Is our "national debt" a real debt?

Question

Our “national debt” is not a real debt because it has none of the three essential qualities of a real debt:

1.	That the debt must be a burdensome but necessary obligation, the best of bad choices.

When the Treasury auctions bonds, it is acting like a bank accepting deposit accounts, not like a home buyer undertaking a mortgage burden. The Treasury auctions bonds only because Congress requires the sale to cover an annual budget deficit. This requirement was waived during World War II, followed by 35 years of prosperity with no harmful inflation.  There is no reason to believe that deficit spending cannot again be successfully financed by simple keystrokes. Inflation is always caused by poorly regulated bank lending during prosperity, never by excessive deficit spending during recessions.

2.	That the debtor must repay the debt.

Yes, each bond is redeemed at maturity, but the “national debt” is the total value of all outstanding Treasuries. In our history, we have rarely had even a modest annual budget surplus. No serious politician today has any plan whatsoever for a budget surplus. In effect, the “national debt” has never been repaid and never will be repaid.

3.	That the debtor must bear a significant interest payment burden.
 
While the bond-holders receive significant interest payments, the Treasury services the “debt” by auctioning more bonds, ad infinitum, with no burden other than a few keystrokes. Economists recognize this by declaring that our “primary” annual budget deficit does not include debt interest payments because they never consume physical resources and have no economic effect. The taxpayer bears no significant interest payment burden.

What if there is a run on Treasuries?

Where will the bond-sellers put $11T in cash? Eurobonds? BoJ bonds? Corporate bonds? Illinois bonds? Detroit bonds? CDs? Money Market? Bank accounts?  Stop kidding! There’s nothing but Treasuries for risk-free interest, even if the real (inflation-adjusted) rate is negative. Safety is what they want.

What if buyers stop buying Treasuries?

That could only happen if China’s bonds are better than ours. And that can only happen if China’s infrastructure is better than ours. And that can only happen if Congress is more worried about the “national debt” than it is worried about China’s infrastructure. 

Won’t we need higher tax rates to pay for increased deficit spending for infrastructure?

We are not taxed to pay our “debt”. There is no correlation between “debt” level, which always rises, and tax rates, which rise and fall. Our annual budget deficit is exactly equal to the increase of our annual private savings, an addition to our buying power. We are taxed only to lower the deficit, to lower our savings and buying power, to avoid inflation, a threat due only to full employment, which we now crave. A larger deficit and/or lower middle class tax rates would increase our buying power, raise GDP, and lower unemployment.

A rational voter will vote against every candidate who worries more about the “national debt” than about millions of unemployed or underemployed Americans who are drawing benefits forever instead of building infrastructure.

Unfortunately, by definition, half of all voters have below-average intelligence and cannot understand the statement made above. For proof, just read the answers below.

And, unfortunately, the brighter half of the voters gets screwed by the morons.

Pull My Finger · Accepted Answer

"Inflation is always caused by poorly regulated bank lending during prosperity, never by excessive deficit spending during recessions."

Please justify that claim.  I don't see where it is true.  If foreign investors see that a nation is in debt and engaging in excessive deficit spending, the demand for that nation's currency falls.  If the supply of a currency is higher than the demand for that currency, what do you call that?

Your claim about the run on Treasury bonds has some truth to it, but like all runs, when the panic is on, people are dumping the bonds in the hopes of redeeming as much as they can in order to minimize the losses they already see as inevitable.  At the point at which the Treasury can no longer redeem those bonds, it is irrelevant.  The cost to the nation's economy of a failure to continue redeeming bonds at any percentage of the initial investment would be catastrophic.

"...to avoid inflation, a threat due only to full employment..."

Please justify this claim.  For one, I can think of no historical example of full employment, or even near-full employment, nor do I see a causal connection that runs necessarily between full employment and inflation.  Again, inflation has to do with the demand versus the supply of currency.  Full employment in itself wouldn't necessarily cause demand for currency to fall.

While I sort of agree with the general points you're making, I can't say that I would characterize the whole of the national debt as being one solely connected to Treasury bonds.  Yes, the bonds have been the primary way we've tried to cover that debt - it has been more of a shell game than anything else.  That does not mean that the nation has not incurred serious debt as a result of borrowing from China, for example.

Your thesis will only be correct so long as people invested in US Treasury bonds think they can continue to profit from that investment in the long-term.  If that attitude should shift significantly, there would be no more veneer to hide the gaping abyss that is actual US debt.

*Added:

"...inflation happens only during prosperity..."  Demonstrably false.  Look at the Weimar Republic.  Your entire argument here seems to be drawn (if you'll forgive me for being so bold as to guess) from US history - stagflation during gas shortages and energy crises in the US in the 1970s, for example.  Please understand that in economics, as in all other disciplines, correlation does not imply causation.

"Your “run on the Treasury” is like a discussion about flying pigs. Fruitless."

You understand, I hope, that dismissing my arguments in an insulting manner is not equivalent to effectively rebutting them.  It remains the case that there have been economically harmful dumpings of treasury bonds both in US history and in the history of other countries.  I don't see where my concerns are unwarranted.

"Full employment implies shortages and delays..."  Again, with the WWII comparison, correlation does not imply causation.  Rationing was a result of wartime expenditures and the redirecting of resources into the production of defense goods, not the result of near-full employment.

"We do not borrow from China..."  That is just false.  A meager amount of research would demonstrate that we do borrow from China.  If it is your argument that our policies ameliorate the effects of that borrowing, you're free to believe that is the case, but it does not alter the literal reality that we are borrowing money from China.

midnyteryder1961 · Answer

I'm sure the bond holders consider it a real debt.  Treasuries are where investors go in times of uncertainty.  Given the poor performance of the economy during this administration, and the availability of said bonds due to rampant government spending, auctions ought to go quite well.

This, however, will not make the economy better.  Only increasing demand can cause more jobs to be created.  There are only 3 ways to increase demand - develop new products, increasing personal debt, and my personal favorite, increasing the purchasing power of the dollar.

Edit:  Well what we are doing now isn't working.  New products do create demand.  The PC market did not exist in 1965.  The automobile market did not exist in 1870.  The tobacco market did not exist in 1000.  More money in the hands of consumers only works if there is in fact something more to buy (see "companies are sitting on wads of cash arguments by liberals.")  See Depression of 1921 for the correct response in to economic downturns.  A balanced budget would in fact cause boom.

? · Answer

Marv, now I even ought to take your economics card. i will take your argument piece by piece. First, the nationwide Debt is a actual debt. each and each and every bond difficulty is retired or paid by issuing the successive bond difficulty. The debt is paid. there is not any opt to have extreme pastime or burden to qualify as a debt, merely pastime and a duty to pay off. second, or nationwide Debt has had significant useful homes and losses. i'd urge you to look a bond expenses from the 1970's to the 1980's. yet once lower back that has no touching on no matter if it is a debt. If by lowering the debt you recommend paying element of the debt, it is incomprehensible, as an difficulty of debt matures it is paid by issuing extra debt. third, merely because the debt hasn't ever decreased, does no longer recommend it might want to't. you are able to not challenge the destiny. So it is the component, the bonds are traded and the speed of pastime is determined by grant and demand. at the moment, the Fed is transforming into call for and reducing the pastime of our bonds. If there's a extra useful bond difficulty it gained't count number with the aid of Fed coverage. besides, the popularity of a bond is not merely in accordance with yield yet in accordance with threat/go back. If the decision for for our bonds shrinks then the yields will upward thrust. this would ensue for some motives, the most threatening of those motives is as debt service on our bonds attitude tax revenues. even as that takes position the ponzi scheme is over. regardless of the undeniable fact that, you're partly the finest option about voters. voters opt to be worried about advance contained in the business gadget. advance will unavoidably create extra tax revenues and extra jobs. If this happens there is an chance that we can shift spending from assisting those who're accumulating to arising infrastructure and persevering with advance.

Robert T · Answer

The macro economics you are operating under is engineered to effectively enslave through debt not free and insure the general welfare through credit that can also only be done by Congress. The laws fines, fees and penalties are equivalent to taxing at this point. So, if it's not real debt is it just guilt tripping? Until recent years the US had "given" almost the same amount in Foreign Aid (bribes as far as many were concerned) as we had in National Debt.
Loans are secured by real property.When real buying treasuries your buying real property.

Philip H · Answer

WRONG!
Of course it is a Real Debt. You refuse to believe that Fact, but just try Not paying it and you will find out Real Quick just how Real that Debt IS!
The Government has managed to create a deception about that debt by rolling it over. They pay the interest and when the bonds come due they sell More to have the assets needed to retire the existing bonds. If they fail to make Either type of payment, their entire scam will collapse in mere days!
That FACT has Congress and the Obama Administration Very Nervous.
We live in a house of cards.
Please acknowledge reality.

Harley Drive · Answer

yes it is a real debt but is also a gigantic ponzi scheme where old investors are paid with new investors money, if a private company or individual tried the same thing ( madoff) they would get 50 years in jail, however it also leads to massive amounts of annual interest having to be paid which means the debt will never be paid of and will always keep increasing as long as investors trust the government see what happened in cyprus to get an idea of what might happen

? · Answer

Your confusion is understandable, honey, what with what passes for public education these days. Good luck!

AMERICA IS DEAD · Answer

If it is not real, then people are getting worked up over nothing.

No I did not read your rant.

Anonymous · Answer

Only when a Democrat is in charge. FACT.

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Is our "national debt" a real debt?

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