Opinion: A Way Out of Government Debt

By Stephen Rodenbeck, CEO of 4th Street LLC

As every pundit and politician debates the merits and shortcomings of the bank bailout and the government spending bill, they seem to all miss the root cause of what got us here.

All of our current problems regarding the economy have their roots in the Federal Reserve Act of 1913. From that point forward, it became law that all money would be created out of debt. To look at it another way, if all debt (be it government, corporate, or individual) in our current economic system were paid off, there would be no money. But paying off all debt is impossible because of the effect of interest.

For example, let's assume that the entire economy is 10 people. In order for the 10 people to get money to start a business, they have to borrow $1 million each from the Federal Reserve at 10% interest per annum. So a total of $10 million is injected into our new economy. In 10 years, on interest alone, the Federal Reserve is going to have all $10 million back. But since the entire economy at the start of this example was $10 million, those 10 people (or businesses) will have to borrow more money in order to have any money. In other words, debt begets more debt.

The only way for these 10 people not to go immediately back to the Fed to borrow more money is to find other markets to sell their goods and services into. This enormous flaw -- money being created from debt with interest -- has been masked by the fact that our population has more than tripled since 1913 and our economy has become massively intertwined with the other economies of the world.