National debt to whom?

[bugle]

I would welcome some comment on why we (Americans) should pay interest to private bankers for issuing fiat paper money which was created out of thin air. We could just as well have our own treasury issue this paper money so that instead of paying trillions of dollars to bankers for basically nothing we could pay it back to the treasury or for that matter not pay it off at all.

[DNCAttackDog]

First, private banks don't create fiat paper money out of thin air: there's a limit to how much they can lend anyone, because they have to have enough assets behind them to cover depositors should there be a run on the bank.

The problem with the treasury simply printing more paper money with nothing to "back it up" (in other words, the gold standard or something equivalent) is that it creates runaway inflation. Exactly what happened in Germany in the 1930s, by the way. Defaulting on the debt would be even worse, because it would mean that all the T-bills out there would become worthless, the dollar would go into free fall, and the entire world's economy would be violently destabilized.

I would certainly argue, however, that whatever the interest rate is that private banks charge the government, it should be no greater than the prime rate, not some ridiculous credit-card rate. (Although in truth I don't know what the current rates are for U.S. Treasury borrowing.)

[bugle]

Originally posted by DNCAttackDog
[B]First, private banks don't create fiat paper money out of thin air: there's a limit to how much they can lend anyone, because they have to have enough assets behind them to cover depositors should there be a run on the bank. Whether or not there are limits has no bearing on whether or not it's backed by thin air or gold. Private banks can issue "as debt" new money in amounts several times that which is on deposit. Remember that the money on deposit does not belong to the banks. In effect, the banks are collecting interest on someone else's money. Would you rather get 10% on your own money or 5% on everyone else's money?

The problem with the treasury simply printing more paper money with nothing to "back it up" (in other words, the gold standard or something equivalent) is that it creates runaway inflation. Exactly what happened in Germany in the 1930s, by the way. Defaulting on the debt would be even worse, because it would mean that all the T-bills out there would become worthless, the dollar would go into free fall, and the entire world's economy would be violently destabilized. But the private bankers issue money that's not backed by anything, wouldn't it be better if the treasury did so instead so the taxpayers wouldn't have to work half their lives to pay "interest" to private bankers who do nothing in return?

I would certainly argue, however, that whatever the interest rate is that private banks charge the government, it should be no greater than the prime rate, not some ridiculous credit-card rate. (Although in truth I don't know what the current rates are for U.S. Treasury borrowing.) Why should they charge the government any interest for issuing money that the treasury could issue to the government directly?