The National Debt Cannot Be Paid Off

Gold Standard Institute's picture

by Keith Weiner


Government spending is out of control and, while most say they want spending cuts, people oppose cuts that impact them. Among those who get government money, there’s practically an unspoken, unbreakable pact to keep the money coming. But when I say that the national debt cannot be paid off, it’s not a political forecast; it’s a statement on the flawed nature of the dollar.

Astute observers call the dollar a fiat currency. Fiat means force. It’s true that we’re forced to use the dollar (e.g. by taxes on gold) but the dollar is also irredeemable. There’s no way to cash it in. The dollar is credit that is never repaid. Today’s dollar is a dishonored promise.

This was not always true. Before 1933, the dollar represented an obligation to pay 1/20 ounce of gold. People could deposit gold and get paper notes in receipt. Those notes circulated, and any bearer could redeem them for gold. Back then, $20 was not the gold price. It was the legal rate at which gold was deposited and redeemed.

In 1971, President Nixon changed the monetary system with the stroke of his pen, making the Fed no longer obligated to redeem dollars for gold. The consequences of using debt as if it were money were soon clear. Rising debt became a more serious problem than rising prices.

To understand debt, credit and the importance of redemption, consider Joe borrowing sugar from neighbor Sue. To pay Sue back, Joe goes to the store, buys sugar and hands it to Sue. Not only is Sue repaid; the debt goes out of existence—it is extinguished. Borrowing money used to be like borrowing sugar. The repayment of debt in gold-backed dollars settled the loan and wiped the debt clean.

Not anymore, since Nixon detached the dollar from gold. By making people pay with paper-only dollars, each debt is transferred, not cleared.

Suppose Sue owed Joe $1,000, then hands Joe ten $100 bills. Sue gets out of the debt loop. But now the Fed owes Joe the $1,000. What does Joe do? He deposits his cash in a bank. Now the bank owes Joe money, while the Fed owes the bank. What does the bank do? It buys a Treasury bond. Now the Treasury owes the bank. And so on.

By Nixon’s design, the system omits a crucial feature. The extinguisher of debt, gold, is not allowed to do its job. Debt can only be transferred from one party to another. It’s like a lump being pushed around under a rug. With no means of final payment, that lump is never put in the trash. Debt is never extinguished.

In fact, the debt must increase, because the interest is constantly accruing. Interest is added to the debt, as it can’t be paid off either. Total debt must grow by at least the interest. Debt actually increases faster than that, because the government craves what now passes for growth.

The rate of debt increase is proportional to the debt itself. It is not a fixed dollar amount, such as $100 billion a year. It is instead a percent of total debt. Mathematics has a term for this type of growth: an exponential function.

Exponential growth is not sustainable, according to credible scientists. Mainstream economists ignore this fact in the hope that that somehow growth can outpace debt, one year a time.

But exponentially rising debt is not sustainable because the capacity to service the debt is finite. Without a means of extinguishing debt, servicing is merely borrowing new money to pay off old debts. This is the equivalent of taking out a home equity loan to get money to pay the mortgage.

The U.S. debt is putting us in danger of economic catastrophe. Like Greece, which found no more buyers for their bonds, the U.S. relies on selling new bonds to pay interest and principal when due. The difference is that the whole world bids on U.S. Treasury bonds, for now. But eventually, market participants will realize that the American debt cannot be paid off.

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theprofromdover's picture

the interest being charged is partly funded by the hidden devaluing of the currency through inflation. The $1,000 dollars you are owed is only worth $950 when you get it.

and that's before they get greedy and print some extra money on top.

kchrisc's picture

Now, from what I know, all of the loot stolen from the American people goes to non-discretionary items--interest, SS, etc. That means that the DC US is borrowing all of their "operating" budget. Talk about painting oneself into a corner with landmines. LOL


"Guillotines Restore."

MrBoompi's picture

Since debt is not and cannot be extinguished, interest payments are guaranteed!  And when debt is created, but not the "interest" due on that debt, this means there has to be constant money (debt) creation to make the interest + principle payments.  Without constant debt creation, deflation and collapse would occur.  This is why we will never see the debt extinguished.  Because even if everyone used every penny they had to pay down debt, leaving everyone penniless, there would still be debt remaining.




kchrisc's picture

My guillotine told me this morning that this so-called "National Debt" is not my debt.

EndOfDayExit's picture

And the solution is? One can either protect the purchasing power of money or the existing social order. What would you rather protect? Just stop thinking about money as a source of wealth accumulation - use it as a medium of exchange. Problem solved. Sure, there is that pesky moral hazard thing with fiat, but 70% of sheepl do not even bother to vote, so who really cares about morals today...

KingTut's picture

When Nixon closed the gold window, US Treasuires replaced gold as the inernational reserve.

In order to keep the dollar as the world's reserve currency, there must be enough treausires to back every other other currency in the world. In addition, there must be enough bank credit dollars to keep all international trade adequately funded.

Given this, the US government will NEVER pay down its debt, and in fact will make it bigger according to international demand.  Note, that no other country could possibly pull this off, so the dollar will remain the reserve until something totally different replaces it.  After the dollar, we will never have a single sovereign currency as the global reserve again.  It is just too hard on the country, and causes too many problems internationally. 

So China and others are making noise about dumping dollars and treasuires, but realisitically they can't do that enmass until there's something else, like SDRs to exchnage them for.  Of course, they can buy some gold which will be part of any new system: it has no government counterparty, and is strictly limited to the above ground supply.  

China and other countires will continue to accumulate gold, but they have to be careful not to drive the price up too fast.  A new reserve might come wth a revaluation of gold (a devaultation of the dollar, actually) to the $5,000 to $10,000 range.  That will make a modest supply of gold an adequate reserve for the currency going forward from there.


bluskyes's picture

I like to explain the debt problem as a simple loan agreement between a bank, and a government.

year one: central bank creates $100, and loans it to government at 10%
                at the end of the year, the government owes the bank $110.

Even if the government retrieves 100% of all the tax money ($100) that it has spent, it is screwed. It is still bankrupt. It still owes the bank $10
The longer this process repeats, the worse the situation.


DecisionTime's picture

Double post - deleted

DecisionTime's picture

"Suppose Sue owed Joe $1,000, then hands Joe ten $100 bills. Sue gets out of the debt loop. But now the Fed owes Joe the $1,000. What does Joe do? He deposits his cash in a bank. Now the bank owes Joe money, while the Fed owes the bank. What does the bank do? It buys a Treasury bond. Now the Treasury owes the bank. And so on."


The Fed never owes anyone anything.  I'm ommitting the effects of fractional reserves for simplicity, but the Fed created the money that was the $1,000 that eventually ended up in the hands of these individuals so it is the Fed that is owed ultimately, but not necessarily by the individuals in the example.


"In fact, the debt must increase, because the interest is constantly accruing. Interest is added to the debt, as it can’t be paid off either. Total debt must grow by at least the interest. Debt actually increases faster than that, because the government craves what now passes for growth."


This is a good point, although it's ommitting the effects of default.  No worry, the banks will just take your assets.

CaptainSpaulding's picture

How does that work with overdraft protection? Will this result in a positive balance?

Winston of Oceania's picture

It can be paid off if we downsize the gub'ment to a managable level, we'll start at half. The Senate NEEDS to be brought back under the control of the individual states without senate elections removing it from the lobby/bribe circut. Term limits for Congress of say two terms in the house and one in the senate. Now for the income side of the ledger, no more federal lands/property, ALL must be auctioned to pay for the borrowing. Parks will be made smaller and run privately under federal guidlines only. Public unions to be outlawed and public works projects go to the lowest responsible bidders regardless. not great but it is a start and it wil suck at first but we're up to it, we always have been.

bluskyes's picture

You obviously do not understand the root cause of the national debt.

kurt's picture

Anti-Gravitanium cubes are being stored now. They more than offset the debt containing the potential to reverse 100 pounds each for 200 years. Take your average semi-truck. If you attach enough cubes a full load will pull like an empty truck; there's your savings!

Any truckers out there know the difference between a full truck and an empty truck fuel mpg wise?

The Most Interesting Frog in the World's picture




Puncher75's picture

Which is why I buy physical gold & silver (at a massive discount right now)

MeBizarro's picture

This is ridiculously oversimplistic and misses several key points.  Junk post. 

TPTB_r_TBTF's picture

Your criticism is oversimplistic and contains no key points.


We come here for the comments, not for the posts.

I would like to learn what you know, not what the poster claims to know.

MeBizarro's picture

Here is the article summed up:

- Since Nixon took us off the gold standard, US debt at all levels has grown by leaps and bounds

- Expotential growth which is the norm and bedrock of economic forecasting for the past 2 centuries likely isn't sustainable for several reasons

- US will inevitably hit an inflection point in the near future like Greece did if it stays on its present course and much sooner than people think

This post is $hit.  You could read any summary level on this from Rogoff or others that would be more useful. 

Caobei's picture

Agreed, I'm soo tired of these Mise-en-garbage fiat currency/gold standard fix-it-all articles. Bubbles happened and countries defaulted long before 1971, ffs read some history.

MeBizarro's picture

Is the US debt going to be repaid now but this just glosses over the issue of demographics, imports/exports, etc.  It is a junk post and most of the comments on this blog increasing have become that way too. 

Every now and then you will get a specific post on a narrow topic and it draws some interesting posters out of the woodwork with interesting points/links.

Political-oriented posts are here are generally worthless and economic ones vary considerably with the oped ones being almost universally garbage. 

Eahudimac's picture

If you are posting here, chances are you are displeased with the direction the country is going and certain federal or state policies are having a direct negative impact on you. While here, you find ardent individuals who delight in slandering you, your beliefs and your experiences, and champion causes put forth by the state. For lack of a better or non-profane name, these individuals fit the definition of statists. Here is some advice on how to handle the belligerent statist:
1. Do not let the statist draw you into their arguments. The statist is purely emotional driven. Facts and logic are foreign concepts to the statist. Just as a person who has been deaf their entire life cannot comprehend what a symphony would sound like, the statist cannot comprehend a point of view other than their own. 
2. The statist is generally timid and meek. They disguise their identity with such means as false Facebook pages, monikers, photos, etc. They are not to be believed at any level.
3. The statist will attempt to discredit, belittle or make you feel guilty for your beliefs by such means as name-calling, senseless analogies, and other forms of social stress. Keep in mind that negative energy is the realm of the statist. If you respond negatively, you empower them more. 
4. Above all else, the statist values their place in the herd more than they value their own individuality. They tend to run in packs and cognition is generally along the lines of groupthink. The statist group believes itself to be superior. Separate an individual from the herd and they are vulnerable. This becomes a perceived life-threatening situation for the statist and rejoining the herd become their priority. You can expect the lone statist to flee back to the comfort and security of their flock as fast as possible. 
I hope this helps people with their understanding of the statist mind. Considering this when posting.

Downtoolong's picture

And when the only marginal buyer of your debt is effectively your sorry ass self, i.e., a central bank with negative net worth and more liabilities than the entire market cap of its supposed TBTF bank owners, then admit it, you’re just counterfeiting most of the money you are spending too.

jnesfield's picture

Where have all the shovels gone.

Stud Duck's picture

After this winter is over, all thee snowhovels need to b changed for pitchforks!!!

tickhound's picture

"Exponential growth is not sustainable, according to credible scientists."

FINALLY! Science, rather than politics, used as a source to expose the CAUSALITY of the problem. And hopefully used to one day SOLVE problems too... So we escape all the bullshit political lawmaking fluff.

elwind45's picture

Outsourced weapons systems makes this arguement tragic

elwind45's picture

When you get the chance kiss a soldier than slice your grandma's throat. NOW THATS ENTERTAINMENT

LawsofPhysics's picture

Thanks captain obvious.

DoctorOfLove's picture

So how does this end?  With hyper-inflation or hyper-deflation?  Debt after all is money, and if the debt is repudiated, the money supply drops - hency hyper deflation.  Which is it, up or down?

slightlyskeptical's picture

Pretty simple. Let the Treasury print the dollars to pay off the debt. I would even go as far as letting them print the Govt operating expenses going forward as well. Couple this with a complete elimination of the fractional reserve banking system and it will likely not even  be inflationary. 

elwind45's picture

Our dirty shirt! Doc. If America raised its rates like turkey last month you would have had a flight to quality and dollar strength. Every country is a dirty shirt but we have tide and they don't. Get into treasuries turn off the set and relax. Start a Myra and dump this site?

Bytor325's picture

Regardless of whether or not we have reached the point of no return mathematically, we long ago passed the point of no return politically.

Govt has no intention of paying back the 17Trillion

elwind45's picture

The use of the word trillion in any form will be punishable. Only government officials are authorized to use such words and stays ever vigilant to punish any use transgressions to full extent of the law!

whidbey-2's picture

This just horse shit and thinly disguised merchandising, and not much of that. The world does not want to know anything about debt as long they kick the gong around a while longer.  The US capacity for debt is beyond conprehension and it will be demonstrated over time that debt is an emolument of statecraft.  Debt is good as the world learns to love the bomb again. Gold has nothing to do with our problems except for the diversion the vendors cause.  Get away from the door and go home and buy something - on credit for godsakes.

Quinvarius's picture

After WW2, they reformed the monetary system back onto a gold standard in the Bretton woods conference.  That is when the Global Great Depression credit bubble finally ended and was reset with a serious gold backing of fiat and global agreement to end the currency wars in favor of gold.  In 1980 the price of gold rose to end the stagflation/depression of the 70's and once again providing the USD with a 100% backing its debt and fiat.  You know what is about to happen again?  Gold is, at a minimum, a tool to fix fiat and credit bubbles caused by fraudulent banking and government activities.  It will be used again.  Mispriced gold vs the quantity of government paper and banker created debt is a sympton of a massive credit bubble and busting credit bubbles is what causes depressions.  the cure is correctly priced gold as an asset to back the paper and debt, 100% of the time.

elwind45's picture

What better way to get the world kick started again than to hammer gold down down down? A consumer revolution in China and above 3% growth worldwide. I will hold my bonds longer than you hold gold?

Quinvarius's picture

I hope you are being sarcastic.  Low gold prices cause depressions.  The last two years of tinkering in the paper gold market are the reason globe has accelerated into the toilet.  You can't tell the whole world that saves in gold and uses gold as collateral that it is no longer good.  For one, they ignore you and you are the one with the problems.  Two, mispriced gold causes the tinkerers to lose all their gold supply, and may make their economies permanently disabled.  Three, and most important, you just tried to temporarily wipe out 3/4 of the savings and collateral in your economy.  Whatever IMF/CB/banker morons who came up with the idea to attempt a gold raid blew their own feet off.  The fact is it needs to be about 10x higher to fix their mess now.   

keating's picture

Suppose we, like Norway, get to a point where we have a balanced budget, or like most states, nearly so. When a bond holder shows up with a bond, the state can take surplus money, or in the case of the federal government, print money, and retire the debt. Over a period of time, the only remaining debt is simply non-interest bearing cash, which is used for investment or whatever. Where am I am mistaken here?

BeetleBailey's picture





The term "balanced budget" for the US is asinine. THAT will never happen, as long as we have the regimes we have in CorruptCONgress and the imbecilic Obamavik administration....


But Norway? Fuckin please....give those Olaf's about 5 million on the dole douchebags, plus a MIC that bleeds their treasury, and let's see them balance their budget....

RaceToTheBottom's picture

Debt Jubilees for everyone!!!

"The plane, The Plane"...

The Shodge's picture

It can be paid off and it goes like this: if you owe 100 dollars to person A and 50 dollars to person B, then you print 150 dollers and give them the money back.

Then it's paid off.

FanOfAnn's picture

For the past 7yrs Karl Denninger at Market-Ticker dot org has talked about this extensivley. 

kaiserhoff's picture

No.  There are many problems with fiat currencies.  This is not one of them.

The problem is fraudulent, Micky Mouse cash basis accounting systems which all governments use, and pretty much guarantee this result.  If business men used that crap, we would all be broke too.

Shad_ow's picture

That too, but is is just part of it.  Spending and corruption are out of control, they use the funky figures to hide it with lies.

ms8172's picture

Over a trillion dollars printed in 2013...and that excludes QE2 and QE1.  So as I sit here this morning watching CNBC (a joke), how can anyone in their right mind see that even after all this money pushed into stocks... that the real economic numbers are terrible!!! 


This is blowing my mind!!

kaiserhoff's picture

Yes, but...

Over one trillion added to the outstanding ~18 Trillion in bonds, notes, IOUs whatever,

but probably 10 trillion added to the 175-200 trillion unfunded liabilities.  That's what makes the whole thing ridiculous, and yes, unpayable.  Timing is everything.  Don't bank on the inflation hitting before the depression.  These clowns don't have clue.

falak pema's picture

1971 Decree : There will be no Moral Hazard acceptable by the US for the use by others of its Greenback. Period.

Our money your problem; all the more so since 1973 as the Petrodollar makes it King commodity currency.

And, since Reaganomics reigns; aka 1982, the only place for the world to invest is in WS and incidently also in Maggie's farm in the City.

Now ain't that witty? 

Pity that wit gone berserk in derivative Greenspanian twerk has now morphed into dystopian shit called "raging bull fiat". ---You talkin to me? You talking to me...? Mean Streets of Big Apple...

Miley had a good teacher!

"Our way of life" stays perkishly non negotiable, under the twin towers of Kim's (or Upton's) --take your american idol pick-- bras !

No Euros please we're British's picture

"This is the equivalent of taking out a home equity loan to get money to pay the mortgage."

Errr sorry, I don't understand, the bank said that's how it worked. You mean the bank lied to me?

Good can defeat evil's picture

This is perfectly acceptable if the money originally intended to pay the mortgage was used to stack Gold and Silver.  You end up with the wealth and simply owe some more imaginary debts in the future.  Plus, the interest on your investment in PMs was tax deductible.

RaceToTheBottom's picture

The Greenspam Mortgage manual for the developmentally disabled explained it to me that way...