If we imagine them to be a company, the first thing we would want to know is how much revenue they generate and how much they spend.
This was a short read for me because I knew when I saw this sentence that anything after would be in error. This erroneous view of federal finances was proven when you wrote this: “As the debtor, the Federal Government, just like a homeowner or college graduate, pays interest based on the debt sum.”
When you or I, or anyone who isn’t the monopoly issuer of a sovereign fiat currency, accept a debt obligation it is assumed that obligation will have to be paid from our future productivity. We increase our dollar holdings when we accept the debt and, with good stewardship and a bit of luck, will use it to enhance our earning power or net worth. However, any number of circumstances can make it impossible to pay back that debt and we will become bankrupt.
As the monopoly issuer of such a sovereign fiat currency, Congress can never default involuntarily on any obligation that is denominated in the currency it produces on-demand. In fact, it must first create the currency it borrows, so it is more accurate to state that spending “funds” bonds than the other way around. Neither taxation nor borrowing have ever been funding mechanisms for our government’s spending and only served to control inflation and to defend the gold reserve when we did that nonsense.
If Congress doesn’t spend in excess of what it retracts from the private sector it leaves nothing to store value (save) from our commerce or to retire private sector bank debt. A “balanced” budget, the holy grail of ignorant politicians, is another way of saying 100% tax rate, as taxes cannot survive the debt that created the currency collected to be respent as revenue.
Even if bonds aren’t issued to match deficit spending, every dollar spent is a brand new dollar that includes its own “debt” in the government sector (Treasury) that cancels any revenue the government sector receives back from the private sector. Anyone remotely familiar with dual entry spreadsheet accounting used worldwide to track money should know this instinctively. Each dollar spent into the private sector then becomes someone’s asset.
The private sector holds assets and the government sector holds an equal amount of debt, and that is how modern economies are funded. The private sector (taxpayers) is never responsible for the government’s debt, as paying that off would require all existing net currency. The debt must grow if the economy is to grow, especially if it is a net importer, but the US dollar is self-funding by authorization of the Constitution (Article 1: Section 8) and Congress is mandated to create it as needed “for the common welfare”. What constitutes common welfare is entirely up to voters and only limited by the potential availability of real resources and labor.
