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How the National Debt works

Saturday, 30th July 2005

What is the ‘National Debt’?

Most people don’t know. If you read the newspapers or, God forbid, watch TV news, you would think that the national debt was an IOU for money the Philippine government borrows from the US, Japan, IMF, World Bank, etc.

Sorry to say, but that’s not accurate. What is being described there is the ‘Foreign Debt.’

The ‘National Debt’ is exactly as it is named: an IOU for money the Philippine government borrows from the Philippine citizenry.

Yep. That’s 6.1 Trillion pesos that the Philippine government borrowed from you and me…?!

Doesn’t that strike anyone else as strange? Doesn’t the Philippine government have a monopoly on the printing and issuance of money? Why do they need to borrow money from us for? How can they borrow money from us when the only money in existence is exactly what they issue? How is it that there is more debt than money?


  1. The national government decides it need some money, so it adds ink to a piece of paper and creates designs on the paper.
  2. The national government calls the paper a Treasury Bond or Treasury Note. These are IOU’s to The Bangko Sentral ng Pilipinas (“the BSP”).
  3. To convert the IOU’s into paper bills, the bond or note is given by the national government to the BSP where it is classified as a Securities Asset.
  4. To the national government (in other words, you and me), the Treasury Note is debt. To the BSP, the Treasury Note is an asset because it is assumed the government will repay its debt. This assumption is based on the government’s ability to fleece income tax payers. This Securities Asset can now be used to offset a liability, which the BSP accomplishes by turning on their printing press, putting ink and designs on another piece of paper, and calling it a National Reserve Check.
    • There is NO MONEY in ANY ACCOUNT to cover this National Reserve Check. The BSP shareholders and governors avoid prison because Congress wants the money and this is the easiest way to create it.
  5. The National Reserve Check is given by the BSP to the national government.
  6. The national government endorses the National Reserve Check.
  7. The national government deposits the National Reserve Check into their bank account at one of the National Banks (PNB, Landbank, etc.) where it becomes a Government Deposit.
  8. The Government Deposit is used to pay national government expenses.
  9. The national government expenses are paid to many different recipients, such as businesses, entrepreneurs, etc, accomplished by writing Government Checks.
  10. These Government Checks are deposited by the various recipients into their individual Commercial Bank accounts.
  11. These deposits are called Commercial Bank Deposits, and are treated as LIABILITIES by the thousands of commercial banks.
  12. The Commercial Bank Deposits are reclassified by the commercial banks as Reserves. These Reserves are liabilities offset by the Commercial Bank Deposits on their accounting books.
  13. Dependent on the “reserve ratio” determined by the BSP, the commercial banks are required to keep only 19% of their Commercial Bank Deposits on hand in case of withdrawal by account holders. The other 81% is considered “available for lending’.
  14. The Reserves that are available for lending are termed Excess Reserves. They generate a myriad of different Loans, which GREATLY EXPAND the money supply.
  15. When the recipients of the loans deposit the loan proceeds into their bank accounts, the deposits are treated like new Commercial Bank Deposits, and the entire process repeats over and over and over again. The total fiat money generated by this mechanism is approximately 20 times the size of the original debt created by the national government due to the 90% excess reserves. This is what the international bankers and economists call the beauty of their operation, but in reality it what our founding fathers warned would be our downfall.

The ‘National Debt’ is every peso ever printed from 1949 until the present day. Because of the interest needed, it is physically impossible to pay off the ‘National Debt’ even if every Filipino gives back every peso and centavo in physical existence.

Will Filipinos realize this, or will we meet our fate as a nation as did Argentina or Weimar Germany? Only time will tell. . .

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