Explaining the National Debt to My Students

[Gumba of Liberty]

I made this video in my grad school education technology class two years ago. I show it to my history and economic students and it seems to help. What do you think?


http://www.youtube.com/watch?v=Bs2CJySIbcQ

[kcchiefs6465]

Good video. Bump.

[DamianTV]

I'd like to say it is an easy thing to explain, but it isnt. I'd suggest first going back to the roots of what paper is and what gives it value.

Our current fiat paper currency is no longer backed by gold (temporarily, thanx Nixon), but since OPEC demands (due to our intervention) that all OPEC oil be purchased with FRN's (Federal Reserve bank Notes), our "dollar" is effectively backed by a product that we do not own. That is the ONLY thing keeping the dollar from completely collapsing. I know the question was about the National Debt, but to understand that, we have to understand the nature of our currency.

The Govt now has TWO ways to generate revenue. The first is accomplished by taxes. Since the total debt exceeds our GDP, taxes could be at 100% on everything and it would not be enough. The 2nd way is to Print The Money. Printing The Money is an Invisible Tax. Printing Money does not decrease the quantity of money in anyones pocket the way taxes would. Printing Money, instead, decreases the Value, while leaving the Quantity alone. As a result, everything has to cost more and more and more because the value, the purchasing power of the dollar continues to go down and down and down.

The key here is WHO prints the Money. The US Treasury does NOT print our moeny. A private Central Bank does. So when we "Print The Money", we are literally borrowing it from the Central Bank. When we borrow the money from the Central Bank, we have to borrow it at interest. This interest rate is what everyone refers to as the Prime Interest Rate. Right now, it is artificially low. In order to prevent inflation, that interest rate should acutally be higher. Im not saying this is honest by any means, but this is a brief explanation of how it works so you can explain it to your students. When we have to pay interest, some of the money that has been printed is going to be paid back to the bank. The interest rate was intended to prevent an increase in the money supply (inflation through money printing). But this needs to be simplified even further.

The US Govt borrows money from the Federal Reserve Bank, the Central Bank for the United States. Interest is charged on that loan. So if we had a Prime Interest Rate of 10% per year on something simple, say $100 bucks. After one year, we would owe a TOTAL of $110 bucks, which would be the original loan ammt of $100 bucks, plus an additional 10% of that for interest. 100 + 10 = 110. Simple Math. But we are never expected to pay back the entire quantity. We are only expected to pay a small percentage of that in the course of the year. Usually, it is enough to satisfy the interest, but never satisfy the full loan ammt. So we would only be expected to pay $10 per year on the loan of $100 bucks. If this cycle were to continue, even at a very very modest total of $100 bucks initially, we would NEVER be able to pay that all back. So our stuff gets repo'd, and the Federal Reserve Bank would literally claim ownership by repo'ing something of an equal value. But our intent is not to fully pay off the national debt, but to keep the cycle going. The Federal Reserve Bank allows the US Govt to do something else that it would never do for any average person. They allow the Govt to take out another loan to make a payment on the original loan.

Our problem is that we take out loans to continue to make payments on previously existing loans, which causes the money supply to increase. Keep in mind that the total including interest can NEVER be fully repaid. When we borrowed $100 bucks, that is the TOTAL cash we have on hand. But in order to pay the TOTAL of $110, that extra $10 has to come from somewhere. So we borrow more to pay back that $10, but that loan also comes with interest. And they get something of value by forcing our Govt to borrow something that has no value.

We have been borrowing a lot of money from a lot of places. But the National Debt is basically what the US Govt owes the Central Bank, in a nutshell. This total also includes the accumulated and accrued interest.

I was considering just suggesting having them watch Zeitgeist, but there is another video that I think would be more to their liking. You may wish to preview this CARTOON before showing it to your students and make the call on whether or not to show it to them.


http://www.youtube.com/watch?v=tGk5ioEXlIM

[DamianTV]

By the way, if you show that video in a Public School, you'll probably get fired.

You've been warned.

[Gumba of Liberty]

By the way, if you show that video in a Public School, you'll probably get fired.

You've been warned.

I already show part of it. I show the flashback to the 10th century to explain commodity money. I use other sources for the rest.

[DamianTV]

I already show part of it. I show the flashback to the 10th century to explain commodity money. I use other sources for the rest.

How did they respond?

If they do not understand that DEBT = MONEY, nothing else will make sense. Maybe explain it this way, in our current system, if there was no DEBT, there could not possibly be any MONEY. Problem again there remains that due to interest on the DEBT, the Federal Reserve Bank (notice I continuously call the "Fed" by its whole title. I do this so that I can drill it into peoples heads that the "Fed" is a Private Bank, and is NOT a part of the US Govt), gets to collect on who ever loses the game of musical chairs and is unable to pay. Govt puts the problem of unable to fully repay on us, and we lose our homes, our cars, our jobs, our retirement, everything, while the Govt just borrows more and more from the "Fed" and bails out all their buddies so they can loan us more, and the next round of Musical Chairs can continue, with one of us again being the losers.

But DEBT= MONEY is critical. Money is created by being borrowed into existence. Money also has to be destroyed. It is destroyed either by taxes or repayment of a loan. Do they understand this concept yet?

[mello]

This is a little dated (I made it in 2011) but it still gets the job done:


http://www.youtube.com/watch?v=m6ujJF2Z-uQ

[Gumba of Liberty]

How did they respond?

If they do not understand that DEBT = MONEY, nothing else will make sense. Maybe explain it this way, in our current system, if there was no DEBT, there could not possibly be any MONEY. Problem again there remains that due to interest on the DEBT, the Federal Reserve Bank (notice I continuously call the "Fed" by its whole title. I do this so that I can drill it into peoples heads that the "Fed" is a Private Bank, and is NOT a part of the US Govt), gets to collect on who ever loses the game of musical chairs and is unable to pay. Govt puts the problem of unable to fully repay on us, and we lose our homes, our cars, our jobs, our retirement, everything, while the Govt just borrows more and more from the "Fed" and bails out all their buddies so they can loan us more, and the next round of Musical Chairs can continue, with one of us again being the losers.

But DEBT= MONEY is critical. Money is created by being borrowed into existence. Money also has to be destroyed. It is destroyed either by taxes or repayment of a loan. Do they understand this concept yet?

I do a simulation where I ask for six volunteers. I have two desks on the left side of the class. I have four desks on the right side. On the left: The Bureau of Engraving and Printing, The US Treasury. On the Right: (Behind the Rest) The Fed, (Closer to the Students) Bank of America, Wells Fargo, BB&T.

I employ several Props: Green Pieces of Paper (Money) and Blue Pieces of Paper (T-Bills)


The money starts at the Bureau of Engraving and Printing (I do this because the Fed always claims they don't print money and when I visited the Fed they always throw the Bureau of Engraving and Printing under the bus.) The Fed then calls the BOEAP and asks them to transport the money to the Fed. The Fed then buys governments bonds with the newly printed money. The Fed also lends money to the commercial banks. The Treasury uses the money to pay for government spending. The commercial banks loan out money to the rest of the population (the rest of the students in the classroom).

I do this simulation every time and about halfway through I ask the students to tell me who is in debt. The intelligent students begin to realize that everyone is in debt except for the Fed. This is about the point where all hell breaks loose and my job turns turns into calming the students down and trying to keep a level head. Its one hell of an aha moment.

[DamianTV]

Are there naysayers in the class that claim that everyone, except the fed, is NOT in debt?

[Gumba of Liberty]

Are there naysayers in the class that claim that everyone, except the fed, is NOT in debt?

I try to get as many as I can to question it but by the end of class I usually have a class full of skeptics. That's all I want. I don't tell my students what to believe. I plant the seed in their mind and let them run with it.

[J_White]

I do a simulation where I ask for six volunteers. I have two desks on the left side of the class. I have four desks on the right side. On the left: The Bureau of Engraving and Printing, The US Treasury. On the Right: (Behind the Rest) The Fed, (Closer to the Students) Bank of America, Wells Fargo, BB&T.

I employ several Props: Green Pieces of Paper (Money) and Blue Pieces of Paper (T-Bills)


The money starts at the Bureau of Engraving and Printing (I do this because the Fed always claims they don't print money and when I visited the Fed they always throw the Bureau of Engraving and Printing under the bus.) The Fed then calls the BOEAP and asks them to transport the money to the Fed. The Fed then buys governments bonds with the newly printed money. The Fed also lends money to the commercial banks. The Treasury uses the money to pay for government spending. The commercial banks loan out money to the rest of the population (the rest of the students in the classroom).

I do this simulation every time and about halfway through I ask the students to tell me who is in debt. The intelligent students begin to realize that everyone is in debt except for the Fed. This is about the point where all hell breaks loose and my job turns turns into calming the students down and trying to keep a level head. Its one hell of an aha moment.

now thats a good classroom lesson !

and great video by the OP.
btw..which movie/docu are the scenes taken from.
I would also like to know whether Hamilton was a power hungry guy who wanted the central govt to have more power, or did he have a different perspective on how things work and thought what he was doing, was actually good ?

[dillo]

Doesnt the US treasury own the FED? Arent federal reserve profits deposited into the treasury, therefore lending money and paying interest back to ourselves?

[DamianTV]

Doesnt the US treasury own the FED? Arent federal reserve profits deposited into the treasury, therefore lending money and paying interest back to ourselves?

Are you suggesting the Federal Reserve Bank (a.k.a. The "Fed") is a part of the US Govt? If so, why does it have a President? If the Federal Reserve Bank has a President (Ben Bernanke), why do we call the elected leaders of Soverign States Governors instead of say President of New York, or Rhode Island?

The Federal Reserve Bank is no more Federal than Federal Express.

[dillo]

Are you suggesting the Federal Reserve Bank (a.k.a. The "Fed") is a part of the US Govt? If so, why does it have a President? If the Federal Reserve Bank has a President (Ben Bernanke), why do we call the elected leaders of Soverign States Governors instead of say President of New York, or Rhode Island?

The Federal Reserve Bank is no more Federal than Federal Express.

I understand that it operates independently, im just asking where the profits go?

[Weston White]

I would say most likely, they get deposited into a private Cayman business account.

[thoughtomator]

I understand that it operates independently, im just asking where the profits go?

The profits go into the pockets of the banks, which are empowered by the fractional reserve scheme to legally counterfeit as much money as they can lend. They then get to collect interest on capital that they conjured with the stroke of a pen.

[emazur]

Here's a shocking picture of the national debt: by 2040 (and that's being optimistic) more than 40% of the federal budget will be consumed by paying interest on the debt. And by 2025, the entire federal budget will be consumed by a combination of entitlements and interest on the debt
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20EXECUTIVE%20SUMMARY_0.pdf
http://i.imgur.com/iaR6g.jpg

[emazur]

Doesnt the US treasury own the FED? Arent federal reserve profits deposited into the treasury, therefore lending money and paying interest back to ourselves?

This is an issue where too many Paul supporters go off the rails and would get laughed out of the room in serious company. The Treasury does not own the Fed. The profits made by the Federal Reserve do get paid back to the Treasury minus the Fed's own operating expenses. That's the arrangement but it doesn't mean the Treasury owns the Fed.

Saying that the Federal Reserve system allows Federal Reserve member banks to profit off the backs of the people is an entirely separate (and entirely valid) issue.

You might make the argument that the Treasury "owns" the Fed because there's a revolving door between the Fed and the Treasury (Tim Geithner for instance was President of the NY Fed just prior to being nominated Treasury Secretary).

[TomtheTinker]

http://www.youtube.com/watch?v=i-G0Okhz2Z8

^^^this video does a good job of explaining the money debt system..there other versions of the video too.

[Bastiat's The Law]

I never liked the approach of explaining debt as 'how much you owe'. People don't feel like they owe that money and they know they will never get a physical bill in the mail to repay it so there's a disconnect there. I think you lose much of your audience if you frame it that way. They don't feel responsible for the debt, nor do they feel it effects them. This goes back to the seen and unseen. People don't see the way they pay for the debt in their daily lives. Older folks generally hint at it when they nostalgically talk about how much things used to cost relative to today. Unfortunately, I think that history lesson is lost on most people.

"Every man, woman and child in the United States currently owes $54,769 for their share of the U.S. public debt."

Going a bit further every adult owes $68,534 for their share of the U.S. public debt. That number is in near perfect parity for the loss of purchasing power the average American has experienced over the last half century.

1960

Median Family Income $5,600

Purchasing Power of $5,600 income in 2012 dollars = $116,928

Full Time Employed Male $5,400

Purchasing Power of $5,400 income in 2012 dollars = $112,752

2013

Adult share of the debt = $68,534

Average salary = $41,673

Added together = $110,207

[Gumba of Liberty]

I never liked the approach of explaining debt as 'how much you owe'. People don't feel like they owe that money and they know they will never get a physical bill in the mail to repay it so there's a disconnect there. I think you lose much of your audience if you frame it that way. They don't feel responsible for the debt, nor do they feel it effects them. This goes back to the seen and unseen. People don't see the way they pay for the debt in their daily lives. Older folks generally hint at it when they nostalgically talk about how much things used to cost relative to today. Unfortunately, I think that history lesson is lost on most people.

"Every man, woman and child in the United States currently owes $54,769 for their share of the U.S. public debt."

Going a bit further every adult owes $68,534 for their share of the U.S. public debt. That number is in near perfect parity for the loss of purchasing power the average American has experienced over the last half century.

1960

Median Family Income $5,600

Purchasing Power of $5,600 income in 2012 dollars = $116,928

Full Time Employed Male $5,400

Purchasing Power of $5,400 income in 2012 dollars = $112,752

2013

Adult share of the debt = $68,534

Average salary = $41,673

Added together = $110,207

DO you have a source for those numbers. I would love to show it to my students.

[BAllen]

Simple explanation: Money is created from debt. No debt, no money. Banks are authorized to create money when they make a loan. That is why the bastards that be don't care about eliminating it.

[Uncle Emanuel Watkins]

The problem reduces to reside in the functioning of the Supreme Court. As our Founders established a new order within the Declaration of Independence, achieving such not by the utilization of legal precedence, but through their manifestation of a natural law, then the Supreme Court should be making determinations not in regards to what is or is not constitutional regarding the law, but, in what is in contempt of the people and the new order which they live by with this being their Civil Purpose.