I know you guys absolutely love these threads so here is my next mental exercise to get people to understand what the National Debt is and why it is not as important as you guys are making it out to be.
Alright, I'm going to attempt again to get people to understand what the national debt is and why it is not the countries biggest problem. People have this fear that some day the national debt will come due and we won't have any money to pay it.
So our monetary system makes it impossible for anyone to "own" money. So all money has to be "lent" in to the economy and all money has an interest bearing asset attached to it.
So in this exercise visual the Govt securities as loans and visualize it in terms of balance sheets.
So who creates loans in our country? Banks.
So if you were just starting a country and you want to pay people to start working. You can't just print money and start handing it out to people (well you could but that's not our system). So you would have to borrow it. Well no one else owns money so it has to be created some how. So you create a bank who creates money and lends it to you. Say you want $1,000 to spend. The bank lends you $1,000.
Balance Sheet of the Bank
A | L
Loan $1,000 | $1,000 (Your Money)
So now you want to credit your peoples accounts with $1,000
Private Sector Balance Sheet
A | L
Deposits $1000 | Equity $1000
Ok, so now the loan comes due and you have to pay the bank $1,000. You have two options.
1) You can tax $1,000 from the private sector
2) You can create another $1,000 loan
So instead of taxing people $1,000 and draining them of their money you request another loan. So the bank gives you $1,000.
Bank's Balance Sheet
A | L
Loan $2,000 | Private Sector Deposits $1,000
-------------------| (Your Money) $1,000
So now you pay off the loan from the bank. Watch the magic that happens!
Bank's Balance Sheet
A | L
Loan $1,000 | Private Sector Deposits $1,000
Do you see how that happens? Now visualize this in the real world. That is all we do is recycle these loans. And if anyone wants to save money they can purchase these loans with the money these loans created. The United States debt is just a loan that never has to be paid off and never will be paid off. We can never run out of our ability to recycle these loans by creating new loans. We can never be broke, we never need to default, and we can always pay back our debt whenever it is due. Hopefully this jiggles some peoples mental banks to start understanding how our system actually works.
Alright, I'm going to attempt again to get people to understand what the national debt is and why it is not the countries biggest problem. People have this fear that some day the national debt will come due and we won't have any money to pay it.
So our monetary system makes it impossible for anyone to "own" money. So all money has to be "lent" in to the economy and all money has an interest bearing asset attached to it.
So in this exercise visual the Govt securities as loans and visualize it in terms of balance sheets.
So who creates loans in our country? Banks.
So if you were just starting a country and you want to pay people to start working. You can't just print money and start handing it out to people (well you could but that's not our system). So you would have to borrow it. Well no one else owns money so it has to be created some how. So you create a bank who creates money and lends it to you. Say you want $1,000 to spend. The bank lends you $1,000.
Balance Sheet of the Bank
A | L
Loan $1,000 | $1,000 (Your Money)
So now you want to credit your peoples accounts with $1,000
Private Sector Balance Sheet
A | L
Deposits $1000 | Equity $1000
Ok, so now the loan comes due and you have to pay the bank $1,000. You have two options.
1) You can tax $1,000 from the private sector
2) You can create another $1,000 loan
So instead of taxing people $1,000 and draining them of their money you request another loan. So the bank gives you $1,000.
Bank's Balance Sheet
A | L
Loan $2,000 | Private Sector Deposits $1,000
-------------------| (Your Money) $1,000
So now you pay off the loan from the bank. Watch the magic that happens!
Bank's Balance Sheet
A | L
Loan $1,000 | Private Sector Deposits $1,000
Do you see how that happens? Now visualize this in the real world. That is all we do is recycle these loans. And if anyone wants to save money they can purchase these loans with the money these loans created. The United States debt is just a loan that never has to be paid off and never will be paid off. We can never run out of our ability to recycle these loans by creating new loans. We can never be broke, we never need to default, and we can always pay back our debt whenever it is due. Hopefully this jiggles some peoples mental banks to start understanding how our system actually works.
