In Monday's column I described the four forms by which the "national debt" manifests at present: the Federal deficit, Federal debt, balance of trade deficit (with foreign countries) and money supply. By tracing the emergence of the so-called the "national debt" from the private-bank-loan transaction by which our money is created, I tried to show that it is not a genuine "debt." It is, rather, a fee in the guise of a compounding "interest" charge attached to our money at its point of creation. It was never anything "loaned," and it cannot therefore be "repaid." It can, however, be eliminated in an orderly manner by changing the basis on which the monetary system operates.

1. The "Federal deficit" is the amount of money borrowed by the Federal government in a given year to make up for the deficiency in tax revenues collected. If it simply issued the additional money it needed through the U.S. Treasury there would be no need for borrowing, and therefore no "deficit."


2. The "Federal debt" is the ongoing sum of yearly "Federal deficits." With a yearly "deficit" no longer being added to its total, the "Federal debt" would obviously cease to grow, but what would happen to the "debt" already on the books?

This "debt" is in the form of bonds that are being held by the public, both domestically and around the world. They will, at their date of maturity, have to be redeemed at a value that is greater than the amount of money the government got for selling them originally. The difference is due to the "interest" charge attached to the bonds.

Since the Treasury is only borrowing (not issuing) money at present, its only option is to pay the "debt" represented by these old bonds by printing and selling yet more bonds that, in turn, represent an even greater "debt" that will have to be paid when they are redeemed in the future.

If, on the other hand, the Treasury were allowed to issue money, then these old bonds could be redeemed with new money (not more bonds), and the cycle of compounding "debt" would be broken. Over time (about three decades) all outstanding bonds backing the "Federal debt" would be turned in for redemption with public money, and the "Federal debt" itself would cease to exist.

Perhaps the last great champion of a free public currency in our national government was Congressman Wright Patman from Texas. He was member of the House Committee on Banking and Currency for forty-seven years, and its chairman for twelve. Among his pronouncements on the subject of "Federal debt" are:

"The dollar represents a one dollar debt to the Federal Reserve System. The Federal Reserve Banks create money out of thin air to buy Government Bonds from the U.S. Treasury ... and has created out of nothing a ... debt which the American People are obliged to pay with interest."

"In many years of questioning high experts on the matter, I have yet to hear even one plausible answer to the question (of) why the Government should extend money-creating powers to the private commercial banks to be used, without cost, to create money which is lent to the Government at interest."

As far as I know, Congressman Patman's question remains unanswered.

In the next column I will move on to the solution to the "balance of trade deficit."

Richard Kotlarz
richkotlarz@gmail.com