not restrict the trading of gold and silver so investors would be allowed to bring in gold and silver from overseas. Part of the gold and silver in the country would be held in reserve and would not be represented by money in circulation except to insure bank accounts as FDIC and FSLIC now do when banks and S&Ls go belly up.

2. Create a 5% federal income tax bracket for people who earn more than the federal poverty level income but don’t earn enough to be subject to the existing lowest federal income tax bracket- spreading the federal tax burden more evenly would make people that don’t have to pay for federal spending right now less likely to support deficit spending in the future while siphoning off some of the inflated money so it couldn’t fuel consumer spending and consumer prices.

3. Impose a tax on households that own more than one automobile with a tax rate determined by the number of autos that the household owns and eliminate federal money for any state that does not raise its legal driving age to 18- reducing mobility will reduce consumer activity and thus lower consumer prices by restricting consumer demand.

4. Impose a surtax whenever both members of a married or cohabitating couple have an income tax liability and base this surtax on the number of children the couple has in their household in order to encourage single income households so we can reduce disposable income that would fuel demand for consumer goods, thus keeping consumer prices in check.

5. Impose a federal tax on consumer and corporate debt- to encourage people to use the inflated money supply to pay off their debts rather than fuel consumer spending.

6. Repudiate all international trade agreements and impose tariffs sufficient enough to re-establish America’s manufacturing economy- this will help reduce our indebtedness to foreign countries (mainly the Red Chinese) while creating high-paying jobs at home.

7. Reduce non-Social Security, non-national defense and non-Medicare welfare payments in order to reduce federal spending and reduce dependency on the federal government so more people become economic producers rather than just consumers.

8. Impose a tax on daycare provided to any child who lives in a two-income household- making it more expensive to have a second income will reduce incomes that can fuel non-essential consumer spending.

9. Require sufficient collateral for all loans and mortgages- at lest something over 100% of the amount borrowed so if the economy tanks creditors will still have a chance of selling the collateral and making back most of what they had loaned out.

10. Put limits on how often a piece of real estate can be mortgaged and how often a share of corporate stock can be sold to reduce speculation.

11. Use newly-printed money to fund public works programs (roads, bridges, schools etcetera) in order to create jobs rather than simply having the Federal Reserve distribute the money to commercial banks.

12. Implement item #10 by creating public-private partnerships in order to give Americans some reasonably safe investment options. Personally I would like to see 1/2 of the lanes in the federal interstate highway system turned over to a high speed railroad company and then expand the rail network to service every U.S. community that has 5,000 or more people. I also want to abolish the Federal Reserve and charter a new national bank patterned after the First and Second National Banks of the U.S.

13. Legally create economic triggers, such as food or energy prices, that would require the government to increase the amount of money in circulation (by changing the currency ration from #1) to make sure that enough inflated currency is circulated to reduce debt while reducing the amount of money in circulation when necessary to prevent hyper-inflation such as what Weimar Germany saw in the early 1920s.

14. Once debt loads have been reduced by a pre-determined amount the government should replace the inflated currency with a new currency to reduce inflation and allow the economy to expand once again in real terms with some level of stability.

15. Replace the federal food stamp program with coupons that could only be used to buy specific foods to insure that food stamp recipients buy the right foods to maintain a nutritious diet. This way the availability of food stamps would not promote higher prices for all consumers.