# Eliminating US debt **URL:** \ **Category:** Factual Questions\ **Created:** [March 11, 2009, 9:34pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131 "2009-03-11T21:34:06Z")\ **Posts on this page:** 9\ **Page:** 2
**Author:** ![The\_Great\_Philosopher](https://avatars.discourse-cdn.com/v4/letter/t/3ec8ea/32.png) [@The\_Great\_Philosopher](https://boards.straightdope.com/u/The_Great_Philosopher)\ **Post date:** [March 14, 2009, 12:51am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/21 "2009-03-14T00:51:01Z")
> [@Rysto](#): > > Well, for starters, one of the central bank’s methods of controlling the money supply is the sale of bonds. By selling bonds in exchange for money, they effectively reduce the money supply. How does that reduce the money supply? If they sell a bond to an investor for, say, $100, the investor then owns an asset worth $100, that value hasn’t simply been wiped out. I realize the $100 in cash has been removed from the market but the $100 value hasn’t been, and surely that’s what important when it comes to inflation. > [@](#): > > When the central bank raises interest rates, the interest rate that they’re raising is the rate they charge banks to borrow money from it. This decreases the amount of money that banks will borrow from the central bank, which decreases the amount of money that banks have to lend out to others. But, unless I’ve misunderstood, this doesn’t reduce the current money supply, it slows down the rate at which money will be supplied in the future. If the government prints off trillions of dollars to pay off its deficit, the dollar will collapse accordingly, and it’s going to be no use saying, ‘well, we’ve raised interest rates so _in future_ the the banks won’t borrow or lend as much!’, because those trillions of extra dollars are already in circulation. ---
**Author:** ![R.P.McMurphy](https://avatars.discourse-cdn.com/v4/letter/r/7993a0/32.png) [@R.P.McMurphy](https://boards.straightdope.com/u/R.P.McMurphy)\ **Post date:** [March 14, 2009, 2:37am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/22 "2009-03-14T02:37:01Z")
“Debt” is not inherently bad as long as it is manageable. Many people have done very well by going into debt, such as taking out a mortgage, watching it appreciate, paying off the debt and cashing in. The current mortgage crisis is the result of an exploitation of that principle and the inevitable burst of the bubble. A distinction has to be made between personal debt and corporate debt. Actuaries can give a statistically accurate picture of a personal life span. You grow up, you have your educational years, you have your prime earning years, you plan for retirement (your subprime earning years) and your death. Within a range it is quite predicable on a statistical basis. A corporation isn’t the same. There doesn’t have to be a life span. Debt can be accrued and satisfied over many “lifetimes”. A corporation can take on debt, expand their business, turn a profit and continue to do that as long as they can stay ahead of their revenue stream. A corporation has a “veil” that protects individuals. It’s a different animal. While, that veil may lead to abuses, it is a big factor in expanding growth in the economy. In theory and in practice it is probably a good thing. The argument is at what point the corporate veil can be pierced to prosecute and punish individuals that have abused the protections of corporate law. The government is like a huge corporation. Debt isn’t inherently bad as long as it is manageable and is promoting expansion. Citys and States would be in terrible shape without the ability to sell bonds. Growth and services would absolutely be stifled. As to the OP. Probably what will happen is controlled inflation. In my view the only thing that is saving us now is that the deflationary pressure are containing the inflationary pressures. That gives me hope that there may be a way to work ourselves out of this mess. It is a mess and could have been avoided or at least mitigated. ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [March 14, 2009, 3:23am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/23 "2009-03-14T03:23:09Z")
> [@The\_Great\_Philosopher](#): > > Is it possible to literally reduce the money supply in an economy? I understand how the government could increase interest rates and so on to slow the amount of lending in an economy, but if the money’s already out there in people’s hands I don’t see how it’s possible to claw that back without simply stealing it. Taxing isn’t stealing. You can raise the level of the mandatory reserves of banks (the percentage of the money banks loan that they actually have to keep, I don’t know the proper term in English). It will reduce the money supply in quick order, and it doesn’t have to be done overnight. Anyway, it would be pretty ludicrous and pointless to first create money and then remove an equivalent amount from circulation. If as an end result the total money supply is the same, you didn’t get out of debt at no cost. The foreign investors now have dollars (that you gave them to reimburse your debts) which have exactly the same value as before, and American citizens have an equally lower amount of dollars (that you take away from them when reducing the supply). So, whatever the method you use to reduce the supply of money after printing your dollars, you’re taking the money from Americans and giving it to foreigners. Finally, don’t forget that a large part of bonds are owned by American citizens, companies, retirement funds, etc… So, even if you managed to find a creative way to cheat your way out of debt, the first victims would be Americans. People who had invested their savings in treasury bonds because they’re safe wouldn’t be that happy with your policy. So, no, there’s no easy way out of debt, apart from default and inflation. ---
**Author:** ![The\_Great\_Philosopher](https://avatars.discourse-cdn.com/v4/letter/t/3ec8ea/32.png) [@The\_Great\_Philosopher](https://boards.straightdope.com/u/The_Great_Philosopher)\ **Post date:** [March 14, 2009, 3:27am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/24 "2009-03-14T03:27:55Z")
> [@Spartydog](#): > > As to the OP. Probably what will happen is controlled inflation. In my view the only thing that is saving us now is that the deflationary pressure are containing the inflationary pressures. That gives me hope that there may be a way to work ourselves out of this mess. It is a mess and could have been avoided or at least mitigated. You think that if the US paid off its entire budget deficit overnight by flooding $10 trillion into the market there would only be ‘controlled’ inflation? Jesus. ---
**Author:** ![The\_Great\_Philosopher](https://avatars.discourse-cdn.com/v4/letter/t/3ec8ea/32.png) [@The\_Great\_Philosopher](https://boards.straightdope.com/u/The_Great_Philosopher)\ **Post date:** [March 14, 2009, 3:35am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/25 "2009-03-14T03:35:19Z")
> [@clairobscur](#): > > Taxing isn’t stealing. > > You can raise the level of the mandatory reserves of banks (the percentage of the money banks loan that they actually have to keep, I don’t know the proper term in English). It will reduce the money supply in quick order, and it doesn’t have to be done overnight. > > Anyway, it would be pretty ludicrous and pointless to first create money and then remove an equivalent amount from circulation. If as an end result the total money supply is the same, you didn’t get out of debt at no cost. The foreign investors now have dollars (that you gave them to reimburse your debts) which have exactly the same value as before, and American citizens have an equally lower amount of dollars (that you take away from them when reducing the supply). So, whatever the method you use to reduce the supply of money after printing your dollars, you’re taking the money from Americans and giving it to foreigners. > Finally, don’t forget that a large part of bonds are owned by American citizens, companies, retirement funds, etc… So, even if you managed to find a creative way to cheat your way out of debt, the first victims would be Americans. People who had invested their savings in treasury bonds because they’re safe wouldn’t be that happy with your policy. > So, no, there’s no easy way out of debt, apart from default and inflation. That’s a great point about tax, I hadn’t thought of that. A way of literally clawing back money from your citizens and removing it from the supply. But I’m not sure whether what you said about increasing the capital requirements for lending companies is the same thing - again, requiring banks to keep a higher ratio of capital to assets will slow the volume of borrowing and lending in the future, but, as far as I understand it, it won’t have any direct effect on inflation in terms of money supply because it doesn’t remove any monetary value from the economy, the money just gets put into a bank’s capital reserve rather than into customers’ accounts. ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [March 14, 2009, 4:29am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/26 "2009-03-14T04:29:27Z")
> [@The\_Great\_Philosopher](#): > > but, as far as I understand it, it won’t have any direct effect on inflation in terms of money supply because it doesn’t remove any monetary value from the economy, the money just gets put into a bank’s capital reserve rather than into customers’ accounts. It will remove several dollars from circulation for each dollar the bank has to keep in reserves. And the result will be felt quickly. ---
**Author:** ![R.P.McMurphy](https://avatars.discourse-cdn.com/v4/letter/r/7993a0/32.png) [@R.P.McMurphy](https://boards.straightdope.com/u/R.P.McMurphy)\ **Post date:** [March 14, 2009, 1:17pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/27 "2009-03-14T13:17:34Z")
> [@The\_Great\_Philosopher](#): > > You think that if the US paid off its entire budget deficit overnight by flooding $10 trillion into the market there would only be ‘controlled’ inflation? Jesus. What the hell are you talking about? I never said or suggested any such thing. I never even hinted at a scenario of the government flooding $10 trillion into the market. Stick with the topic. “Jesus” is right. ---
**Author:** ![Ruminator](https://avatars.discourse-cdn.com/v4/letter/r/b9bd4f/32.png) [@Ruminator](https://boards.straightdope.com/u/Ruminator)\ **Post date:** [March 14, 2009, 2:27pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/28 "2009-03-14T14:27:44Z")
> [@Spartydog](#): > > What the hell are you talking about? I never said or suggested any such thing. I never even hinted at a scenario of the government flooding $10 trillion into the market. Stick with the topic. “Jesus” is right. I guess **The Great Philosopher** assumed you were sticking to the topic. You said in post #22: > [@Spartydog](#): > > As to the OP. Probably what will happen is controlled inflation. And a reasonable person could assume that your phrase “as to the OP” refers specifically to this section of the OP: > [@Financy](#): > > Would the Government be able to introduce a gigantic sum of money into the supply overnight, pay off all of its foreign debts, … which is where **The Great Philosopher** substitutes “gigantic sum of money” with “$10 trillion dollars” and says: > [@The\_Great\_Philosopher](#): > > You think that if the US paid off its entire budget deficit overnight by flooding $10 trillion into the market there would only be ‘controlled’ inflation? So for you to say that you “never suggested such a thing”, while technically true because you never typed the words “print $10 trillion dollars”, it does not jive with the continuinity of the thread. Your _“what the hell”_ defensiveness looks like backpedaling to me. Maybe I missed something and I don’t understand what either of you are saying. ---
**Author:** ![muttrox](https://avatars.discourse-cdn.com/v4/letter/m/a8b319/32.png) [@muttrox](https://boards.straightdope.com/u/muttrox)\ **Post date:** [March 14, 2009, 2:56pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/29 "2009-03-14T14:56:22Z")
> [@mazinger\_z](#): > > \*\*…If the US were to suddenly void its debt, that is, say that they no longer acknowledge it or something to that effect, then that would be called a “default.” If this were to happen, the first time EVER, then it would make this country’s current economic situation look like a cake walk. It’s also unconstitutional. From the 14th amendment: > [@](#): > > Section. 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. [Previous page](https://boards.straightdope.com/t/eliminating-us-debt/489131.md?page=1)