Where does the Fed get the money to purchase government bonds?
They create it. These government bonds are then used as an asset(or base) to expand the money supply. What would happen if the U.S. Government paid off its debt? Under the present system, the money supply would implode. This contraction would strangle the economy and a severe economic crisis would ensue. Remember that the Fed uses government bonds as a base to expand the money supply. Without government debt the Fed loses its most potent economic tool Open Market Operations. Once in debt it is almost impossible for a country to become debt free. Correct. Reducing debt would reduce the money supply, this contraction would severely depress an economy. The tax base would erode. The present system not only encourages debt, but enslaves a country by its debt. Is that why every country with a central bank is heavily in debt with the debt growing each day? Yes. The more a country is in debt to the central bank the more leverage the central bank has in controlling the economy. If all money is
