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For adults only: can you find a flaw in this logic?
Q1: For taxpayers, is our “national debt” really a burden? Must it really be repaid?
A1: No. For taxpayers, it lacks the qualities of a real debt. It’s a “Debt In Name Only”, a “DINO”-*
1. THE DINO IS NOT NOW AND NEVER WILL BE A BURDEN FOR TAXPAYERS.
It is not the taxpayers but rather the buyers of newly-issued treasuries who, in a virtual bond rollover, pay for redemption of 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, with cost-free keystrokes, could increase the demand for treasuries by buying large quantities in the open market. Where is the “unsustainable” burden for taxpayers?
While a bank holding too many bad loans can certainly hold too many maturing CDs, our non-lending Treasury cannot hold too many maturing bonds unless its deficit spending causes 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 the banks before stopping work on infrastructure projects!
2. THE 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. To supply enough treasuries, the ONLY risk-free securities used for trade collateral, insurance, pensions, bank reserves, etc., the DINO MUST GROW with the economy!
Every federal dollar spent and not taxed is saved by the private sector. Yes! DEFICITS = SAVINGS! The Treasury has a “national debt” and the private sector has a “national asset”! The bad “Debt Clock” is also the good “Asset Clock”. Since, with our trade deficit, we can’t import money, deficit spending is our economy’s SOLE source of savings! In fact, unless large budget deficits replace the exported cash, deflation will soon freeze our economy. Who would spend a dollar today if it would buy more tomorrow?
Our (DINO + total bank deposits) / GDP ratio is less than half of China’s comparable figure. Our M2 (money supply) / GDP ratio is half of Switzerland’s ratio and one fourth of Hong Kong’s ratio. To become and stay prosperous, we need to DOUBLE the DINO / GDP ratio to return it to the World War II level that was followed by 35 years of prosperity without harmful inflation. Ask Grandma about the good old days!
Q2: Won’t the annual debt interest expense explode the budget?
A2: Bond-holders’ taxes return about 20% of their interest income. New bond issues finance the rest. As no physical resources are consumed and the money supply does not change, there is no inflationary effect. About 80% of the interest is added to the DINO, which is good. For those reasons, CBO budget economists deal only with the “primary” budget, which excludes the annual debt interest expense. If necessary, the Fed can practically eliminate the cost of interest. During World War II, the Treasury issued debt at near-zero interest cost. Purchasers were assured that bonds would sell near face value.
Q3: Could savers make a “run” on US Treasury bonds?
A3: Only 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.
Q4. Could savers stop buying US Treasury bonds?
A4. Only when nobody needs risk-free interest for trade collateral, insurance, pensions, bank reserves, etc., etc.
Q5: Could savers prefer foreign sovereign bonds?
A5: Yes, indeed! Now, 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 let their DINO concerns stop the renewal of falling bridges, failing schools, leaking sewers, creaking railroads, aging power grids, etc. Money can be printed, but infrastructure has to be built with real resources over time, which has no substitute.
Q6: Won’t we need higher tax rates to pay for infrastructure?
A6: The function of taxation is to prevent inflation and moderate inequality of wealth. Congress NEVER asks the Treasury if can pass a spending bill. Effectively, it writes a check that the Treasury NEVER bounces. To finance a deficit, the Treasury auctions new bonds created out of thin air with keystrokes, like a bank makes a loan.
The ONLY rational reason to restrict deficit spending is the onset of harmful inflation. Until then, Congress can finance both the DINO’s annual interest payment and our much-needed infrastructure. Every day, you fill your sink with water AND you prevent it from overflowing. Why can’t Congress fill our economy with money by building infrastructure AND prevent harmful inflation? China builds 24/7 without harmful inflation. Why can’t we do that?
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, bribed by Wall Street, Congress taxes as little as possible, enriching the rich, and spends as little as possible, impoverishing the rest of us by restricting deficits / 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 to pass austerity budgets, the Wall Street charlatans are deliberately nursing a huge army of unemployed labor to suppress the wages and working conditions of the shrinking middle class.
Q8: How should one vote?
A8: Vote only for someone who NEVER EVER worries about the DINO and who ALWAYS worries about Americans looking for work and reluctantly drawing benefits forever instead of building infrastructure.
Unfortunately, too many voters attribute their own budget constraints to Congress’ fiat currency regime.
Q9: “I have to balance my budget. Why doesn’t Congress balance its budget?”
A9: 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 stay ahead of China, please help me convince voters that deficit spending on infrastructure is limited ONLY by harmful inflation (nowhere in sight). Please copy and distribute this message where possible.
I was expecting at least one thoughtful response. Maybe the subject isn't important enough.
fastoon: Here's a list of others who don't know what they are talking about:
Frank N. Newman, former Deputy Secretary of the US Treasury, recipient of the Treasury’s annual “Alexander Hamilton” award, author of “Freedom from National Debt” (Two Harbors Press)
Francis X. Cavanaugh, US Treasury economist for over 30 years, author of “The Truth about the National Debt”: Five Myths and One Reality” (Harvard Business School Press)
Warren Mosler, economist, author of “Seven Deadly Frauds of Economic Policy” (Oxford U. Press)
Marc Blyth, Brown U. professor of political economics and author of “Austerity” (Oxford U. Press)
And an internet blog:
Dr. Stephanie Kelton, Chair of the UMKC Economics Department, at NewEconomicPerspectives.org
All your complaints were answered in the essay.
You have a serious reading comprehension problem.
10 Answers
- fasttoonLv 47 years agoFavorite Answer
Uh, sorry you have no idea of what you're talking about. Would you consider taking an economic class in your local community college? And while you're at it please take an introductory accounting class.
Quick shoot down of your arguments.
1. Inflation - too much money in the system, also called "printing money". There are many ways to increase the money supply, from printing to selling bonds to reducing bank reserves to... well you get the picture.
It follows the same capitalistic principles of Supply = Demand. Too much money in the system is less demand for money therefore prices rise to soak up excess supply of money. I know it's confusing, switch out money for product and you might find it easier to picture.
Banks do not cause inflation.
2. DINO - actually no, it's not "In Name Only". I like how you're trying to make up an acronym, although it sounds like something right out of the "Flintstones", was that your intent to make the debt into a joke, into something not to be taken seriously?.
While you're correct that the debt principal is rolled over the interest is still paid out to service the debt, currently our interest payments on these debts is approximately $220 billion dollars or about 6-10% of our annual budget. And both our budget deficit and our national debt have declined over the past 5 years (it's still growing, it's declining as a percentage of GNP), this doesn't guarantee that our interest payments as a percentage will decline because our budget deficit is declining faster than our national debt so in real terms it's less actual dollars and represents a larger percentage of the money available to be spent, cuts will come from other programs to make up the difference.
The interest of the debt is paid out of our budget today and is only growing (yes I know that's sounds crazy because while the interest payments might stabilize or even shrink the deficit is shrinking at a faster rate so a larger percentage of the budget is going to interest payments as time goes on)
3. The National Debt should never be repaid - Talk about irresponsible. The only president in recent times that did turn it around was and still is President Clinton, a balanced budget and a reduction in the growth of the National Debt (note it wasn't a reduction, it was a slower growth rate than the budget and as a percentage slower than the GNP). It was projected to reach equilibrium within 10 years (meant budget interest payments would be declining as a percentage of the budget). President Bush had the opportunity to pay part of the debt (retiring bonds) instead he gave a refund. Granted he was trying to increase economic activity, same with his second refund. Both were small, (remember the $200 refund we got twice?) and not enough to increase the economy as hoped (yes we were in a recession during the Bush Admin and it's still ongoing today 7 years later).
There's so much wrong with your rant that it'll take too long to go through point by point not to mention you're twisting meanings, terms and making up definitions as you go to fit your agenda.
National asset is a term Socialist or Communist style govt would use to describe an asset that belongs to the State. Private asset is just that private ownership.
Anyway, go back to school and this time pay attention.
- Anonymous7 years ago
I really love the level of thought you put into this question but it's so long it feels like homework. I think it would serve you better to either be more concise or break this one question into multiple questions. This interest payments on new debt prevent the government from spending that money elsewhere. If the Fed bought up excessive bonds it would lead to smaller money supply and deflation of the dollar which would reduce exports and inhibit economic growth. I couldn't get through the whole question because it's getting late and I'm going to bed. If you leave it up I'll look at it again tomorrow if I remember.
- 7 years ago
Answer to Q1, National Debt is not currently a burden because current generation are selfish enough for paying their debt by borrowing MORE debt.
In the end we get deeper and deeper in debt.
And those currency numbers are becaming un-realistic.
Its like borrowing from thin air...
"Who cares what happens next 100 years when that debt came on maturity, Im dead already"
The immoral thing is that "Can we be ignorantly, the current generation put our burden to the children and the unborn one"
We are delaying by trading a bomb that gonna explode in seconds with a bigger bomb that gonna explode next year.
Repeat, and viola, We think that have no problem.... Because the bomb is delayed with a bigger bomb...
Welcome to the infinite of the infinite.
In The end we will stop only when only our mother earth looses the capacity to support us for our greediness.
- Anonymous7 years ago
this is an economics lesson disguised as a Y Q.
But
in general it is pretty accurate.
too much debt in relation to the total economy can be bad as in Greece and Spain
Inflation was so bad in Germany in the early 1930s that workers had to get a raise and be paid every day to keep up with the rising price of bread.
You are right. national debt is not like family debt. the banks can take your car but nobody can "repossess the Grand Canyon"
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- MaxwellLv 77 years ago
Good to know that the payments we have to make every year....the billions and billions in payments....isn't a burden to us....
And here I thought that we had to work harder to pay more tax dollars to pay those Billions every year.
I am SO RELIEVED that you said that isn't a burden.
- Anonymous7 years ago
"Deficits don't matter."
Dickless Cheney
Republican Tyrant
2002
- Anonymous7 years ago
Interest.
The end.
Source(s): I love crushing 1000 word rants with a single word response.
