Tynamite is correct. We have a fiat money system, which means all money exists due to fractional reserve lending. If we went back to the gold standard, this would not be true, but I believe every monetary system on earth currently uses fiat money.
What we are currently seeing in reality is the opposite problem, where debt is increased exponentially, thereby increasing the money supply and creating inflation. US prices remained nearly level on the gold standard, from the start of the republic to the early 20th century, but since we've had fiat money, inflation has caused prices to go up many times. Prices are up 7 times higher from where they were when I was born.
If everybody paid off all their debts, the money supply would contract to zero (theoretically), and there would be massive deflation. With fewer dollars to go around, each dollar would be worth more goods and services. Therefore prices go down.
Generally, government planners hate deflation. It's all a pure hypothetical. The debt will never be paid down. The only plausible scenario based on all of global monetary history is that a fiat money system will eventually blow up with inflation when debt levels become unsustainable.
What we are currently seeing in reality is the opposite problem, where debt is increased exponentially, thereby increasing the money supply and creating inflation. US prices remained nearly level on the gold standard, from the start of the republic to the early 20th century, but since we've had fiat money, inflation has caused prices to go up many times. Prices are up 7 times higher from where they were when I was born.
If everybody paid off all their debts, the money supply would contract to zero (theoretically), and there would be massive deflation. With fewer dollars to go around, each dollar would be worth more goods and services. Therefore prices go down.
Generally, government planners hate deflation. It's all a pure hypothetical. The debt will never be paid down. The only plausible scenario based on all of global monetary history is that a fiat money system will eventually blow up with inflation when debt levels become unsustainable.
I'm the tower of power, too sweet to be sour. I'm funky like a monkey. Sky's the limit and space is the place!
-Randy Savage