How to Escape the Federal Debt Trap

The U.S. national debt has officially surpassed $36 trillion, an alarming figure that highlights the unsustainable trajectory of federal spending. The government has been running deficits at record levels, with interest payments alone now accounting for 37.8% of all tax receipts—an amount that is expected to continue climbing. In fiscal year 2024, the U.S. spent an eye-watering $1.16 trillion just to cover interest on its debt, a number that grows by approximately $3 billion a day. To put this in perspective, $11 billion, or just under four days' worth of interest, could cover the annual rent for every homeless person in the U.S. The situation is dire, and something must be done to break this cycle.

So, how can we escape this debt trap, and is there any real solution?

The Debt Trap: What Went Wrong?

As the debt continues to balloon, raising taxes and trimming the budget have been suggested as potential solutions. However, these measures can only slow the inevitable—they cannot fix the underlying problem. The national debt is so massive that interest payments are now consuming a significant portion of government revenues, crowding out spending on essential public services. The U.S. is now caught in a vicious cycle: debt feeds interest payments, and interest payments lead to even more debt.

One of the key reasons for this troubling situation is the method by which the government borrows money. Instead of issuing debt-free money directly, the U.S. Treasury relies on borrowing through the issuance of bonds, which the government must pay interest on, further exacerbating the problem.

Borrowing vs. Printing: The Hidden Inflationary Costs

Some economic forecasters, such as Martin Armstrong and Chris Martenson, argue that the U.S. should have avoided borrowing altogether and instead printed money directly for the budget—much like President Abraham Lincoln did with the issuance of Greenbacks. According to this perspective, issuing debt today is more inflationary than printing money because of how the banking system operates. When the U.S. borrows, the money supply expands in a way that actually fuels inflation more than direct printing would. This is due to the way fractional reserve banking works: when banks purchase government debt, they lend out money, multiplying the money supply and triggering inflation.

In essence, the U.S. is creating new money through borrowing—meaning borrowing isn’t a solution, it’s an amplifier of inflation.

A Better Way: Issuing Currency Directly

The solution that some economists propose is that the U.S. government should issue its own currency directly, without borrowing from private banks. This method could eliminate the need to pay interest and would drastically reduce the debt burden. In the past, this approach has been used in emergencies, such as during the Civil War when Greenbacks were issued to finance the war effort.

By issuing its own money, the U.S. could bypass the need for borrowing and the interest that comes with it. The Federal Reserve could also take a more active role in managing the debt by buying back federal debt as it matures, essentially making the debt interest-free. This would help prevent further spirals in the deficit while also keeping inflation in check.

Canceling the Debt: Is It Possible?

One of the most radical solutions to the U.S. debt crisis would be to cancel the debt entirely. This was historically done in ancient Mesopotamia through debt jubilees, where the king would simply forgive the debt, thus resetting the economy. While such an option isn’t available today due to the contractual rights of creditors, it serves as a reminder that debt forgiveness has been a tool used throughout history.

Another approach could be a financial transaction tax, which could replace income taxes and generate sufficient funds to pay off the national debt. Unfortunately, this solution has been discussed for years without significant progress in Congress.

The Solution: A Shift Toward Productive Investments

Rather than continuing to feed the debt machine, the U.S. could issue currency for productive purposes—investing in infrastructure, education, and technology to increase the GDP. As Martin Armstrong suggests, one option for debt-ridden countries is to swap debt for equity in productive assets. This would allow the government to exchange its debt for ownership stakes in profitable enterprises, which could generate returns that could pay off the national debt over time.

Could a Financial Reset Solve the Problem?

As the U.S. faces increasing debt payments and inflationary pressures, the idea of a monetary reset becomes more plausible. By adopting strategies such as debt-for-equity swaps or direct currency issuance, the country could address its debt crisis without resorting to austerity or tax hikes that could cripple the economy further.

The Federal Reserve, while still facing pressure to manage inflation, could play a pivotal role in this reset by helping to buy and manage debt directly, making it interest-free. With such changes, the U.S. could potentially escape the debt trap and break free from the vicious cycle that has trapped it for decades.

How Can We Avoid Hyperinflation?

While some economists warn of the potential for hyperinflation if the government simply prints more money, it’s important to remember that inflation doesn’t always occur when money is issued directly—especially if the new money is used to increase production. This was seen in China, where the money supply grew by more than 5,000% from 1996 to 2024, but inflation remained relatively stable because the increase in money supply was matched by growth in GDP.

If the U.S. were to issue money for productive purposes, inflation could be kept in check, as increased supply would balance the increased demand for goods and services.

Conclusion: How to Escape the Debt Trap

The U.S. is in a debt crisis, with national debt growing at an unsustainable rate. While there are many proposed solutions, the most promising options involve eliminating interest payments, issuing money directly, and investing in productive assets that will generate returns to pay down the debt.

While the road ahead is uncertain, there are ways to avoid the trap of perpetual debt. By looking to the past and implementing new strategies, we can reset the system, reduce the debt burden, and rebuild the economy on a sustainable foundation.

For more information on how to prepare for the future and protect your financial assets, check out our latest insights on how to navigate the looming financial reset.