| The problem is that the debt can only grow and grow and grow. Why? Because the government is not creating the money but borrowing it from the private banks..(the Federal Reserve is everything BUT 'federal') and the government needs to pay interest. That way, there's never enough money in existence to EVER pay of the debt, because the "debt" amount of money only exists.. not "debt + interest". So, the interest monster will just get more hungry every year, month, day and second.. I was down voted for posting the following, but it truly hits the essence of the problem: Watch this, it's awesome: The Secret of Oz http://www.youtube.com/watch?v=7qIhDdST27g Quotes: "What can government do? The sad answer is -- under the current monetary system -- nothing. It's not going to get better until the root of the problem is understood and addressed. There isn't enough stimulus money in the entire world to get us out of this hole. "Why? Debt. The national debt is just like our consumer debt -- it's the interest that's killing us. "Though most people don't realize it the government can't just issue it's own money anymore. It used to be that way. The King could just issue stuff called money. Abraham Lincoln did it to win the Civil War. "No, today, in our crazy money system, the government has to borrow our money into existence and then pay interest on it. That's why they call it the National Debt. All our money is created out of debt. Politicians who focus on reducing the National Debt as an answer probably don't know what the National Debt really is. To reduce the National Debt would be to reduce our money -- and there's already too little of that. "No, you have to go deeper. You have to get at the root of this problem or we're never going to fix this. The solution isn't new or radical. America used to do it. Politicians used to fight with big bankers over it. It's all in our history -- now sadly -- in the distant past. "But why can't we just do it again? Why can't we just issue our own money, debt free? That, my friends, is the answer. Talk about reform! That's the only reform that will make a huge difference to everyone's life -- even worldwide. "The solution is the secret that's been hidden from us for just over 100 years -- ever since the time when author L. Frank Baum wrote "The Wonderful Wizard of Oz." |
The US Treasury borrows money by issuing Treasuries, yes. It then pays interest on those, yes. The Federal Reserve creates money, and then injects it by buying Treasuries (or, recently, MBS's and agency debt, I believe, as well).
The vast majority of Treasury notes, agency debt, MBS's, etc. are NOT held by the Federal Reserve. So the amount outstanding does not pose any significant constraint on the Federal Reserve's injection of money.
Even if /all/ outstanding Treasury debt were eliminated, that'd just mean the Fed would have to purchase other bonds.
Also, when the Federal Reserve buys Treasuries, it receives the interest payments. What does it do with that money? Well, it turns it over to the Treasury. (If you look at the Fed's annual reports, this is actually many billions) So the T-notes held by the Fed to inject the money essentially don't have interest paid on them, because the Treasury is paying the interest to itself, indirectly.