Our economy is having trouble because it is fundamentally flawed. We all want money, but few of us ever think where money comes from. All money is created by the Federal Reserve. Let’s pretend that the government and the Federal Reserve have just been created. We’re back at square one, so to speak. The government approaches the Fed for the first time in need of $1,000. The government calls the Fed and places the order. The Fed is, of course, delighted to get its first order for money, as is any new upstart. The Fed chief makes a bookkeeping entry to create the money out of nothing and then lends it to the federal government at interest.

Voila. Everyone is happy. The Fed has just completed its first order, which it was able to fill with zero product cost, having produced the money out of thin air. And Congress is happy because they have obtained the funds they needed without having to tax the people. The people are happy because they are being taxed at a zero percent rate. Everyone is happy.

The trouble is that, using this system, the United States debt will grow in perpetuity. According to the U.S. National Debt Clock, the total national debt is $12 trillion. That’s around $100k per household. That means that in addition to your mortgage, car payments, and credit card debt, your family is in debt an additional $100,000.

The reason our economy is having trouble is because the economy itself is fundamentally flawed. It is a mathematical impossibility for the United States to get out of debt. We owe $12 trillion, but if you emptied every checking account, savings account, wallet, and piggy bank, it wouldn’t be enough. We couldn’t pay the national debt if we paid everything that we have.

But it’s not just the national debt that we owe. State and local governments are in debt. You and I are in debt. We have car payments and mortgages to pay as well as plasma TV and boat payments. Businesses owe money too. And Medicare and Social Security have future obligations that need to be met. If you add it all together, our total debt obligation is in excess of $57 trillion. That’s a total debt obligation in the ballpark of $500k per household. We owe more than $57 trillion, but there is only around $15 trillion in existence. We couldn’t get out of debt even if we wanted to.

If you want a good laugh, go to the Federal Reserve’s homepage. Above the navigation bar it says, “The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system.” (emphasis mine)

Ha! The system created by the central bank is anything but safe and stable. I don’t feel very safe and stable — knowing that I’m in a debt hole that I can never crawl out of. Not only is it mathematically impossible for us to get out of debt, it is mathematically inevitable that the system will crash. What will happen when the financial system does crash? Your guess is as good as mine. Perhaps we should all start growing gardens.

by Wade Young