As if to promise a Christmas present, Congress has just finished approving the finances of the federal government for the next few months. Santa Claus would have done a better job. During early 2016, Congress will pay the government’s bills by borrowing money from individual and institutional lenders. Those folks will lend the feds all the money the feds need because the law requires the feds to pay them back.
The “pay them back” ideology is a very curious one. It is true that the full faith and credit of the federal government guarantees the payment of the government’s debts. Without that lawfully binding guarantee, who would lend money to an institution that carries a debt of $18.8 trillion? So the investors who have lent money to the feds know that their debts will be repaid in a timely manner.
Because the federal government spends $1.5 trillion more annually than it collects in taxes and other revenue and because its payments of interest alone on the money it has borrowed will soon be about $1 trillion a year, it can only repay its debts by borrowing more money. Since 1911, the federal government has not repaid a debt from tax revenue. It has always borrowed more money to pay its lenders. This is known to economists as rolling over the debt.
President Woodrow Wilson—who gave us a racially segregated military and federal civilian workforce, brought us into the horrific and useless World War I, arrested Americans for singing German beer hall songs in public, campaigned for the federal income tax by promising it would never exceed 3 percent of income, helped to create the cash-printing Federal Reserve, laid the groundwork for Prohibition, and kept Jim Crow going—borrowed $30 billion to pay for World War I. That money was borrowed from investors and from the Federal Reserve, which in those days literally printed the cash that it lent.