Currently, America’s debt is 14.5 trillion dollars. That number is hard for most to conceive; what is even harder for citizens to understand is how the nation reached this point. So let’s start from the top- what does the American debt really consist of?
The United States treasury states that approximately two-thirds of the entire sum is the public debt. In other words, the money the United States government owes the people, businesses, and foreign governments which purchased treasury bills, notes, and bonds. The remaining one-third is owed by the government to itself.
Lets discuss that one-third the “government owes itself,” because that statement is misleading. When the money borrowed from the public, businesses, and other countries did not cover spending, the government decided to borrow from its trust funds such as Social Security. It withdrew funds from these sources because at the time they were in surplus. However, they were only in excess as long as the working taxpayers contributing didn’t need to utilize the funds for their intended purposes. Therefore that one-third the government “owes to itself,” it actually owes to the American people.
More than out of control spending is at hand. Another very big factor is contributing to the American debt- the Federal Reserve System.
For this part of the lesson, I would like some interaction from you. Please take out a dollar bill from your wallet and take a look at the side with the President on it. Notice what is says above the picture- “Federal Reserve Note.” Also, if you look underneath the United States emblem to the left, you will see a small caption that reads, “This note is legal tender for all debts, public and private.” Every bill says the same thing, ever notice that?
In essence those two statements mean that the American dollar, the money people have worked their entire lives for, is worthless- backed by nothing but debt.
The Federal Reserve Bank is a private business. It became the central bank for the United States after the passing of the Federal Reserve Act in 1913. If you research the purpose of this business you will see it was initially meant to provide stability to the United States economy and to address banking panics.
As of today, the federal government’s interaction with this institution involves the purchase of Federal Reserve Notes- United States dollars. The Federal Reserve sells these notes to the government with interest attached. So every dollar currently in circulation is actually worth less than a dollar due to the interest held against it.
The system seems flawed. The government has indebted itself to the Federal Reserve Bank; not to mention everyone else. In effect, America purchases its own money. Now what is this debt ceiling we keep hearing about and what does it mean? Is it a solution?
The debt ceiling, according to CNN is, “A cap set by Congress on the amount of debt the federal government can legally borrow. The cap applies to debt owed to the public (i.e., anyone who buys U.S. bonds) plus debt owed to federal government trust funds such as those for Social Security and Medicare.”
Basically if the debt ceiling is not raised, the federal government can not borrow any more money and would have to default on all the loans it has already made. If the debt ceiling is raised America’s debt grows, as it allows the government to borrow more money.
Does anyone else see a very big problem here? Is there any logic to this system?
Now officials are in a debt ceiling debate, which essentially means they are trying to formulate a plan that will either cut spending or raise taxes in order to increase the debt limit.
Currently, the two parties are at a stand-still. Republicans want a short-term plan involving a “fairer, flatter” tax code, not higher tax rates according to Republican House Speaker John Boehner.
Conversely, White House Chief of Staff William Daley proclaims President Obama will veto any plan that does not raise the debt limit through 2012- as he wants a long-term extension of the limit and an increase in taxes.
Both sides are discussing radical means to end the debate. Republican Senate Minority Leader Mitch McConnell and his counterpart Democratic Majority Leader Harry Reid posed the idea of a new “Super Congress.”
The “Super Congress,” would be a new legislative body which would enable decisions concerning the debt crisis to be addressed more rapidly.
According to the Huffington Post, “Legislation approved by the Super Congress would then be fast-tracked through both chambers, where it couldn’t be amended by simple, regular lawmakers, who’d have the ability only to cast an up or down vote. With the weight of both leaderships behind it, a product originated by the Super Congress would have a strong chance of moving through the little Congress and quickly becoming law.”
This crisis seems to be reaching its boiling point. With politicians suggesting such extreme measures to solve the issue, America’s future is unsure- causing many to ask the question, what’s going to happen next?