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The principal problem with the current economic crisis is that the authorities are trying to solve the debt crisis by adding more debt — which is akin to trying to cure a viral infection by injecting more viruses. In case some have forgotten, the United States is undergoing a serious credit crisis, that is, a debt crisis.

All sectors of the American economy are suffering from a chronic addiction to credit, which manifests itself as the disease of excess debt. Household, business, and public debt have reached all-time highs. Consequently, it would not seem logical for the federal government to fight the debt crisis by adding trillions of dollars to the national debt and by lowering interest rates to promote even more credit.

A debt crisis can only be solved by paying down and reducing debt; it cannot be solved by compounding ever-more debt on top of an extremely overleveraged economy.

Consumer credit, which in 1950 was only 6% of total gross domestic product (GDP), has by 2009 tripled to 18% of GDP. Bank credit, which in 1947 was 45% of GDP, has by 2009 risen to 67% of GDP. Household debt, which in 1957 was only about 45% of national income, peaked at over 120% of national income by 2007. According to the congressional budget office (CBO), federal debt, which was at an already-high level of 41% of GDP in 2008, is expected to balloon to 200% of GDP by 2038. The CBO expects federal debt to grow to 60% of GDP by 2010.

However, if you read the statements of the policy makers, it would seem that the problem is not excess credit, but exactly the opposite. In their view, the problem is a lack of credit. On April 14 of this year, President Obama made the following remarks about the crisis, stating that

the second step has been to heal our financial system so that credit is once again flowing to the businesses and families. … The heart of this financial crisis is that too many banks and other financial institutions simply stopped lending money … I do agree … that we must provide banks with the capital and the confidence necessary to start lending again.

More recently, on July 21, Federal Reserve Chairman Ben Bernanke stated that "many of the improvements in financial conditions can be traced, in part, to policy actions taken by the Federal Reserve to encourage the flow of credit." And many Republican leaders have given similar statements.

It is clear that policy makers agree on something: they want more credit in the system. But what this means is that, knowingly or unknowingly, policy makers want Americans and the country to go further into debt.

Argentina suffered a similar financial collapse in 2001, when its external debt had risen to over 120% of GDP. As in most countries that have recovered from a financial crisis, total consumer, business, and government debt had dropped significantly once the bubble had burst. For instance, Argentina's external debt fell to only 46% of GDP by September of 2008. This was no coincidence; reducing their debt was a necessary step in ending the crisis.

However, the United States seems to be headed completely in the opposite direction. As shown above, the federal debt is growing at unsustainable rates, and bank credit — contrary to what many (including the president) believe — has actually continued to grow. Bank credit increased from $9.15 trillion, at the start of the crisis in September 2008, to $9.31 trillion as of June 2009.

The only way to solve a debt crisis — a path demonstrated by other countries that have survived through similar crises — is to drastically reduce the total levels of debt. Individuals, businesses, and the government must all tighten their belts, reduce expenditures, and live well within their means. How can a monetary policy that promotes more credit and a fiscal policy that creates more debt solve the debt crisis? The answer is clear: it cannot.

In a way, the lifestyle of American people and American government has been a denial of reality. For the past 50 years, America has been living on credit and piling up excessive debt. This financial crisis, if left unhampered, would have been a wake-up call. It would have forced the reduction of debt in all sectors. However, policy makers are not allowing this necessary clean up to occur — not just through their fiscal and monetary policies, but also through public policies that prevent various foreclosures and liquidations to occur.

Not only was the apparent economic prosperity of the last 50 years artificial and unsustainable, it was essentially a borrowed prosperity. And worse, the funds were borrowed, not from real savings, but from artificially created money provided by the Federal Reserve.

This is the stark reality of the United States economy today. The prosperity of the last few decades has mostly been a grand illusion generated by artificially created credit. This financial crisis is just the "foreclosure" of the national economy. In other words, the market is simply trying to force the American economy into paying down its debt.

Therefore, any policy that effects the contrary — that is, any policy that promotes or increases debt — will only make matters worse. By piling on trillions to the national debt, the government will have to keep interest rates low for a longer period, promoting ever-greater debt. The result of this must be unsustainably higher levels of debt — and the worst financial crisis ever seen in the history of mankind.