Q1: Is our so-called “national debt” a serious debt, a burden that we must repay?
A1: No, It lacks both of those two essential qualities of a serious debt. It’s a “Debt In Name Only”, a “DINO” -
1. A serious debt is a burden. OUR DINO IS NOT NOW AND NEVER WILL BE A TAXPAYER’S BURDEN.
Our DINO is the total value of all issued and still maturing treasuries. By calling our DINO “unsustainable”, a hoax meant to privatize Social Security and Medicare, Wall Street con artists seeking a fortune in commissions have panicked the ignorant public, journalists, and Washington politicians. But, effectively, the taxpayers do NOT redeem mature treasuries. In a virtual rollover, it is the buyers of newly-issued treasuries who redeem the mature treasuries! In every auction, more bonds are demanded than are available from new issues. Auction winners get the safest, most liquid US dollar instruments; the losers are stuck with bank risk. If necessary, the Fed could even create a demand for treasuries by buying large quantities in the open market with cost-free keystrokes. The taxpayer is NEVER burdened!
Our Treasury does not borrow money like a home-buyer undertaking a mortgage. It is a custodian of funds, like a bank accepting money offered for certificates of deposit. While a bank with too many bad loans can certainly have too many maturing CDs, our non-lending Treasury cannot have too many maturing bonds unless its deficit spending is causing harmful inflation. And that happens ONLY in a war or emergency requiring rationing. It NEVER happens during a recession. During prosperity, banks are ALWAYS the main cause of inflation, creating over $6 of credit for every $1 of deficit spending. To curb inflation, let’s regulate the banks before restricting spending on infrastructure.
2. A serious debt must be repaid. OUR DINO WILL NEVER BE REPAID AND SHOULD NEVER BE REPAID.
Only a budget surplus can reduce our DINO. Since dropping the gold standard in1971, we have had only four years of very modest surplus. None is now in sight. To supply enough treasuries, the ONLY risk-free instruments used for trade collateral, insurance, pensions, bank reserves, etc., OUR DINO MUST GROW WITH OUR ECONOMY. In fact, deflation and depression will hit us hard unless big budget deficits replace our cash now flowing into China.
Q2: Could savers make a “run” on Treasury bonds?
A2: Yes, when savers can get risk-free returns from the Wall Street casino or from GM bonds, Illinois bonds, or Detroit bonds. Safety is not everything. Safety is the ONLY thing! That’s why the whole world relies on US bonds.
Q3. Could savers stop buying Treasury bonds?
A3. Sure, when nobody needs risk-free interest for trade collateral, insurance, pensions, bank reserves, etc., etc.
Q4: Could savers prefer foreign sovereign bonds?
A4: Yes, indeed! So far, almost two thirds of the world’s reserve currencies are in US dollars and about half of all US Treasury bonds are held by foreigners. But if China’s infrastructure and productivity become better than ours, its sovereign bonds could become safer than ours. But that could happen only if US voters worry more about our DINO than they worry about our falling bridges, failing schools, leaking sewers, aging power grids, etc., etc., etc.
Q5: Won’t we need higher tax rates to pay for infrastructure?
A5: Taxes only counteract inflation. Congress never spends tax revenue. The IRS destroys all of its receipts, actually shredding cash payments and selling the pulp. For spending, Congress creates money out of thin air (just like your corner bank creates loans), deposits it in the Treasury, and writes checks. Then the Treasury auctions bonds to finance the deficit, which is limited only by Congress and NEVER by tax revenue. The only rational reason to restrict deficit spending is the onset of harmful inflation. Until then, Congress can and must spend freely on our DINO’s annual debt interest and on much-needed infrastructure for the future. Every day, you fill your kitchen sink AND you stop it from overflowing. Why can’t Congress fill our economy with money AND prevent inflation? Ask them!
Q6: How can increasing our DINO be good for the economy?
A6: Every spent federal dollar not repossessed by the IRS is saved by the private sector. Our annual budget deficit is exactly equal to the annual increase in private sector savings. YES! DEFICITS = SAVINGS! No deficits, no savings! A tax deficit is a savings surplus. It is money left on the table for the savers by Uncle Sam because he didn’t need it to prevent harmful inflation and because consumers need it to consume. We do not have a “national debt”. We have a “national savings”. The bad “Debt Clock” is really the good “Savings Clock”. How can we have too much savings?
Since bank loans must be repaid with interest and cash is flowing to China, a tax deficit / savings surplus is the ONLY savings source that can sustain our economy. We need to DOUBLE our DINO / total savings to return it to the World War II level that was followed by 35 years of prosperity without harmful inflation and with very high taxes. Our (DINO + total bank deposits) / GDP ratio is less than half of the comparable figure for China. Our M2 (money supply) / GDP ratio is half of Switzerland’s ratio and one fourth of Hong Kong’s ratio. We should be matching them.