Very few people understand “MACRO” economics and how currency works at the Fed and Treasury level. I guarantee that if you “net out” all dollars in the economy by balancing it with private-sector debt you will end up with the national debt.
Does that include all “value” of property and resources denominated in dollars? Of course not, but good luck selling or purchasing those without dollars. Much of this confusion is due to people not understanding how private debt is originated and how payments affect the economy. Banks don’t create “money” when they make loans. They create credit accounts and the Fed monetizes those with dollars at the overnight rate to enable interbank transfers.
Those dollars are always obligations to the banks so they are never out of balance with the aggregate principal of credit contracts they hold as assets. This means that paying off a bank loan decreases the money supply and in the aggregate, this leaves only high power money created by Congress should all bank debt be retired. The private sector can only obtain those dollars needed to store value in commerce, fund economic growth, purchase goods from trade, or retire its bank debt via deficit spending by Congress.
Clinton’s surplus budgets have been lauded as “responsible” budgeting, but several economists were pointing out the obvious that they were not sustainable and increased private sector debt to compensate for both a lack of high power currency in the economy and increased currency drain from trade deficits resulting from the tech boom. His budgets were the seventh time America achieved balance or surplus for more than three consecutive quarters and, like the previous six, resulted in a recession.
Many of those economists have stated that this likely also contributed to the ’08 crash because surplus budgets generate no Treasury offerings and force investors to find other safe vehicles, such as the US real estate market. The global glut of cash was simply too big for that market, which prompted the imagination of a newly deregulated Wall St to conjure up new vehicles to store money. Making sense of this requires an awareness of sectoral balances which is made somewhat easier by this chart. Note that government is red, the private sector is blue, and the foreign sector is green.
If we used the budget to manage the economy instead of using the economy to balance the budget we could end most of America’s problems. Any misery that can be mitigated with federal spending is entirely a political decision, not good economics. The deficit and debt are nothing more than tracking entities in our nation’s accounting system, not obligations that must be, or even could be, paid for in the future. The monopoly issuer of the currency has no need to borrow its own currency back except as inflation control, which is entirely different now than when we used a gold standard and fixed exchange to pin our currency.
