The American National Debt----The Dangers of Monetizing...How Large Will Your Share Be?

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.... bankruptcy.....it'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 1960's 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 opinion...do 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!