What Is U.S. National Debt?
This is simply debt the U.S Government has borrowed and in theory needs to pay back.
Did you not ever wonder why the only Constitutionally authorized issuer of the US dollar would ever have to “borrow” its own dollars? Or even how it could borrow what doesn’t yet exist to increase the money supply? Do you think it’s a good idea to return our money supply to the level that existed in 1934 when we left the gold standard domestically? If so, why? Before answering that with a knee jerk over the word “debt” remember what our national economy was like at that point and the challenges that followed. How good is your German?
The debt had a different meaning before 1934 than it has now for Treasury. That is because the base point for figuring deficit included the value of the gold reserve which we no longer have. Spending — taxes — gold reserve + trade deficit = deficit. The Federal Reserve Act (1913) included a mandate to Treasury to issue bonds to “offset” (not fund) any deficit spending to defend the gold reserve. Bonds are simply an asset swap of liquidity (cash reserves) for interest-bearing investments to compensate purchasers for giving up liquidity for a specified period of time.
Treasury bonds gave the government some latitude to anticipate revenues to allow more policy space to spend without threatening a run on our gold reserve. However, the dollars had to be created before any were available to borrow, so the sales of bonds has never been a “funding” operation for Treasury. They, like taxes, only remove money from circulation, only temporarily instead of permanently as taxes do.
Who Holds National Debt?
Anyone who has more dollars than private-sector debt. Bank debt confuses the people about their government’s finance, but it doesn’t matter to the government. People tend to project their own household budget logic onto the government, but that would only apply if each of us had a legal ability to mark up our own bank accounts via our computers. Dollars are not a “thing” the government has to get to enable it to spend. They are a unit of measure it uses to denominate taxation and what it pays for goods and services it receives from the private sector.
It can never “run out of” dollars any more than a sports stadium can run out of points to award teams playing there.
The Constitution gives monopoly authority over creating dollars to Congress. This makes the dollar self-funding, and it also placed a mandate on Congress to create dollars as needed for “the common welfare”. This authority makes the US dollar a no-cost commodity Congress is mandated to create to manage the economy without concern over revenue other than as inflation control.
If Congress actually “balances” its budget, clawing back its spending in taxation, it leaves nothing to store value created in commerce or to retire private sector bank debt. It would also mean the theft of all resources and labor needed to provision the government and fund approved programs. Given that the only seven times it has come within shouting distance of this holy grail of politicians has resulted in an almost immediate recession or depression, any member of Congress advocating for such nonsense should be considered unfit for the job, or the enemy of the people, depending upon their motivations.
The U.S. might not be aggressively paying off its debt, but it is making interest payments on outstanding debt, and those have started to take up a sizable portion of the annual budget.
Considering that you have no grasp on the reality of government finance operations at the federal level it is remarkable that you hit on this truth. A broken clock is right twice a day, so there is that.
Interest on bonds is an unnecessary expense that we should eliminate, but not via spending cuts that only further widen the already extreme inequity here. We should simply stop issuing bonds at less than face value to allow wealthy investors and banks more leverage on capturing all dollars not offset with private-sector debt. The only utility for Treasury debt issuance in a fiat-based economy is providing leverage to the central bank, Fed, to control interest rates.
Monetary policy, especially in the US, has proven far less than effective in steering the economy and only results in involuntary unemployment that then must be countered with massive injections of deficit spending in automatic stabilizers to protect supply chains. The misery this ping-pong of monetary insanity has caused, while greatly benefiting the already wealthy and their lapdog politicians, is unconscionable in an economy as wealthy as ours.
Congress should move to mandate a ZIRP (zero interest rate policy) on Treasuries and pay a small dividend on excess reserves at the Fed. This would end the propaganda value of the “national debt” that is now allowing politicians to completely abdicate their responsibility for the economy to the private sector. Once people understand the roles played by spending and taxation without the fear porn of false or outdated misinformation they will demand more accountability for the economy from their elected officials.
I don’t get into a lot of micro-economic banter with people who can’t, or won’t, understand the macro-economic reality of their own economy, so don’t expect much in the way of countering detailed numbers and analysis. They don’t impress and are meaningless without an accurate big picture not rooted in non-applicable household budget mentality. You’re chasing gold standard illusions in a fiat reality.
