Before the advent of presidents, Prime Ministers, Congresses or Parliaments, a country was governed by a King and Queen and all forms of wealth, be it gold, silver or copper; filled the royal treasury.

From the royal treasury could the King pay his expenses, if he had any. Kings and Queens do not pay taxes, but the people governed. This is how the royal treasury is filled, year after year.

The greatest expense for any kingdom, is war, wherein a King or Queen if forced to pay soldiers a sum of money, be it in gold or food. With the uncertainty of war, Kings or Queens may be forced to hire foreign mercenaries, to aid the soldiers of a kingdom; and this gets expensive, very quickly.

Great Britain found itself in such a predicament. Before The Glorious Revolution of 1688, Britain had been no more than a marginal military and economic power, with only a few colonies in America.

Yet 100 years and 272 million Pounds of debt, later; Great Britain had become one of the most powerful empires of earth, backed by the most powerful navy on earth.

How does a country with a monarchy, a royal treasury, like Great Britain, get into debt?

The king of England found himself at war with the French and also found his treasury empty. With no means to pay his soldiers, the desperate king asked a wealthy citizen for a loan to finance the war. This citizen asked the king to pay the interest alone on the debt in short amounts (todays monthly payments). Further, he is to leave the principle alone. The king then found himself able to borrow more money and pay only interest.

These interest payments soon got to be enormous, that it lead to the creation of The Bank of England. This is a national bank, so instead of the king collecting taxes, all the money goes to the national bank. This in fact replaces the kingdoms treasury.

Much later, the national debt of England (at that time) at 272 million Pounds was funded mostly by long term bonds ( and some called Consols that never mature. ) Further, these bonds could be traded on the marketplace and these bonds served as collateral for loans to their owners.

This is tantamount to double debt. First the government owes the bond holder in interest payments, and the bond holder, if he/she chooses to take a loan, owes the bank in interest payments.

This triple treat:

(1) The government owing bond holders
(2) These bonds being publicly traded and / or
(3) The immature bonds serving as collateral on loans, greatly liquefies a countrys wealth whereby gold and silver are no longer needed to be hauled where payment is due, but bonds just exchanged hands.

So the British Government could now quickly raise cash by printing bonds and selling them and that it did. This lead to Great Britain being able to expand its military and greatly expand throughout the world.

The constitution of the United States forbids the government from creating wealth. This means, the US Government cannot open a company and sell products to raise money and pay its debt. The Government acts as tax collector and the money it collects, it uses to pay its debt; which is a combination of many factors, one being its payment on interest on Bonds, short and long term.

How did a country as rich and wealthy as the United States, which has fought 3-4 expensive wars, get into debt in the first place?

Alexander Hamilton, the first Secretary of the Treasury, was anxious to establish the ability for the US Government to borrow, when necessary. This line of thought follows directly under the British model, wherein if the government fell into a need to finance a war or big project, it would have the reserve funds available.

This attitude lead Hamilton to argue for the United States to establish a central banking system. At the time, the greatest problem of the American economy was the lack of available cash (liquid capital) .

Hamilton wanted to use the national debt to create a larger and more flexible money supply. He argued, banks holding Government Bonds, could issue bank notes (todays dollar bills) backed by the government bonds, multiplying the available capital.

One must understand that the bank notes, issued by banks, that are backed by bonds (Government Debt) is really backed by nothing, for the collateral doesnt exist, it is a debt.

For this reason, John Quincy Adams wrote: Every dollar of a bank bill, that is issued beyond the quantity of gold and silver in the vaults, represents nothing, and therefore a cheat upon somebody.

Nevertheless, a national bank was established and Hamilton had a 3 phase plan to implement this:

(1) Create a central bank modeled after the Bank of England.
(2) Establish a well funded and secure national debt.
(3) The Federal Government is to assume the debt of individual states (these debts are today in the form of municipal bonds) incurred during the Revolutionary War.

The dangers not envisioned by the creators of a Central Bank are:

(1) The Central Bank acts as a depository for Government funds and a means
for transferring money from one part of the country to another, but this is the legal job of the Treasury.
(2) The Central Bank is a source for loans to the Government and other smaller banks, but the government shouldnt have to borrow money from a bank (thereby incurring a debt). If it needs money it should issue bonds and acquire liquid capital for its sale.
(3) The Central Bank regulates the money supply, but this is the job of the congress.

The Central Bank having been established, started to lend money, backed by Government Bonds. The first war that put a spike on the National Debt was the Civil War, where banks in The North and South, issued paper money, but the continentals zeroed out in value with the progress of the war.

In any emergency, set rules are over looked for the good of everyone, especially for the future. Using the model of interest and principle: If there is an interest, there must be a principle. In such an emergency( as in any emergency ), the people pitch in and do there fair share, to get any and all emergencies taken care of.

Let there be established a National Debt Tax wherein all products and services sold, be it house, car or candy bar, are taxed by the amount of one cent (or monetary equivalent).

Example: A house of $140,000.00 will be $140,000.01. A car of 39,500.00 will be 39,500.01. A candy bar of .60 will be .61.

The restriction of such a tax is that it will run only as long as the National Debt exists and every cent collected by such a tax is to be used to pay THE PRINCIPLE ( not interest ) of The National Debt.

The benefits of this payoff system is, "as the principle shrinks, the interest shrinks".