The deficit

Both parties are talking about paying off the national debt. The Federal Reserve currently regulates the money supply by buying or selling government securities. If there were no public debt, how could the Fed do this?

Well, some public debt is inevitable. I think that the one time America had no debt was in the 1830’s, when Andrew Jackson managed to get some Revolutionary War debts finally paid off. Deficit spending, while controversial, is one of the few ways a government can concretely affect a depressed economy.

However, $5,683,440,610,975.97 is probably a little excessive. According to that site, each American would owe $20,556.01 if the debt were to be paid off in full, by the citizens.

1835 was the last time the nation was debt-free, in case anyone was wondering.

Besides, there’s always going to be cash-flow situations where the government needs a little loan until payday, so I wouldn’t worry too much about the Fed going out of business.

The Federal Reserve would still be able to influence the money supply. They have a lot more going on than the one rate.

There wouldn’t necessarily be a cash flow problem. That’s why income taxes are withheld and why you may have to make estimated payments.

And don’t forget, when the debt is paid off, who gets the money? I seem to recall about five years ago seeing that 85% of the debt was held by Americans. So while it may be $20,556.01 of debt per citizen, each citizen would get most of that back. Well, on average–don’t spend it yet.

Averages are what must have been on the mind of the wit who first observed that there were “lies, damned lies, and statistics”.

First of all, we should realize that some debt is good. Lot’s of people have mortgages and car loans, yet we don’t consider it “bad.” So the real question is: Was running up a $6T nation debt worth it?

Assuming a significant portion of our debt was not worth it, I blame the creation of the Federal Reserve for a lot of our debt problems. Before the Fed came along, the government had to basically beg and plead The People to give it money (in the form of government bonds). Now it doesn’t have to do it; the Fed has taken “us” out of the loop. How convenient.

How we ever came up with the stupid idea of creating a “Federal Reserve” (which is a PRIVATE CORPORATION) I’ll never understand.

galen wrote:

Not exactly. The US Treasury sells bonds to finance the federal debt. The Federal Reserve, not the Treasury at all, tweaks the money supply by adjusting the prime rate, which is not for bonds, but short-term loans between banks. So I think the premise to your question is not valid.