Question for the money guys out there: If the fed creates one dollar and adds it to the economy, the economy is “enlarged” by that dollar. Along with that is the corresponding debt charged for that dollar. If the total number of dollars in the economy is 100, for the purpose of this example, and the debt is 1 dollar, the total owed to the “bank” that created these funds, is 101 dollars. If there is only 100 dollars in circulation, how is it ever possible to reduce the debt to 0? Is my understanding of economics too limited to understand this? (And I admit that I have not studied this at all.) It would seem to me that under the current system, we can never “get out of debt”, because there is never enough monetary units in circulation to cover the created funds and the added interest (debt).
You have the basic grasp. A simple way of putting it: New fiat currency is only created as a form of debt. The interest to pay that debt, however, is not created at that time. Since the only way to create the interest to pay down the debt is by creating more debt, it is literally impossible to pay the debt. It is a Ponzi scheme from the outset. The only thing you can do is expand the currency supply and devalue the currency until it is finally worth less than even the energy it takes turn dollars into digits on a computer - forget expensive paper, as we are already to the point where even base metal coins are too expensive to make.
Incidentally, the fall in currency value will not be as noticeable so long as the economy grows along with the debt. But the promises to repay that debt (read=the only way money is created) will ALWAYS grow faster than the economy. And, like a shark that must keep swimming to stay alive, the economy MUST also keep growing. Population, goods, services - everything must grow. True stability under a central bank Ponzi regime is death to the entire economy that depends on it. There is no such thing as sustainable living, or being content with your wages - you must always do more tomorrow than you did yesterday, just to keep pace with a monster that will devour you and spit you out if you stop moving.
The debt eventually, exponentially, goes toward infinity even as the value of the currency approaches zero. Massive default happens long before then, as debts become impossible to service - whether through massive deflationary depression, where the currency supply dries up completely, or perhaps even skipping that phase and going through hyperinflation, where nobody can keep up with the inflationary spiral.
Technically, there was a time, and I'm researching this now, when the amount of debt-notes plus interest required to pay them down equaled an aggregate claim
on the entire money supply (we are many times past that now, with many trillions in derivatives). At that point, over a short period of time - in less than a generation, theoretically paying down the principle plus interest would have drained
all currency from existence. That of course assumes that nobody is going to live, except to pay down debt, never to incur any more - an impossibility under the current monetary regime, where money only comes from debt, and savings is literally taxed out of existence over time by that same mechanism.
So the banking and commerce side would suck down and own the currency supply through interest paid on the fractional reserve lending side, while the US Treasury would suck down currency from any interest paid on the Federal Reserve (deficit spending) side. After that, none of the original currency even existed, having long been siphoned completely out of the economy, leaving nothing but debt in its place.
