Ellen Brown
In August 2026, the U.S. debt reached a gravity-defying $40 trillion, with an estimated fiscal year 2026 deficit of $2.1 trillion. Interest on the debt hit a record $1.4 trillion over the last 12 months and now consumes more than any federal program except Social Security and Medicare, eclipsing defense spending for the first time in U.S. history. Paid with borrowed money, interest compounds exponentially, making it the fastest-growing part of the budget, far outpacing economic growth. By 2036, the Congressional Budget Office projects interest costs will double to $2.1 trillion, with debt held by the public reaching 120 percent of GDP. The CBO director has declared the trajectory to be “not sustainable.”
Increasingly, prominent analysts are saying the United States will have to “print” its way out. But using whose printing press, printing what?
Today “printing” normally means Federal Reserve monetization (Quantitative Easing or QE). The Treasury first issues debt – bills, bonds and notes – which are sold by primary dealers on the open market. If there are insufficient buyers, the Fed as “lender of last resort” may buy the securities with “reserves” created with accounting entries in bank reserve accounts. But Fed Chair Kevin Warsh is trying to reduce the Fed’s balance sheet by selling federal securities, not buy them. And even if the Fed did engage in QE, it would not work today to reduce the debt or the interest. The Fed is required to return its profits to the Treasury after deducting its costs, but ever since 2008 it has paid the banks interest on their reserve balances (IORB) as a policy tool to control inflation; and since 2022, the total sum the Fed has paid in IORB has been higher than the interest it received from the Treasury on its securities. The net result is that instead of the Fed remitting profits to the Treasury, the Treasury now owes the Fed money to cover the gap in IORB, increasing the federal debt and the interest bill. The Fed printing press is running, but it is running in the wrong direction.
Meanwhile, $4.1 trillion USD in marketable federal securities are maturing this year; and many are long-dated bonds yielding low interest, for which there are insufficient buyers. So the Treasury under Scott Bessent has had to take over the business of buying them, using funds raised by selling short-dated Treasuries for which there is a ready market. Some commentators are calling this “Treasury QE,” but the policy is not pumping new Treasury dollars into the market. Other commentators say the buyback expansion is more like the Fed’s earlier “Operation Twist” — just an asset swap, old debt for new.
An August 22, 2026 article in Forbes compares the effect of Fed and Treasury bond purchases like this:
Under quantitative easing, the Fed buys Treasury securities and pays for them by crediting the reserve accounts of banks.… Base money, the sum of currency and those reserve balances, expands one for one with the purchase.
Treasury has no such keystroke ability. It spends out of the Treasury General Account, its checking account at the Fed, and every dollar in that account got there through taxes or borrowing.
The Treasury’s Keystroke Power
So says conventional analysis, but the Treasury at the direction of Congress actually does have keystroke ability. It is a sovereign power that our forebears used to finance the American Revolution, the Civil War, and some of the most explosive periods of economic growth in U.S. history. From the “colonial scrip” that Benjamin Franklin credited with the prosperity of the colonies, to the Continentals that funded the Revolution, the power to create money was viewed as a public utility. The U.S. Constitution formalized that power in Article I, Section 8, granting Congress the power “to coin Money [and] regulate the Value thereof.”
After Lincoln’s Treasury printed enough U.S. Notes or “Greenbacks” to win the Civil War, the Supreme Court twice affirmed its authority to do so. But that power was captured and handed to a banking cartel that met in secret on Jekyll Island in 1910, where they designed a system in which every new dollar must be borrowed into existence from bankers who simply write deposits into their borrowers’ accounts. And thus was the government’s sovereign power to create its own currency captured by private profiteers.
The Lincoln Precedent
The greatest proof of concept for debt-free sovereign currency remains Abraham Lincoln’s Greenbacks. Facing a fractured nation and usurious interest rates from international bankers, Lincoln bypassed the private credit market. Through the Legal Tender Acts of the 1860s, the Treasury issued $450 million in United States Notes (Greenbacks), which funded the North’s victory in the Civil War and extensive national infrastructure development.
In 1871, the Supreme Court upheld the Legal Tender Acts in Knox v. Lee, ruling that the government’s power to issue currency that was not redeemable in specie (coins) was an inherent attribute of sovereignty. But in 1878, the Greenback supply was capped at less than half a million dollars, ensuring that as the economy grew, the sovereign dollar would be dwarfed by private bank credit backed by gold reserves. In Juilliard v. Greenman (1884), however, the Supreme Court confirmed that the power “of making the notes of the United States a legal tender in payment of private debts” was “included in the power to borrow money and to provide a national currency”.
The Populist Allegory: The Yellow Brick Road
By the late 19th century, the scarcity of credit caused by the bankers’ “Cross of Gold” led to a major depression and a grassroots uprising. In 1894, the march of “Coxey’s Army” on Washington—the first of its kind—would become the inspiration for The Wonderful Wizard of Oz (1889).
In that classic American allegory, the “Yellow Brick Road” (the gold standard) leads to a deceptive Emerald City (Washington D.C.), where the Wizard (the President) pulls levers of illusion. William Jennings Bryan, the “Cowardly Lion” of the Greenback movement, had the roar of a great orator but ultimately lacked the courage to stick to the Greenback solution, instead pivoting to bimetallism (silver). [For more on that see E. Brown, Web of Debt.]
In 1912, Bryan was appointed Secretary of State by Pres. Woodrow Wilson. Bryan vigorously opposed the Aldrich Act, which would have handed the “money power” to the bankers; but the bankers won, and the Federal Reserve Act passed. Since that time, the United States has financed itself not with sovereign money but with interest-bearing debt, rolling it over year after year until the interest bill itself has become the fastest-growing federal expense.
That is how we got caught in a debt cyclone in which interest is compounding at a voracious rate. Congress will be coming up against the debt ceiling soon and will need to vote either to raise the ceiling, cut social services and the military, raise taxes, or authorize the Treasury to print its way out. Granted, Congress is unlikely to resort to the sovereign money alternative until it has no other option but to default, but that alternative is approved by both the Constitution and by statute, and it need not raise consumer prices – in fact it can lower them — if the new money is used to create new goods and services, keeping supply and demand in balance. (More on that shortly.)
The Statutory Keys
A statutory mechanism proposed to deal with earlier debt ceiling crises involves 31 U.S.C. § 5112(k), under which the Treasury Secretary is granted the discretion to mint platinum coins in any denomination. The proposal was to mint trillion dollar coins, which would represent a profit to the Mint (seigniorage) rather than loans, so their value does not count toward the statutory debt limit defined in 31 U.S.C. § 3101. See e.g. Paul Krugman’s whimsical endorsement here.
The “Treasury General Account” (TGA) is essentially the government’s only checking account and is held by the Federal Reserve. Fo the sovereign dollar to work, the Fed would need to credit the TGA with the face value of the coins on deposit but that mandate is also statutory. Under 12 U.S.C. § 391, the Federal Reserve Banks are must act as “fiscal agents” for the United States; and under 31 U.S.C. § 5103, all coins minted by the U.S. Treasury are “legal tender for all debts, public charges, taxes, and dues.”
Despite those mandates, when the trillion dollar coin was raised as a solution to an earlier debt ceiling deadline in 2013, then-Fed Chair Ben Bernanke called it “unworkable”; and in 2021, facing another debt ceiling, Janet Yellen called it a “gimmick.”
Perhaps, but the coin is no more a gimmick than the Fed’s own “Quantitative Easing,” which extends the use of a section of the Federal Reserve Act far beyond its intended purpose. Section 14 of the Act (12 USC Sec. 355), authorizing Open Market Operations, was intended only for small-scale adjustments to keep interest rates stead; but during the 2008 and 2020 crises, the Fed used that authority to create billions of dollars in reserves to bail out bankrupt mega-banks.
If the Fed can create trillions in currency to save the banks, why can’t the Treasury do it to save the taxpayers? If trillion dollar coins seem too much like a gimmick, Congress can just lift the 1878 cap on Greenback issues and issue U.S. Notes directly. The GENIUS Act authorizes new forms of digital coins. Why not a digital Greenback coin backed by the full faith and credit of the United States?
Quelling Inflation Concerns
Combining the Legal Tender power (confirmed in Juilliard), the Minting discretion (31 U.S.C. §5112), and the Fiscal Agency mandate (12 U.S.C. §391), the tools are already in place for Congress to issue currency directly. So what is holding it back?
The standard objection is that Treasury-issued money is more inflationary than borrowing, because borrowed money will eventually be paid back, extinguishing the newly created deposits. But the federal debt has not been paid off since Andrew Jackson did it nearly two centuries ago. The debt is just rolled over from year to year, and so is the interest. In fact the interest burden grows faster than the debt, because it is largely deficit-financed. Interest paid on interest compounds exponentially.
Contrary to conventional theory, borrowing money into existence has been shown to be more inflationary than printing it directly. Both add new dollars to the money supply, since the debt-created dollars spent by the government are never paid back. But the interest burden on those dollars drives up taxes, and the Fed attempts to dampen inflation by raising interest rates, which raises the interest that producers must pay on their own debts. Producers then raise their prices to cover these additional costs, inflating consumer prices.
Supporting Data
The additional inflation risk from government-borrowed money is not just theory. In an excellent 2018 academic paper titled “Bringing the Helicopter to Ground,” monetary economists Josh Ryan-Collins of University College London and Frank van Lerven of the New Economic Foundation examined government finance across 13 advanced economies from 1900 to 2011. For roughly 40 years, from the 1930s to the 1970s, 40 to 50 percent of government debt in the countries studied was funded by the creation of new money rather than by borrowing existing wealth from private savings or foreign investors. The new money was created as credit on the books of both central and commercial banks. The authors highlight that this period also had the lowest incidence of banking crises in modern history, and it coincided with the century’s longest sustained period of low government debt-to-GDP and highest GDP growth. Inflation remained manageable until the shocks of the early 1970s.
After the 1970s oil shock, Milton Friedman’s dictum that “inflation is always and everywhere a monetary phenomenon” became official dogma. But the historical record showed the opposite: price inflation rose in the 1970s, while new money creation fell. Prices were driven up by a shortage of supply rather than an excess of monetary demand.
Money Creation Needs to Be Productive
One particularly compelling experiment in publicly-issued money discussed by Ryan-Collins and van Lerven involved New Zealand. Today, nearly all U.S. states are dealing with housing crises. After the Reserve Bank of New Zealand was nationalized in the 1930s, the government solved its housing crisis by using central bank-issued funds to finance housing, infrastructure, public works and support for farmers. Over a four-year period, The Bank created NZ£30 million for the government, real GDP rose 30 percent, and price inflation remained stable.
Why? Because the new money was not bidding for a fixed stock of goods. It was putting unemployed people and idle resources to work to increase the supply of housing, food and other goods.
That is actually the key to avoiding the inflation trap (“too much money chasing too few goods”). If the money is spent on infrastructure and investments that produce new goods and services, supply and demand will rise together, keeping prices in balance.
In fact we may soon be facing the opposite problem – too little money chasing too many goods. Artificial intelligence and robotics promise large increases in productive capacity while threatening the wage income on which consumer demand depends. The solution in that case will be to add new debt-free money to the economy. See my earlier article series here.
The Hamiltonian Option: Grow Our Way Out
An alternative for dealing with the federal debt that is being advocated by the current Administration is the Hamiltonian approach: increase GDP and grow our way out of the debt, as the U.S. did after World War II. It’s a good idea, but financial commentators say it is not enough. Conditions are far different now than in the post-war period, and the numbers won’t work.
Before GDP can grow, funds must be available for labor and supplies; and the Treasury simply does not have them. Treasury-issued dollars could fill the breach and be sustainable, if the money were directed into infrastructure and development, increasing supply along with demand.
Contrary to the Friedman dictum, inflation is not “always and everywhere a monetary phenomenon.” The relevant question is not just how much money is circulating in the economy but where it is circulating and whether it is connecting productive capacity with human needs.
Today, U.S. factories are operating at only 76% capacity, and the American Society of Civil Engineers projects a shortage in infrastructure funding of $3.7 trillion, while trillions in liquid M2 capital are sitting idle in the stock market or circulating strictly within its walls. In fact corporations are now draining hundreds of billions of dollars out of their productive operations to buy back their own stock, further removing financial wealth from the real economy. If newly created dollars were invested in the economy’s industrial slack or the infrastructure gap, goods and services would be produced for the consumer market, raising supply to balance demand and keeping prices from rising.
The most dramatic modern illustration of this principle is China. In the last three decades, China’s M2 money supply has increased by a dramatic 5500%, yet prices have remained stable. Why? Because the money has been invested in infrastructure and development, increasing supply along with demand. For a detailed explanation and references, see my earlier article here.
What If Greenbacks Retired the Debt?
What if new Treasury money were used to gradually redeem some existing federal securities as they mature? This too would be unlikely to drive up consumer prices. Treasury securities are largely held by funds, banks, insurers, foreign institutions and wealthy investors, who are not likely to spend the money on consumer goods but will seek other investments paying interest. An institutional holder of a $1 million Treasury bond which receives $1 million in sovereign dollars has not suddenly gained $1 million in net wealth. One federal liability has just been exchanged for another: an interest-bearing security for non-interest-bearing money. What has changed is just that the government has been relieved of the obligation to keep paying interest on the retired debt.
Conclusion: The Government Has the Power to Bypass the Interest Trap
As Thomas Edison observed in a New York Times interview in 1921:
If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is that the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way.
It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people.
Congress has the constitutional power to issue sovereign money directly – interest-free and debt-free – and viable precedents are available for implementing that policy without driving up consumer prices. The question is whether Congress will reclaim this hereditary power before the interest trap snaps shut completely.
Postscript: In October of this year, the Public Banking Institute will be holding a conference on these and related issues in Philadelphia, the city in which Pennsylvania’s “land bank” first proved the power of publicly-issued credit and Benjamin Franklin’s printing press supplied its currency. For more information, see http://PublicBankingInstitute.org.
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