I wish we could find a way to put this nonsense misinformation behind us and move on with creating an economy that works for the people. Our neoliberal government and the oligarchs have teamed up to deliver a constant barrage of such misinformation in their political games and their corporate media arm. It preys on the people by conflating the monopoly issuer of the nation’s currency with their experience in business and household budtgets, seeming logical and unquestionable as long as one doesn’t think too hard about it.
Firstly, there is only one source of US dollars, and it isn’t borrowing. Congress appropriates spending, the President signs it, and the Fed marks up Treasury accounts accordingly. At that point, the money needed to fund the appropriations is created, with or without Treasury bonds. It’s all the same money and the only difference between deficit and non-deficit spending is an accounting function involving cancelation of money collected from the private sector by the debt held in the government sector for each dollar ever spent but not yet used to pay a federal tax obligation.
The “national debt” is nothing more than the aggregate of dollars in circulation and savings (bonds) in the economy, not a mortgage we have to pay. In fact, the only source of dollars that are required to purchase bonds is deficit spending, so it is more accurate to say that spending “funds” bond purchases than the other way around. One cannot “borrow” or “collect” what doesn’t yet exist. The US Congress is the Constitutionally authorized issuer of US dollars, so why would it ever need to borrow its own currency back to enable it to spend? Treasury bonds are a left over from the gold standard that simply swapped out liquidity (reserves) for non-liquid interest-bearing assets (bonds).
At the point that the proceeds of bond sales enter the government sector via Treasury, they are canceled/zeroed out by the debt entry created in the government sector at the time the reserves were created in the private sector, so they cannot survive to “fund” anything. Ditto with taxes and any other revenue of the federal government. The government neither needs nor uses revenue from any source to spend. All revenue is inflation control and a method of accomplishing social goals and all spending at the federal level is brand new money creation. This dual entry spreadsheet accounting method is used worldwide to track money in business and banking, and it also served to defend the gold reserve by allowing “policy space” for government to spend without devaluing the currency in circulation.
With a fiat currency, we no longer have to defend the gold reserve, but people don’t wrap their heads around an unlimited source of money well. They assume that the government, like any entity that can’t create dollars legally, must “get” dollars from someone before spending, either taxed or borrowed. This creates the “ILLUSION” that they fund their government with their taxes when it is actually the government that funds them with its spending. By positioning the government as a competing “user” of the currency the people can be conned into resisting spending in their own best interest, viewing it as “too expensive” or unwise stewardship of “THEIR” money. It’s like asking your boss to cut your pay.
Please take note of the rough correlation between the graph lines on the two graphs you used to make a point. This is not an accident or a bad thing except that the lack of public purpose spending to benefit the people has caused the skewing of distribution that is creating a growing division between rich and poor, with the middle class cheering for their own demise and blaming the poor for their failing condition.
By making the false assumption that business creates wealth and the government must rely on taking a portion of that wealth to fund itself, we have set ourselves up for failure, relying on bank debt to fund our basic needs in the aggregate. Banks create “credit accounts”, not dollars. The Fed creates reserves to fill those accounts to enable interbank transfers of loan proceeds, but those reserves are a liability to the lending bank, balanced out by the “asset” of the borrower’s contract. As the borrower pays down the principle with public money that money is used to retire the obligation of the reserves, decreasing the money supply, but keeps the interest. Banks create no “net” money, but they also have no investment beyond their more accepted IOU.
It isn’t difficult to see how reliance upon private bank debt to fuel the economy is fragile and dependent upon constant growth to enable most of that debt to be “rolled over”. As soon as this false economic growth falters the whole house of cards begins crumbling. This is when automatic stabilizers funded with public money creation is supposed to ramp up to preserve critical supply chains, but Republicans are constant in their determination to slash such stabilizers, effectively dooming the economy to deep cycles of boom and bust with all the attending misery one can expect from that.
By making full employment the goal of Congress and holding it, not business or “job creators”, responsible for achieving that goal with public spending that benefits more than just the oligarchs we can enjoy a steady state economy where growth depends upon productivity and shares the benefits with all “stakeholders”, not just shareholders. The only limit to such spending is always inflation, but that is now only caused by scarce resources or supply chain bottlenecks, not the money supply, and only effects products and services that are scarce. Our federal government can “afford” anything that is for sale and denominated in the currency Congress creates at will, including any excess labor the private sector rejects.
Treasury debt is a problem, but only because it serves no purpose beyond supplying welfare to the already wealthy and supporting the myth of debt. We should stop issuing Treasury bonds immediately.
