Posted 5 years ago on April 18, 2012, 5:35 p.m. EST by FriendlyObserverB
This content is user submitted and not an official statement
The debt / GNP / tax collecting ratio is altered when money is borrowed from the economy and creates new/ additional national debt.
Ten trillion debt.
Ten Trillion GNP.
When we borrow two trillion from the economy the Debt goes up to 12 trillion but the GNP remains at 10 trillion.. and than the following year when we again borrow two trillion from the economy, the debt goes up to 14 trillion but again the GNP remains at ten trillion.
Here is where things get even more difficult to understand:
Taxes are collected from the ten trillion GNP.. and interest is paid on the debt.
As the debt rises as in previous example the total interest payment rises, but as The GNP does not rise equally with debt but stays at a constant level, the tax collected from the GNP remains the same .. therefore the ratio collected in tax vs. the amount of interest paid in debt is altered.
If each year the same amount is collected in tax from a ten trillion dollar GNP, but each year the debt rises by two trillion .. you can see where the trouble begins. The total amount of interest payments rises as the debt rises, but the total amount of tax collected remains the same. Therefore the ratio is altered.
To fix this would be to stop borrowing money from the economy , and instead simply print the money as needed. this will increase the GNP as we increase the debt.. keeping the debt GNP ratio level/equal and thus the tax collected will increase as the GNP increases..
The borrowing from the economy needs to stop. And in fact money should be printed to pay back all the money that was borrowed from the economy . This will place the debt GNP ratio at it's rightful position.