What would happen to our national economy if the federal budget were balanced and the deficit were eliminated? Two things.
1. Balancing the budget would return us to the situation maintained for nearly 200 years - until the end of the Lyndon Johnson administration. This administration passed the laws to set up his War on Poverty, which the Reagan and later administrations were saddled with and blamed for. Stopping unnecessary spending to balance the budget would be good for the economy and for most individuals. Wonderful.2. Eliminating the national debt would remove nearly all money from the economy except coins. Why? Because money is now created by creating debt. For instance, if you sign a mortgage on your house, the bank enters it as an asset and issues your money by a bookkeeping entry. His books are balanced and you have your money to spend.
In the same way, the federal government signs bonds and gives them to the banking system and they make the appropriate bookkeeping entries to issue the money. Their books are balanced and money is put into circulation. (That is a slight oversimplification, but the basics are correct.) Thus, no national debts, no money in circulation. Not so wonderful.
Can the mess be reversed and corrected? No. Such ideas are not politically correct. Congresspersons (I detest that term, but it is politically correct) are not about to eliminate money from our economy. Oh, they would not have to, the Constitution gives them authority to coin (create) money and establish its value.
Money could be created interest-free and be used to pay national expenses, or be loaned to the states interest-free for payment of state expenses. Also, banks could borrow the money, pay interest on it (instead of receiving interest) and put it into circulation just like they used to. But will it happen? Of course not. The bankers would not like that.
Robert W. English
Salt Lake City