According to the national debt clock (http://www.brillig.com/debt_clock/) every baby, toddler, child, teenager and adult owes $44,000 each in future taxes (with interest) on behalf of the government just to repay stuff that has happened years ago.
The national debt could be eliminated if the Fed just printed a note just like the one to the left but changed "Zimbabwe" to "United States". In fact there would be quite a bit of change left over. I bought this on ebay a while back and as I understand it this particular note would have bought you a loaf of bread in Zimbabwe until they lopped 12 zeros off their currency.
The FED can issue money to buy any stuff Congress allows. If its hasn't enough money, Congress can allow it to issue more. If it wants to buy chickens instead of T-Bills, Congress can pass a bill to allow that too. The FED typically only buys Treasury Bills (short term and sometimes long term) in accordance to prearranged monetary policy, such as controlling inflation by manipulating interest rates but has let its goals get a bit more complex over the years.
All U.S. debt is in dollars. The Government can wave its magic wand, print off a couple of trillion and wipe it away.
If we do a one time print off (more like press 1 and a few zeros into a computer) whats the worst that can happen.....?
(1) A massive inflow of dollars not backed by production or economic growth will result is a huge devaluation of the dollar and show up as a period of massive inflation.
(2) The banks will get mad - Suddenly their 30 year fixed mortgages will be for bargain basement interest rates which will be lower than inflation - That said, they will still be making profits, just in devalued dollars.
(3) Anybody owed money will get mad. All debts will become in devalued dollars making them easier to repay but the creditors will feel ripped off since they will be in essence getting less money back.
(4) Everybody will see the value of their savings drops, although real assets like houses should be okay since their prices will adjust to inflation
(5) People will not take the Dollar seriously as the international reserve currency. Even Americans may try to do transactions in other currencies if they believe the Government will print their way out of trouble.
But if debt mounts and we cannot pay whats the worst that can happen....?
(1) Everyone who owes money and will not be able to pay as there is not enough money to go around - Foreclosures and repossessions
(2) With massive debts mounting:
(a) Consumption will go way down
(b) Unemployment will soar
(c) Profits will disappear
(d) An inevitable recession and maybe depression
So its inflate or default.
This printing of money has been done many times before - (as evidenced by the Zimbabwe note above) and resulted in no one trusting the currency and ridiculous inflation. In fact the "quantitative easing" we are doing right now is essentially a "printoff" where the U.S. Treasury debt is being bought by the FED. One hand of the government is printing money to buy the debts of the other hand. One could be excused for wondering if one day the FED will do a massive debt forgiveness to the Treasury.
But the FED could print a lot more and forgive all debt in one swoop. Are we at this desperate crossroads yet? Depends on whom you ask . However, if they take the printing press out of the basement for a "one-time fix", will the politicians every put it back? Its just tooooo easy to keep going and never worry about balancing a budget again. The road to Zimbabwe is paved with good intentions.
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