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For college grads only: can you find the flaw in this logic?
Q1: Is our so-called “national debt” a serious debt, a burden that we must repay?
A1: No, It lacks both of those two essential qualities of a serious debt. It’s a “Debt In Name Only”, a “DINO” -
1. A serious debt is a burden. OUR DINO IS NOT NOW AND NEVER WILL BE A TAXPAYER’S BURDEN.
Our DINO is the total value of all issued and still maturing treasuries. By calling our DINO “unsustainable”, a hoax meant to privatize Social Security and Medicare, Wall Street con artists seeking a fortune in commissions have panicked the ignorant public, journalists, and Washington politicians. But, effectively, the taxpayers do NOT redeem mature treasuries. In a virtual rollover, it is the buyers of newly-issued treasuries who redeem the mature treasuries! In every auction, more bonds are demanded than are available from new issues. Auction winners get the safest, most liquid US dollar instruments; the losers are stuck with bank risk. If necessary, the Fed could even create a demand for treasuries by buying large quantities in the open market with cost-free keystrokes. The taxpayer is NEVER burdened!
Our Treasury does not borrow money like a home-buyer undertaking a mortgage. It is a custodian of funds, like a bank accepting money offered for certificates of deposit. While a bank with too many bad loans can certainly have too many maturing CDs, our non-lending Treasury cannot have too many maturing bonds unless its deficit spending is causing harmful inflation. And that happens ONLY in a war or emergency requiring rationing. It NEVER happens during a recession. During prosperity, banks are ALWAYS the main cause of inflation, creating over $6 of credit for every $1 of deficit spending. To curb inflation, let’s regulate the banks before restricting spending on infrastructure.
2. A serious debt must be repaid. OUR DINO WILL NEVER BE REPAID AND SHOULD NEVER BE REPAID.
Only a budget surplus can reduce our DINO. Since dropping the gold standard in1971, we have had only four years of very modest surplus. None is now in sight. To supply enough treasuries, the ONLY risk-free instruments used for trade collateral, insurance, pensions, bank reserves, etc., OUR DINO MUST GROW WITH OUR ECONOMY. In fact, deflation and depression will hit us hard unless big budget deficits replace our cash now flowing into China.
Q2: Could savers make a “run” on Treasury bonds?
A2: Yes, when savers can get risk-free returns from the Wall Street casino or from GM bonds, Illinois bonds, or Detroit bonds. Safety is not everything. Safety is the ONLY thing! That’s why the whole world relies on US bonds.
Q3. Could savers stop buying Treasury bonds?
A3. Sure, when nobody needs risk-free interest for trade collateral, insurance, pensions, bank reserves, etc., etc.
Q4: Could savers prefer foreign sovereign bonds?
A4: Yes, indeed! So far, almost two thirds of the world’s reserve currencies are in US dollars and about half of all US Treasury bonds are held by foreigners. But if China’s infrastructure and productivity become better than ours, its sovereign bonds could become safer than ours. But that could happen only if US voters worry more about our DINO than they worry about our falling bridges, failing schools, leaking sewers, aging power grids, etc., etc., etc.
Q5: Won’t we need higher tax rates to pay for infrastructure?
A5: Taxes only counteract inflation. Congress never spends tax revenue. The IRS destroys all of its receipts, actually shredding cash payments and selling the pulp. For spending, Congress creates money out of thin air (just like your corner bank creates loans), deposits it in the Treasury, and writes checks. Then the Treasury auctions bonds to finance the deficit, which is limited only by Congress and NEVER by tax revenue. The only rational reason to restrict deficit spending is the onset of harmful inflation. Until then, Congress can and must spend freely on our DINO’s annual debt interest and on much-needed infrastructure for the future. Every day, you fill your kitchen sink AND you stop it from overflowing. Why can’t Congress fill our economy with money AND prevent inflation? Ask them!
Q6: How can increasing our DINO be good for the economy?
A6: Every spent federal dollar not repossessed by the IRS is saved by the private sector. Our annual budget deficit is exactly equal to the annual increase in private sector savings. YES! DEFICITS = SAVINGS! No deficits, no savings! A tax deficit is a savings surplus. It is money left on the table for the savers by Uncle Sam because he didn’t need it to prevent harmful inflation and because consumers need it to consume. We do not have a “national debt”. We have a “national savings”. The bad “Debt Clock” is really the good “Savings Clock”. How can we have too much savings?
Since bank loans must be repaid with interest and cash is flowing to China, a tax deficit / savings surplus is the ONLY savings source that can sustain our economy. We need to DOUBLE our DINO / total savings to return it to the World War II level that was followed by 35 years of prosperity without harmful inflation and with very high taxes. Our (DINO total b
Q7: How much should Congress tax and spend?
A7: Ideally, Congress should tax just enough to prevent harmful inflation and should spend almost enough to cause full employment (and harmful inflation). Result: low unemployment and low inflation.
Instead, Congress, bribed by Wall Street, taxes as little as possible, enriching the rich, and spends as little as possible, impoverishing the rest of us by restricting DINO / total savings. Just as quacks killed George Washington by bleeding his “bad blood”, Congress is destroying our younger generations by reducing (possibly to zero!) our annual budget deficits / private sector savings increase / consumer demand. And, by bribing Congress into austerity, the Wall Street charlatans are deliberately nursing a huge army of unemployed labor to suppress the wages and working conditions of the middle class.
Result: recessions, high unemployment, an army of unemployed labor, a growing under-class, a scared work force, declining wages and consumer d
I am the author.
Q8: “I have to balance my budget. Why doesn’t Congress balance its budget?”
A8: If you could legally print money in your attic, why would you balance your budget? Congress only needs to balance full employment against harmful inflation. Why is something so simple so hard to see?
To restore and maintain prosperity, voters must be convinced that Congress can and must spend heavily on much-needed infrastructure, limited ONLY by the threat of harmful inflation. To help convince the voters, please copy and distribute this message. Thanks, Marvin Sussman
Kitten: read Q4 if the rest of it is too much.
OldWhiteGuy: Q5 has your answer.
We Too Low: Q2 ti Q5 is your answer. Try reading it again - with care/
Professor Freedom:
From A1: “During prosperity, banks are ALWAYS the main cause of inflation, creating over $6 of credit for every $1 of deficit spending. To curb inflation, let’s regulate the banks before restricting spending on infrastructure.”
The current Fed possession of assets is the question you pose. From what I have learned from the economics faculty at UMKC at NewEconomicPerspectives.org, the Fed should be able to manage by controlling interest rates. And putting 20 million people and more than 20% of our industrial capacity back into full time employment will absorb a lot of monetary mass creating output that will prevent inflation.
I insist that if you can fill a sink AND stop it from overflowing, you can fill an economy with money to almost full employment without harmful inflation. Greece does not have fiat currency. Treasury checks never bounce. Our only problem is physical resources, not financial.
Money will not be the problem when the SS fund is empty 25 years fro
25 years from now. The problem will be having the infrastructure to create the needed goods and services for the economy.
9 Answers
- Anonymous7 years agoFavorite Answer
EDIT
The Federal Reserve can manage inflation through increased interest rates and a growing output does offset part of the excess money. However, that's problematic:
1) In the long run, inflation is basically the difference between output growth and the growth of monetary mass -- you want a steady 2, 3 or so percent of difference, usually.
2) Increasing the interest rate also hinders growth through aggregate demand.
If you it in simple words, leaving the monetary mass where it is will simply make the inflation-unemployment trade off less interesting. In essence, you'd need a prolonged period of under-performance to counter-act the inflationary pressures created by the excessive amounts of liquidity. Remember your macro 101: the central bank must aim bellow the potential to curb inflation because it also has to bring down expected inflation -- i.e., the Fed would have to create a recession like in the early 80's.
In essence, short run macroeconomic management revolves around a simple notion: keep the economy around its potential output -- i.e, find ways to curb or to compensate its cyclical volatility. You can't use short-run expansionary policies forever. It's not the moment now, but it will be someday. The signal is very simple: accelerating inflation signals the turning point. You just need to figure out this turning point.
- Anonymous7 years ago
3.7 trillion is spending as little as possible? I wonder how you define things. Anyway, when something has no intrinsic value, such as paper money, the only value is what people accept it to have. I spend 8 hours of my day in a temperature controlled environment, performing assigned tasks, interacting with people that are mostly pleasant, sometimes people give me stuff to eat at no cost to me. In exchange, the company that assigns that task provides me with a quantity of paper money. I exchange that paper money for food at stores, gas at gas stations, etc. As long as the paper money - which is given to me for the above activity, is accepted for real materials, food, energy etc. everything is fine. If the government floods the world with the paper currency, it will become worthless. The debt and deficit is part of that flood. How much can it be flooded before people choose not to accept it for food, etc? I don't know. I would think there would have to be some point where that would happen. Anyway, since the 60s we have basically been operating on play money and fantasy. Might as well keep it up. Probably part of the "keeping it up" is some of the things you are complaining about here.
- TheKittenLv 77 years ago
I'm not going to read all of that, sorry, but I'll tell you this much: This works as long as the U.S. dollar remains the world's reserve currency. If Asian banks (a likely scenario among many) start losing confidence in the dollar and start dumping it, the U.S. will be back to being a normal country and in the present state of things, this would send the dollar crashing.
There's no guarantee the world will always have full confidence in the value of the dollar. In fact, if history shows us anything, it's that eventually, the day of confidence loss will come and on that day, that debt will be real.
- MooshiLv 77 years ago
The way out of where we are would be to make a major investment in the country's crumbling infrastructure. Our ports need protection against rising ocean levels and we really need a high speed rail system. The job creation alone would bring in much tax revenue not to mention the funding for ss and medicare. Our electrical grid needs a major overhaul in order to meet the need of future electrical vehicles and the need for air conditioning.
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- 7 years ago
Do you really expect people to read all of this drivel? The debt is not the problem - but we are committed to pay interest on the debt and that is what will end our democracy.
- 7 years ago
while not having more debt is a noble goal, most of it is owed to Americans, i.e., people that have invested their money in the future of America via savings bonds.
Source(s): PS: Bush really was going to just give taxes to rich guys - via top tier rate reductions, and drastic cuts in capital gains. Cons dishonestly forget to mention the ONLY reason he gave middle class tax cuts is because Ted Kennedy and Pelosi demanded them, before signing off on the others. It was major news and I remember it well. - Mother HubbardLv 77 years ago
No-- It's arbitrary-- they print trillions-
The head or heads of the FED ought to be an ELECTED PUBLIC OFFICE-- or OFFICES.
1,2,Q2, Q3,Q4, Q5--But all those "debts" can be printed-- dollars won't inflate too fast.--
People "invest" or "buy" based on their faith in America- it rises & falls --
It might be about to crash.
