Treasury debt may not be an actual accounting debt, but it is an economic debt. There is a big difference. I think you are arguing that it is not an economic debt.
The gold standard placed our government on an allowance. That allowance was determined by what could be collected back in taxes and fees that provided “policy space” to spend and still keep our total of currency within the value of the gold reserve. This works well for net exporters, which we were up until the late sixties, because the gold reserve grows to support domestic growth with each positive trade.
As the world’s productive capacity recovered after WWII and it began demanding more dollars to participate in trade denominated in those dollars as part of the Bretton-Woods treaty, our capacity to grow dwindled. We tried separating our domestic economy from our trade but that only caused tension with our trade partners, so the only options were to limit growth or leave the gold standard. Nixon chose the latter in ’71 when a dispute with France forced our hand. We settled our accounts in gold with the world and, because the dollar was the currency of denomination of most trade, forced the world to accept a fiat system.
Money does have intrinsic value. This value is now based on an intangible as opposed to gold. That intangible is the citizens as well as other nation’s confidence in the currency.
This statement displays a basic error in your concept of money creation and you should correct that before getting too deep into formulating suggestions based on myths. Confidence in the currency is not a factor involved with budgeting for the monetarily sovereign issuer of the US dollar. I’m not basing this in only our economic strength in world trade, but in an economic reality that places the currency issuer in the enviable position of price setter for any goods priced in dollars, or any similar fiat currency.
The top price that can be demanded for any goods we rely on trade for will always be the cost of producing them here. Any demands above that only mean more domestic jobs. It is only the complete failure of our government to protect its citizens from our predatory form of capitalism that has made trade a negative force in our prosperity. A productive job at a livable wage should be a right of citizenship, even if the government has to become the employer of last resort. Much smaller and less affluent economies manage this much better than we seem able to.
Firstly, unlike ourselves, as “users” of the currency. the monopoly issuer and patent holder for the US dollar can never fail to pay any obligation denominated in dollars and can “afford” any goods or services priced in dollars, even without revenue. The fact that it never “needs” to obtain its own currency back to enable spending means that it isn’t dependent upon investors or taxes. The only factor in its purchasing power is the availability of those goods and services that the dollars are deployed to purchase. In fact, it is investors who are dependent upon the currency issuer to supply sufficient store of value via deficit spending, not the other way around.
Secondly, because issuing debt, which is only another form of money that exchanges liquidity for interest, is not required as a funding function, the rate paid to investors will always be set by the issuer of the debt, not the purchaser. The issuer must first spend the currency into existence in excess of what it demands in taxes before it is available to purchase debt. The US dollar is self-funding and debt is a choice, not a necessity. That choice is mostly political, not a matter of economics or simple math to arrive at some arbitrary dollar amount. The fact that so many of our people are suffering and that mistrust and misery seem the norm now speaks to the quality of politicians we have elected, not our ability to mitigate any such suffering with spending for the general welfare.
Bonds have never been a funding mechanism for a currency issuer that neither needs nor uses revenue to spend. Debt is a leftover from the gold standard that now only enables the Fed to set interest above zero (the natural rate for any fiat currency regime) and to provide a floor for investors, (welfare for banks and the wealthy). Any “money” that enters the Treasury is balanced to zero by the debt that created it, making it impossible for it to “fund” anything. The debt was inflation control and a method of leveling out the money supply between spending and collecting taxes to defend a now non-existent gold reserve. It now simply represents the total net (after private sector bank debt is settled) money supply in the economy.
If “confidence” were a major factor in our economy we would be in much worse shape than we are. That confidence would surely be eroded by the fact that 40+% of Americans live at the edge of poverty, with a full 20% on the wrong side of that edge. I’m also certain that our antiquated and crumbling infrastructure would not be a confidence builder, nor would be our vastly overfunded military that threatens the rest of the world. The fact that we chose a fascist and racist narcissist to be the face of America would surely have been the ultimate confidence killer. And yet, we manage to limp along.
