The Debt and The American Dollar

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.

The Debt and The Dollar

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?