Why We Have A National Debt
The short answer is ‘tradition’. We got into the habit when it was necessary, and continued to do it, after it ceased to have any real relevance.
That is a $100,000 gold certificate. They were only used by Federal Banks, but they entitled you to go to the national depository at Fort Knox and pick up 2857.142857 Troy ounces of gold. No one ever did it, because then they would have to worry about the gold, and the paper certificates were a lot easier to manage and secure. At any given time the location of every one of the certificates was known, so it didn’t make a lot of sense to steal one. It is rather difficult to disguise yourself as a Federal Reserve bank.
When the US was on the gold standard it had have the gold or silver in its possession to issue the paper money. When it didn’t, it had to borrow it to cover the difference. It was actually buying something, so the debt had meaning.
After we went off the gold standard and repaid the owners of the gold, there is no reason to issue bonds, other than becoming a savings bank. There is no benefit to the United States in the issuance of bonds, and it costs us money to pay the interest, but the practice has continued because ‘we have always done it that way’. It is a very expensive way of controlling the money supply.
2 comments
No, the practice continues because the rich prefer to buy Treasury bonds to paying taxes, because they get paid interest on T-bills and can sell them on the open market if they have liquidity issues, while the only interest they get paid on taxes are little things like courts, police, and prisons to keep the peasants from storming their estates, armies to seize whatever resources their corporate corpus desires, you know, Western civilization. Whereas via the T-bill mechanism, they get to eat their cake and get more cake (interest money) from other people’s taxes. Why wouldn’t they want that sort of deal?
Of course, it’s not a great deal for ordinary taxpayers, because they end up having to bend over and pay interest out the yazoo, but when was our government ever run for the benefit of ordinary taxpayers rather than the rich? Not since the election of Saint Ronnie the Raygun, at least :twisted:.
– Badtux the Snarky Penguin
They took their tax cuts and bought the T-bills that had to be issued because of the tax cuts, and get paid tax free interest by the middle class. Nice piece of wealth re-distribution. And the crooks who blew up the world’s economy get a piece of the action for by being the sole source for T-bills.