The public debt soared to $1.27 trillion in July, for fiscal year 2009. The current ceiling for the total public debt is set at $12.1 trillion, a figure the Treasury projects will be eclipsed by mid-October. This has Treasury Secretary Tim Geithner urging Congress to raise the debt ceiling, and raise it fast.

Basically, monetizing debt is a process of lending money to one’s self. The government spends, proceeds to write an IOU (debt contract in the form of a T-bill) and hands it to the Federal Reserve.