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Forum Post: Can anyone understand this :

Posted 2 years ago on March 30, 2012, 11:18 p.m. EST by FriendlyObserverB (1871)
This content is user submitted and not an official statement

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.

3 Comments

3 Comments


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[-] 1 points by Mooks (1985) 2 years ago

Won't the higher inflation lead to higher interest rates and therefore make the national debt go up even quicker?

[-] 0 points by FriendlyObserverB (1871) 2 years ago

Just the opposite. Higher interest rates leads to less borrowing holding back inflation.

The main idea is how with current treasury bonds, the debt out grows the economy.

Verygood question mooks.

[-] 0 points by FriendlyObserverB (1871) 2 years ago

When considering the difference between ten trillion economy vs twelve trillion. If th government collects 30% of ten trillion it equals 3 trillion , but 30% of twelve trillion equals 3.6 trillion that's an increase of 6 billion dollars to pay towards the budget/ debt.