Forum Post: Can anyone understand this :

When the federal government borrows money from the public sector it increase our national debt but does not increase our money supply.

Example.

If there is ten trillion dollars within circulation and the government has a ten trillion dollar debt. And than the government borrows two trillion from the privat sector , this increases the debt to twelve trillion but the private sector is reduced to eight trillion, until the two trillion borrowed is respent into the economy.

It's the ratio of debt : GNP that goes from 10:10 to 12:8.

Now if the government spends all two trillion the money in circulation goes back up to ten trillion. But next year the government borrows another two trillion from the private sector increasing the national debt to 14 trillion butagain reducing the economy down to 8 trillion.

Year after year the debt rises but the money within the economy remains the same.

Now consider the government pays interest on the debt each year more and more as the debt rises. But , they are collecting a percentage from the economy that doesn't rise. Between 8 and 10 trillion.

The solution: do not borrow from the private sector but have the fed print new money.

Starting with ten trillion in deb and within the economy. And than print two trillion would increase the debt to twelve trillion but would also add two trillion to the economy making it twelve also. Thus remaining and equal debt: GNP ratio.

The solution would increase the amount of tax revenue collected. Because 30% of twelve is more than30% of ten.

Suppressing inflation makes it harder to pay off the national debt.