J.D. ALT

In Debt to Whom?

The specter of the United States national debt rapidly growing past $17 trillion elicits fear in many of us. Congress has threatened to shut down the government rather than raise the national debt ceiling. Politicians publically lament the crushing debt burden we are placing on our grandchildren. A national debt clock stokes our anxiety as it ticks away on Sixth Avenue in Manhattan. But to whom is this onerous debt owed?

The federal deficit is manifest as treasury bonds held within the private sector. Also, with the gold standard and the Brenton Woods agreement no more than distant memories, the Federal Government is free to issue currency constrained only by concerns for inflation. The federal deficit is nothing like household debt. Beginning with these facts the book derives and defends several surprising characteristics of the U.S. national economy and develops a logical progression of clear illustrations to correctly represent the national economy.
+ Money is created only by the federal government, not by the private sector. “By law, a U.S. Dollar can only be created –printed or issued electronically—by the U.S. sovereign government.”
+ The Federal Government buys its public goods and services from the private sector.
+ Federal taxes drain Dollars from the private sector and destroys them. The U.S. Dollar actually is “simply a promise, by the U.S. sovereign government, that it will accept the Dollar as payment for a Dollar’s worth of taxes.”
+ The U.S. government “promises only to accept the Dollar in exchange for the cancellation of a Dollar’s worth of taxes due.”
+ This promise is what allows Dollars to be widely accepted as an exchange medium.
+ Selling Treasury Bonds moves Dollars from Private Sector spending accounts into private sector savings accounts. While these Dollars are being saved in the form of Treasury Bonds they are not being used by the private sector to purchase goods and services.
+ The Federal Government transfers interest payments due on treasury bonds into spending accounts within the private sector.
+ Spending by the public sector at a rate beyond what the real economy can produce leads to inflation.
+ Spending Dollars created by the Federal Government pays the private sector for creating public goods and services.
+ Dollars the Federal Government spends are not dollars it has to earn—they are Dollars the Federal Government simply issues.
+ The “National Debt” is manifest as Treasury Bonds held by the Public Sector. Therefore The numbers displayed by the “National Debt Clock” are more accurately described as the “National Savings Clock.”

The implications of these considerations are profound:
+ The idea of balancing the federal budget is baseless.
+ Spending by the U.S. Treasury is not constrained by revenue collected as taxes.
+ The primary constraint on the public goods we can have is inflation resulting from exceeding the capacity of our real economy to produce goods and services.

Although this short book is little more than an essay, it rocked my world, turned my thinking upside down, and caused me to question several basic economic assumptions I have held for a long time.

The arguments presented seem sound, but the conclusions are so unconventional that the book deserves to spend time addressing inevitable questions and objections. Could student loans be offered interest free? Can the national debt grow without limits or consequences? Can we eliminate taxes? Can the Federal Government readily provide each of us with a generous citizen’s dividend? Could we end poverty with a few pen strokes? Is this all too good to be true?

“If at first the idea is not absurd” Albert Einstein once remarked, “then there is no hope for it.” Enjoy an hour reading this short, clearly written, and thought provoking Introduction to Modern Money Theory and decide for yourself if there is any hope for the ideas it presents.… (mehr)