For high school 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 THE TAXPAYER’S BURDEN.

The DINO is the total value of all issued and still maturing treasuries. By calling the DINO “unsustainable”, Wall Street con artists have panicked the public, politicians, and journalists with a hoax designed to privatize Social Security and make a fortune in commissions. But it is not the taxpayers but the buyers of newly-issued treasuries who, in a virtual rollover, pay for redemption of the mature treasuries. In every auction, more bonds are demanded than are available. Auction winners get the safest, most liquid US dollar instruments; the losers are stuck with bank risk. If it were ever necessary, the Fed could create an artificial demand for treasuries by buying large quantities in the open market with cost-free keystrokes. The taxpayer is NEVER burdened but almost all voters have swallowed the Wall Street hoax!

Our Treasury is 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, regulate banks before cutting infrastructure projects.

2. A serious debt must be repaid. OUR DINO WILL NEVER BE REPAID AND SHOULD NEVER BE REPAID.

Only a budget surplus can reduce the DINO. Since Truman, no President has reduced the DINO and no annual budget surplus is now in sight. Indeed, 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 large budget deficits replace the cash that we are now exporting.

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 the 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: The IRS destroys all of its receipts (just as you destroy your redeemed IOUs), actually shredding bills and melting coins for scrap. Since Congress cannot touch a cent of tax revenue, it creates new money out of thin air (like your corner bank creates loans), deposits it in the Treasury, and spends with checks. Then the Treasury auctions bonds to finance a deficit limited ONLY by a Congress that NEVER needs our taxes (which only prevent inflation).

The only rational reason to restrict deficit spending is the onset of harmful inflation. Until then, Congress can and must finance both our DINO’s annual debt interest expense and our much-needed infrastructure. Every day, you fill your kitchen sink with water AND you prevent it from overflowing. Why can’t Congress build infrastructure AND prevent inflation? Why do we let Congress limit our economy to a single shift while our infrastructure rots away!