All of this, of course, depends on the debt, represented in Treasury bonds that incur interest, being the result of a “funding” operations to enable spending and increased production, which it isn’t. Why would the monopoly “issuer” of the currency ever need to borrow, and how can it borrow what doesn’t exist yet because it hasn’t yet been spent into existence, needing to be “funded” by borrowing? Circular logic cannot be both logical and circular.
Not only does the (federal) government sector not need to borrow to spend, but it actually “can’t” do so. Ditto with taxation. Every dollar created and spent into the private sector has an opposite counterpart in the government sector created to satisfy the requirements of dual entry spreadsheet accounting used worldwide to track and error check money flows.
Because the monetary system was designed around defending a now-defunct gold reserve, this entry represented the possible claims on that reserve and its balance with the value of the reserve represented possible policy space or deficit Congress had to work with. Treasury “owed” holders of the currency a representative quantity of gold, or tax credit, so the “accounting entity” was labeled “debt”. Since ’71 it is only obligated to the tax credit part. All we owe China is a bank statement showing how many US dollars we will create to retire its bonds upon their maturity. We can never run out of our “tax credits” (dollars) to do so. In exchange for those dollars, China provides us with real resources made into goods with real labor.
The government couldn’t hold both the gold and the money that represented it with any logical accounting system, so all “revenue” to the government was balanced to zero by the debt entry that created it and “ALL” spending was with newly created currency with its own debt entry. Anyone familiar with spreadsheet accounting should understand this intuitively.
The Federal Reserve Act (1913) included a self-imposed mandate on Congress to order the issuance of Treasury bonds equal to any spending that increased the money supply above the value of the gold reserve, not to “fund” spending, but to “defund” the economy to protect the gold reserve. This had an advantage over taxation in that it wasn’t permanent and provided a means to stabilize the currency by enabling Congress a means to anticipate taxation in its spending and offer a secure interest bearing store of value from commerce.
Given that bonds can only be purchased with excess currency reserves that can only result from government’s deficit spending, it is more accurate to say that deficit spending “funds” Treasury bonds than is the reverse. Sans a gold reserve to defend, every dollar spent in excess of revenue is considered as deficit spending which is the only source of financial assets the private sector has to store value, purchase foreign goods in excess of export sales, and net retire private sector debt. Every liability is someone’s asset and for the government to retire its liability it would have to remove all net (after bank debt is accounted for) financial assets from the private sector.
The bottom line of this is that the debt is not a mortgage against future productivity, as a sovereign (not allowing debt in any denomination that the currency issuer cannot create on-demand) fiat currency means it is simply past productivity that remains unspent in the economy. It is an accurate record of our national “SAVINGS”.
Past spending also has no effect on the ability of the currency issuer (Congress) to spend in the future, as only resource availability can affect price inflation. As long as sufficient resources and labor exist unused in the private sector to accomplish the goal the money is created to accomplish the market will always increase production to capture the demand (currency) before increasing prices. The only danger to our children is that we don’t invest in their ability to be productive in order to efficiently create real assets to balance the dollars they will have to spend in deficit.
This makes any suffering in our economy that can be mitigated with federal spending entirely a political decision, not economics, and defies the Constitutional mandate Congress has to create the currency “for the common welfare” (Article 1: Section 8). We have attempted to use the economy to service a mostly meaningless number in our federal monetary accounting system for far too long, and it is well past time we recognize our monetary reality and use the “budget” to service the economy.
A “balanced” budget in spite of being the political holy grail, is another way of saying “100% tax rate” for the monopoly issuer of the currency and leaves nothing behind in the economy to fund economic or population growth, store value/savings, or net retire bank debt. It also represents the theft of all resources and labor the government “purchases” from the private sector by clawing back all payments as taxation. But, ya, we should do that because it strokes our “feels”. Is $22 Trillion too much net money to have in our economy? We can, and should, have that discussion, but that will inevitably lead to discussing distribution as well, which would be embarrassing for our Congresscritters.
