The US National debt seems like a big problem. The numbers are mind boggling. Currently the debt is around $18 trillion dollars. And the truth is our debt is a big problem, but not because it isn’t easy to eliminate. It is a problem because of how it adversely affects us.

First off our debt is depressing. Second it is obligating our tax dollars to rich people and the institutions they control when it could be easily eliminated meaning us poor tax payers are being robbed blind. Third our reputation looks terrible and this harms our ability to attract investment and emboldens our enemies.

Eliminating the debt is relatively easy. First is requires a transition from a fractional reserve system to a full reserve system. What this does is take currency creation away from the whims of banks and place it solely in the fed. The currency then created by the fed then needs to be put in circulation. This is done by the fed buying government debt and canceling it. If we were to transition from a fractional reserve system to a full reserve system over the next seven years we could wipe out about $13 trillion dollars this way. $18 trillion – $13 trillion = $5 trillion left to eliminate. Lucky us we have $5 trillion dollars of intragovernmental debt. This is money the government owes itself. A little slash of the pen and congress can eliminate this debt as well. Alright we’ve wiped out $18 trillion dollars of debt over the next seven years what about new debt that has been created during this time? Ultimately it is being borrowed on the backs of tax-payers. I say we split it out amongst the tax-payers via the debt to tax revenue ratio and allow them to invest in their own future tax reduction by paying off the debt. This would come in the form of a trad-able financial product. Lets call it a reverse bond as that’s what it does. The dollar amount people pay-off gets carried over year to year and their taxes are reduced by an equivalent principal and interest payment on the debt. The beauty of this system is that people won’t want the government borrowing on their credit card and will pressure politicians to create a balanced budget. This will keeping future debt low.

What about introducing currency after the debt is wiped out how will that be handled? Well there are a many way to deal with it. First the government can eliminate future deficits and fund the government. However they will be less accountable to the tax-payers if they do this. Second they could just sent everyone a check. But this doesn’t allow them to shrink the currency if they need to. Third they could move the currency from an implicitly backed currency to an explicitly back currency being backed by all goods and services and treat it like a mutual fund, splitting and reverse splitting the shares in people’s account to increase or decrease the currency over time. This allows people to keep their share of the economy and is really good for retired people living off their savings. Owning a dollar would mean owning a share in the American economy. The real value and utility of this currency would be increased causing the currency to split making all American’s wealthier relative to other economies.

Now that we’ve eliminated the National Debt and picking the third option on currency creation made every American wealthier we can begin to look to the elimination of all American debt and it’s detrimental consequences by a push to non-lending financing. But that’s for another post.