Letter: Adjust system of creating money
Monday, September 24, 2012
The federal debt is more than $16 trillion; the money supply (M2) is $8.6 trillion. M2 classification is the total supply of money in circulation (paper money and coins), plus all demand deposits (total amount of money all of us have in our checking accounts), plus checkable deposits, savings accounts, time deposits and money market accounts.
With the federal debt at almost twice the size of the money supply, just where is the money to come from to pay down the debt, let alone ever pay it off? Even attempting to do so would probably kill the economy due to removing money from circulation. If China and other countries hold around $8 trillion of the federal debt then paying them would take all of our money supply.
Money is created by the banks when loans are made; paying off a loan takes money out of circulation (out of the money supply). However, when banks create money by making loans they create more debt than money. So after more than a century of this, we have the world swamped by debt. This problem can be solved but only by changing the monetary system — changing the source of money creation. Only by doing so can the economy and prosperity be renewed.