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DAVID KORTEN, PhD | May 6, 2025
The federal debt is soaring, now well over $34 trillion and growing. Politicians from both parties talk about slashing essential services or cutting Social Security to “bring the debt under control.” That talk, and the actual dramatic cuts of the Trump administration, distract us from the real issue: We’re borrowing our own money from private financiers at interest because we’ve handed over the power to create money to Wall Street.
It doesn’t have to be this way. The truth is that to eliminate the federal debt we must make the creation of money a purely public function.
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The Core Scam
Private Banks currently create our public money. We pay them interest on that money for doing little or nothing. Today, nearly all new money in our economy is created not by the government, but by private banks when they issue loans.¹ This includes the money used by financial institutions to purchase U.S. Treasury bonds, the primary way government spending is financed beyond tax revenue.
Here is how the scam works. When a commercial bank issues a loan — whether to buy a house, a business, a federal bond, or a financial derivative or cryptocurrency — it creates a bank deposit.² That deposit, which is new money added to the economy with a few computer keystrokes, becomes someone’s spending power.
But here’s the catch: the loan must be repaid with interest. The bank’s cost of creating the money is negligible. The interest becomes a stream of income to the bank. When the loan is repaid, the loan principal disappears, thus shrinking the money supply by the amount of the repayment. This dynamic means the federal government must keep borrowing just to maintain sufficient money in the economy to prevent economic collapse. This creates a permanent debt treadmill.
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The Myth of Repayment
Even if we taxed the ultra-rich at 100%, we could never fully repay the federal debt under the current system. Why? Because the interest due means there is always more debt in the economy than there is debt-free money to repay it. Repaying all public and private debt would extinguish most of the money supply and the economy would crash. That’s a structural flaw in the system.³
So, we roll over the debt, endlessly transferring hundreds of billions of dollars in interest each year from taxpayers to private bondholders and banks.⁴ It’s modern-day peonage, disguised as fiscal responsibility that virtually guarantees continually growing inequality.
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The Fictitious Financial Empire
Meanwhile, the private financial sector creates a vast and growing array of fictitious assets — derivatives, private equity instruments, cryptocurrencies, and collateralized debt obligations. All of these inflate the financial wealth of the wealthy without adding anything of real value to society.
These instruments:
- Serve speculation on everything from commodities to sovereign defaults.
- Facilitate the leveraging of debt to magnify profits.
- Generate windfalls for traders and billionaire investors with no obligation to serve the public interest.
The global derivatives market alone exceeds $600 trillion in notional (fictitious) value.⁵ Much of this involves contracts that are not backed by ownership of any real assets, but merely by a promise to pay or receive the proceeds on the purchase and sale of fictional financial assets structured to mirror the prices of real assets. Often these trades on notional assets involve highly leveraged positions.
In the event of a market crash, such contracts expose sellers to massive losses they have no real assets to cover—creating serious systemic risk. The resulting instability often forces governments to intervene to rescue major institutional speculators to prevent a collapse of the broader financial system, effectively socializing losses while privatizing profits. This dynamic contributes to both systemic instability and growing economic inequality.
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The Real Cost of Private Money
Because government borrows from private markets to finance public needs, we now spend more on interest payments than on many essential public services. In fiscal year 2023 alone, the federal government paid $659 billion in net interest — more than the entire federal education, housing, and energy budgets.⁶ That money went overwhelmingly to banks, hedge funds, and wealthy investors.
Meanwhile, the majority of Americans face rising debt, stagnant wages, unaffordable housing, and collapsing infrastructure. The financial system works beautifully for the already very wealthy. It is a disaster for the rest of us.
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From Private Power to Public Purpose
We must confront the obvious but unspoken truth: There is no way to eliminate the federal debt without eliminating the private right to create money and vesting that right solely in the federal government.
We have the right and the means to make the creation of money a purely public function, which it should be. That means:
- Ending the ability of private banks to create money through issuing loans.
- Restoring the government’s constitutional authority to issue sovereign money, debt-free.
- Spending new public money into the economy to meet real needs like renewable energy, universal healthcare, education, and ecological restoration.
- Regulating or abolishing privately created fictitious financial assets that serve no public purpose.
There is nothing radical about government creating money to serve a public purpose. Lincoln did it with the Greenbacks during the Civil War.⁷ The NEED Act, introduced by Rep. Dennis Kucinich in 2011, proposed exactly this solution.⁸
Public money issued debt- and interest-free by the Treasury Department could fund urgent public investments without creating unrepayable interest burdens. No more borrowing from private financiers. No more paying Wall Street to create and grant us the use of our own currency.
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Reforming the Federal Reserve: From Bankers’ Bank to Public Servant
Reforming the monetary system begins with restructuring the Federal Reserve. Though often described as a government agency, the Fed is, in practice, a hybrid institution privately owned by the very banks it regulates. It is accountable primarily to Wall Street, not the public.
To serve a public purpose, the Fed must be transformed into a truly transparent, public institution independent of commercial bank ownership and fully accountable to Congress and the people. Its mandate can and should be restructured to prioritize full employment, ecological regeneration, and equitable community development — not just inflation control or financial market stability.
This would mean:
- Ending private ownership of the regional Federal Reserve Banks.
- Revising Federal Reserve board appointment processes to ensure representation from labor, communities, and the ecological sciences — not just finance.
- Coordinating monetary and fiscal policy under a democratic framework that sees money as a public trust.
The Fed must serve as a public utility, stewarding the monetary commons—not a technocratic tool for growing obscene wealth.
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Time for Monetary Democracy
A truly democratic society cannot exist under a monetary system that forces public dependence on private financiers.
A fundamental shift in how we think about money and its role in society must begin with public education. We need to expand awareness about how money is created, who benefits from the current system, and how that system affects the rest of society. This means investing in accessible educational resources, books, and media that explain the monetary system and advocate for reform. Additionally, we need political candidates who are willing to openly discuss monetary reform and the urgent need to reclaim public control of money creation.
We need to treat money not as a commodity the wealthy sell or offer for rent. Rather, the process of creating and distributing the money essential to the functioning of a just, sustainable, and peaceful ecological civilization will be managed like a cooperatively owned and managed public utility.
Until we achieve this institutional transformation, the federal debt will never go away. It is an inevitable consequence of a system designed and managed by predatory bankers to benefit predatory bankers.
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Footnotes:
- Bank of England (2014), Money Creation in the Modern Economy, https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy
- Joseph Huber & James Robertson, Creating New Money (2000), New Economics Foundation.
- Michael Hudson, The Bubble and Beyond (2012); see also Killing the Host (2015).
- U.S. Treasury Department, Monthly Statement of the Public Debt, FY2023.
- Bank for International Settlements (BIS), OTC Derivatives Statistics, Dec. 2023.
- Congressional Budget Office (CBO), Monthly Budget Review: September 2023.
- Wesley Clair Mitchell, A History of the Greenbacks (1903); see also Ellen Brown, Web of Debt (2008).
- National Emergency Employment Defense (NEED) Act, H.R. 2990 (112th Congress), 2011. Text available via Congress.gov.
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