We often hear and read about the government "printing money" like there's no tomorrow. Our federal government has certainly passed out enough money to the people who got us into this mess that it seems as though hyperinflation is theoretically possible. But every US Dollar printed in our current fiat monetary system is actually a debt.

Whenever we hear the phrase "printing money" what if we substituted "printing debt" instead? What if instead of "credit" we substituted "debt"? Would we be wrong in making these substitutions?

If you are an owner of the private, unconstitutional, for-profit federal reserve central bank, then "printing money" and issuing "credit" make sense. However, if you are the U.S. government or a citizen, "printing debt" and issuing "debt" is a more precise explanation for what is actually happening to you.

You see, when the U.S. government "stimulates" the economy, they put their palm out and ask for the money from the private federal reserve corporation. The federal reserve happily gives up this money, which they print/create digitally out of thin air, but the federal reserve asks for one small favor in return. They ask for the U.S. government to issue them a bond for the amount of money given. This bond also requires interest payments to be made to the federal reserve.

These bonds are U.S. government debt, which means they are a debt owed by the citizens of the United States. Perhaps a more basic experience in our lives brings home the point in an easier-to-understand fashion, as there is no question that our monetary system is unnecessarily complex to help confuse the average individual and congress member.

If you take a credit card, insert it into an ATM machine and obtain a cash advance, are you "printing money out of thin air"? To me, you are incurring a debt to the credit card company (or should I say the "debt" card company?). Though it is true that if you take that money and go out and buy things you are stimulating the economy, there is a price to pay isn't there?

But back to the analogy. If every day of every week a person just kept getting cash advances until the debt card limit was reached, then got new debt cards and maxed those out as well, eventually the end would be reached. The debt merchants would collectively cut off that person's access to debt. The party would be over. Even if the access to debt was never cut off, a person would need to make an exponentially increasing number of ATM withdrawals each day to simply pay the minimum payments on all the other previously used cards (even if the interest rate was 0%) until the Ponzi scheme collapsed.

During a big / excessive secular (i.e. measured in decades) boom cycle there is a lot of excess debt granted to a lot of people. Towards the end of the cycle, things tend to get out of hand. Literally, those who can fog a mirror are allowed to take on an excessive amount of debt relative to their ability to pay.

There is a mathematical limit to the amount of debt that can be assigned to an economy before that economy becomes highly unstable. We have reached that limit. Once you get to that limit, printing more debt only compounds the problem.

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© 2009 Adam Brochert

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Posted in Monetary Commentary, Guest Commentary, Adam Brochert