Published: Saturday, January 12, 2013 at 08:00 AM.
By BRANDON S. TODD
WEWAHITCHKA
With the economy and fiscal cliff, America seems to be declining. Although times are hard, America still has the largest economy in the world.
Not only is our economy the strongest in the world, it is the strongest also because of our debt, as we have a debt-based monetary system. Our national debt is currently a little more than $16 trillion. Our GDP is also a little more than $16 trillion. This is not coincidence.
Basically, the more debt that we have as a country, the more money we have printed and circulated in our economy. The American economy functions off of debt. Our currency is fiat, as it is backed by neither gold nor silver. It is simply backed by paper money, and debt.
American currency, because it is fiat, is really more psychologically valuable than it is physically valuable. It hasn?t been backed by anything for a long time. The Federal Reserve is believed to have stashed billions in gold stashed, but America?s currency is not backed by that gold.
It is essentially just paper that reads ?Federal Reserve Note? with presidents? faces and a bunch of cool symbols printed on it, and it is backed by more paper with presidents? faces and cool symbols on it. Yes, you can purchase property and goods and trade with Federal Reserve Notes, but in the overall scheme of things the money has no legitimate value. It is valuable only because our government says it is.
I know you?re thinking: How is that possible? Well, we borrow money from the Federal Reserve corporation. The money is loaned to our government with high interest. Our government gathers revenue through taxation and other means to pay off the interest. Once the interest is paid our government is allowed to take out another loan from the Fed and the process repeats. This has created massive debt, along with massive economic growth.
We do not pay our loans back, which is why we have so much debt,?but also so much prosperity. As we pay off our interest and loan more money from the Federal Reserve our debt increases and, in effect, our GDP expands. Essentially, the way our monetary system is set up, we can create money out of thin air and grow our economy through debt.
We spend the money loaned to us in excess without having to pay it back. We have budget deficits, but with every dollar borrowed and thrown into circulation it increases our GDP as well as our debt. So in a way our economy is always balanced.
Our debt is a little more than our GDP. Our national debt is an estimated 104 percent of our GDP. According to data released by the Congressional Budget Office each day America?s debt grows by roughly $3.5 billion, or a little over $2 million a minute. You may think this is excessive, but that is the way our monetary system is set up; our debt is a necessity in order for our economy to grow.
Without debt America?s economy could not function.? If our loans from the Federal Reserve were called in and paid off entirely, there would subsequently be no money in circulation because it would all be back in the hands of the source from which we loaned it ? the Federal Reserve.
Our debt ceiling is not unlimited, and we do need to cut spending and attempt to achieve budget surpluses instead of deficits. We also need to be fiscally responsible as a nation and reduce our national debt to encourage economic growth and prevent severe inflation and stagnation. If we can do these things our economy will bounce back.
Our printing, borrowing, spending and debt have gotten out of hand and need to be tamed. Each American?s share of the national debt is an estimated $38,000. In less than 20 years it is believed that each share will exceed $100,000.
If we are not careful about our borrowing, spending and debt then our economy could go into free-fall and take us with it. America needs to stabilize its GDP/debt ratio in order for the economy to truly prosper once again. Our government can do this by raising more revenue, greatly cut government spending and being more fiscally responsible.
Our borrowing and debt are what have allowed America?s economy to grow at such a rapid pace. We are, and will likely continue to be, the top economic power of the world, despite the fiscal cliff controversy. The fiscal cliff was simply another staged political conflict meant to induce fear into the American people. Sadly, it worked.
Although America seems to be in a bad economic situation it will remain?the top?economic superpower, but we must control our debt and balance it with our GDP. We cannot allow the national debt to continue to grow at a faster rate than our GDP.? If we do, we are putting ourselves at great risk.
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