Tag: debt

Introduction: Why Money Power Matters

Most people graduate school knowing trigonometry but not how money is created. We learn to vote for parties but rarely examine who shapes the economic terrain those parties must walk on. Yet for more than a century, the power to create money as interest-bearing debt has quietly concentrated economic and political control in private hands. The result is a world where nations strain under compounding obligations, public debate revolves around the margins of policy, and whole societies become dependent on a credit system they neither designed nor fully understand.

This essay distills key arguments and quotations (historical and contemporary) about how modern banking actually works, why debt has become the engine of governance, and what that means for sovereignty, prosperity, and even our moral compass. The aim is not to recycle slogans but to clarify mechanisms: how money enters circulation, who benefits first, who bears the risks, and why the system almost always demands more growth, more extraction, and more debt.

1) The Core Mechanism: Money as Debt, Not as Value

A century of central banking and commercial credit has normalized a simple but profound fact: most new money is created when banks make loans. As former U.S. Treasury Secretary Robert B. Anderson put it in 1959, when a bank issues a loan, it credits a deposit that did not exist the moment before; the new deposit is “new money.” In practice, this means the money supply expands primarily through private lending, not public issuance.

That mechanism is turbocharged by fractional-reserve banking and today by capital-based banking rules: banks do not lend out pre-existing savings one-for-one; they expand deposits by creating credit. Interest is attached to that credit, meaning the system requires continual new borrowing to service past borrowing. If credit creation slows materially, defaults rise, asset prices wobble, and political pressure mounts to “stimulate” again. In short, we live inside a treadmill that is far more credit-driven than most civics textbooks admit.

Critics from Henry Ford to John Scales Avery have argued that this arrangement is structurally unjust because it privatizes the seigniorage (the profit of creating money) and socializes the fallout (inflation, asset bubbles, austerity). Whether or not one accepts every claim these critics make, the underlying math is hard to ignore: when money arrives as interest-bearing debt, the system has a built-in bias toward ever-expanding leverage.

2) From Private Credit to Public Power: How We Got Here

Modern banking’s political leverage grew alongside institutions like the Bank of England and, later, the U.S. Federal Reserve (established in 1913). Whatever the intention of their founders, central banks now sit at the junction of state and finance: they are publicly mandated yet operationally insulated (and privately owned), coordinating liquidity to stabilize the system while commercial banks originate most money-like claims.

This hybrid design has real consequences. It allows a small circle of decision-makers to set the price of money (interest rates), backstop private balance sheets in crises, and influence fiscal choices by making some policies financially easy and others expensive. Former Fed Chair Alan Greenspan once emphasized the institution’s independence; the flip side of that independence is low democratic visibility over choices that shape every mortgage, job market, and public budget.

Beyond national central banks lies the Bank for International Settlements (BIS) in Basel — often called the “central bank of central banks.” Through standards (Basel accords) and coordination, it helps align global banking rules. Critics argue this produces a technocratic layer of control over national economies with little public oversight. Whether one views that as prudent stewardship or as democratic deficit, it underscores a theme: the architecture of money governance is largely opaque to the public it governs.

3) Debt as an Organizing Principle: Nations on the Hook

If money is introduced mainly through borrowing, then borrowers become the gearwheels of the system. This is true of households, firms, and crucially governments. National debts have exploded over decades. Interest on those debts is neither a schoolbook abstraction nor a harmless line item: it diverts tax revenue from public goods to creditor claims year after year.

Concrete examples illustrate the point. Countries such as Ireland have paid billions annually in debt interest, amounts that can reach a significant share of national profits in strong years. Canada has spent tens of billions per year on interest at various points. The United States services hundreds of billions annually. The deeper the debt stock and the higher the rates, the more fiscal space narrows — and the easier it is for outside creditors and institutions to demand policy concessions as the price of liquidity.

International lending reinforces the pattern. When a country is pulled into a crisis, the usual medicine involves austerity and privatization in exchange for financing — effectively transferring public assets and future cash flows into private hands. Even when such programs stabilize a currency, they often leave a legacy of reduced sovereignty and social strain. Either way, the organizing principle remains: service the debt first.

4) Why Perpetual Growth Feels Non-Negotiable

Once you grasp that interest-bearing credit is the dominant source of new money, the politics of “growth at any cost” make more sense. If economies must expand to service past obligations, then policymakers are incentivized to chase GDP even when the ecological or social returns are negative. This is why governments of every stripe tend to converge on similar policies when growth stalls: tax incentives to borrow and invest, financial repression to keep rates low, deficit spending to plug holes, and pressure on central banks to ease again.

Critics like Roy Madron, John Jopling, and John Scales Avery have argued that this growth-dependency crowds out other goals: equitable distribution, environmental stewardship, and cultural stability. It also explains why mainstream debates often avoid the root structure and instead focus on the speed of the treadmill. We argue about 2% vs. 3% inflation rather than who issues money, who captures seigniorage, and who eats the losses when cycles turn.

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Awatchdog group is warning that “something has to give” as the U.S. national debt climbs rapidly toward $39 trillion.

The national debt grew faster than at any time other than the COVID-19 pandemic to $38 trillion this week, in part, due to the lifting of the debt ceiling under the GOP’s “One Big Beautiful Bill.” Before the bill was signed in July 2025, the debt ceiling was $36.2 trillion.

In a detailed press release, The Committee for a Responsible Federal Budget (CRFP) predicted that the U.S. would “likely hit the next milestone in just a matter of months.” The CRFB estimated that the deficit would likely reach $2 trillion for fiscal year 2026. 

The deficit was $1.8 trillion in fiscal year 2025, which just concluded on September 30.

Prior to the COVID-19 pandemic, the deficit was under $1 trillion.

In fiscal year 2019, the deficit was $984 billion and the national debt was $22.7 trillion, according to Treasury Department data. 

The road ahead: $1 trillion for interest payments will be needed

“We’re on course to spend $1 trillion just on interest payments on the national debt this year, exceeding our spending on our national defense,” Maya MacGuineas, president of the CRFB said in the statement. 

“Something has to give – and eventually it will, whether we are prepared for it or not,” she added.

According to the Joint Economic Committee, the total U.S. national debt has increased by $69,713.82 per second over the past year.

“The reality is that we’re becoming distressingly numb to our own dysfunction. We fail to pass budgets, we blow past deadlines, we ignore fiscal safeguards, and we haggle over fractions of a budget while leaving the largest drivers untouched,” MacGuiness said.

“Social Security and Medicare, for example, are just seven years from having their trust funds depleted – and you don’t hear anything from our political leaders on how to avoid such a disaster,” she added.

The CRFB said current law “calls for deep across-the-board cuts in benefits” when the trust funds are depleted. 

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One in three Americans now have more credit card debt than emergency savings, according to the latest survey by financial services company Bankrate.

As Statista’s Anna Flecks shows in the chart below, this is up ten percentage points from 2011, when the company first started polling the question.

Meanwhile, around 53 percent of respondents said that their savings were currently exceeding their credit card debt.

This is down two percentage points from the same time last year, but slightly up from 2011.

Around one in ten Americans are living paycheck-to-paycheck in 2025, not making any debt or saving up money.

You will find more infographics at Statista

Millennials were the most likely to say that they had tapped into their emergency savings over the past 12 months.

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You can thank the Tik Tok, Instagram world we live in…

Money may not buy love, but for many young adults, it’s still the ticket to attention. A new study shows that two in five Gen Zers admit going into debt just to impress others — often in dating and social situations, according to Credit One Bank.

The pressure to perform financially is high among younger generations. Half of Gen Z and millennials (51%) say they’ve faked wealth or success, with Gen Z leading at 54%. Nearly 38% admit they’ve damaged their credit score or gone into debt to impress someone, and 37% say they’d even overdraft their accounts for a date. Men feel that pressure most: 46% would go into debt for a single date, compared to just 28% of women.

Credit One Bank writes that more than half of consumers say a high credit score makes someone more attractive, while nearly 70% would lose confidence in a boss with bad credit. Still, disclosure is rare: 54% of Gen Z and millennials prefer not to share their financial details with a partner until things get serious. Only 8% call poor financial history a marriage dealbreaker. Nearly half (48%) say they’d marry someone with a shaky financial past, especially if that person was improving. Gender gaps persist: men (47%) are more forgiving, while women are twice as likely to reject a partner over money issues (10% versus 5%).

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Congress is on its way to missing a “basic” budget deadline for the 29th year in a row, according to the Committee for a Responsible Federal Budget.

Meanwhile, the deficit so far into the current fiscal year is larger than the same period last year. 

“We’re less than a month away from a possible government shutdown, and lawmakers are once again finding themselves without a plan to keep the government funded,” said Maya MacGuineas, CRFB’s president. “If all 12 appropriations aren’t signed into law by September 30, it will be the 29th year in a row that they failed to meet the most basic deadline in budgeting. That’s not a streak to be proud of.”

MacGuineas said that the current spending showdown is the latest example of how broken the budgeting process is in Washington.

“This is just another sign that the budget process is completely broken. Congress hasn’t passed a real budget resolution in 10 years. Often, they pass no budget at all. And when they do pass one, it’s either full of fantasy math, simply an excuse to facilitate the passage of partisan reconciliation bills, or both,” she said. “Going through the process of crafting a budget around the nation’s priorities now sounds like a fairytale – in fact, the President hasn’t even bothered to submit a full budget for Fiscal Year 2026.”

The federal government has borrowed $1.9 trillion so far into FY2025 from September 2024 through August 2025, according to the latest Congressional Budget Office (CBO) data. The borrowing is slightly higher than the same time period of fiscal year 2024.

However, the monthly deficit for August is lower than last year. 

The deficit was $360 billion in August 2025, which is down from $380 billion in August 2024. 

According to CBO data, federal tax revenue for August 2025 was $344 billion, which is a $37 billion increase compared to August 2024. 

Spending in August 2025 was $17 billion higher than August 2024.

In total, the deficit so far into FY2025 is $1.9 trillion compared to $1.8 trillion during the same time period of FY2024.

The CRFB estimated that the FY2025 rolling deficit is about 6.4% of GDP, which is close to FY2024.

“Over the past 12 months, total nominal revenue was $5.2 trillion compared to $4.9 trillion over the same period prior. Nominal spending was $7.1 trillion over the past 12 months compared to $6.9 trillion the same period prior,” read a CRFB analysis.

MacGuineas suggested that lawmakers should work to avoid a shutdown and improve the fiscal situation of the country at the same time. 

“In light of our massive debt, they should reduce both defense and non-defense spending levels below their current levels and extend the expiring discretionary spending caps to enforce additional deficit reduction,” she said. 

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With U.S. gross debt now at a staggering $37 trillion—roughly equivalent to the combined debt of all other major advanced economies—Washington is trapped in a fiscal doom loop of its own making. Decades of bipartisan overspending have pushed the nation to a point where a mere 1% increase in mean Treasury interest rates adds $370 billion to annual debt service costs. The arithmetic is unforgiving. Yet, Donald Trump’s second administration is doubling down, pursuing policies that risk accelerating the crisis.

Consider the following combination: President Trump’s push for the Federal Reserve to slash interest rates by as much as 3%, his aggressive mix of tax cuts, tariffs, and subsidies aimed at “reshoring” American manufacturing, his championing of increased military spending and expanded domestic outlays. Absent fanciful projections about growth rates, it is overwhelmingly likely that tax revenues would plummet while spending obligations soar, widening the already yawning fiscal gap.

Already the Committee for a Responsible Federal Budget (CRFB) estimates annual deficits of 6-7% percent of GDP over the next decade, regardless of which party controls Congress. Trump’s first term saw the national debt rise by $7.8 trillion, driven by the 2017 Tax Cuts and Jobs Act (TCJA), COVID spending, and bipartisan spending increases. Biden picked up where Trump left off, and Trump in his second term is promising more of the same, with proposals to extend the TCJA and cut corporate taxes further, potentially adding an additional $5 trillion to $11.2 trillion to the debt by 2035.

Those hoping the Federal Reserve will be able to do anything to help, including President Trump, are bound to be disappointed. In the case of hoping for lower interest rates to finance yet more spending, while the Fed does control short-term rates, longer-term yields are market-driven. Aggressive rate cuts could spark inflation fears, pushing up 10- and 30-year bond yields, as economists Ryan McMaken and Kenneth Rogoff have noted. Long-term rates will likely rise despite the cut. This dynamic is already evident, with markets resisting Fed dovishness by increasing Treasury borrowing costs.

The Fed faces a trap: tightening policy balloons debt service costs, while loosening invites market backlash, undermining the dollar and raising long-term rates. In 2024, net interest payments reached $879.9 billion, surpassing defense and Medicare spending. With the debt-to-GDP ratio at 119.4% in mid-2025, the Fed’s room to maneuver is shrinking.

Then there is the fading “Dollar Discount”: For decades, the dollar’s status as the world’s reserve currency has shaved 0.5 to 1% off annual Treasury borrowing costs. However, in an increasingly multipolar world—where China, Europe, and others are developing parallel payment systems and central banks are diversifying their holdings—this “exorbitant privilege” is at risk. The so-called “Mar-a-Lago Accord,” a rumored proposal for selective default on foreign-held debt, has heightened doubts about U.S. creditworthiness. Moody’s downgrade of the U.S. credit rating in 2025 cited unsustainable deficits and growing interest costs, warning that the debt-to-GDP ratio could hit 134% by 2035. Eroding confidence in the dollar will drive borrowing costs higher, compounding the crisis

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