The question comes up often. Here's my answer:
The key to understanding national 'debt' is that it is nothing like household debt. It's like bank debt. If you have a bank account, that's your asset, but to the bank, it's a liability, a debt. It's the money they owe you.
When you write a check, operationally, you're assigning a portion of the bank's debt to the payee. Currency amounts to checks drawn on our central bank (the Fed) made out to "cash" in fixed amounts. The Fed carries not just bonds, but currency issued on its books as a liability, too. Currency is analogous to a checking account's asset/liability, and Treasury bonds & bills are analogous to savings accounts (they pay interest). Just as checks are IOUs, dollars are IOUs. What are we owed for a dollar? Answer: relief from an inevitable liability--taxes.
Now imagine a group of depositors marching down to their bank (with torches and pitchforks) to demand...demand, I tell you!...that the bank diminish its debt. (In other words, reduce the size of their accounts)... Not very sensible, is it? Yet that is exactly the spectacle American media would like to create. (Check out the Time magazine cover here.)
Shouldn't we raise taxes though? Remember: The monopoly creator of dollars cannot be provisioned by tax revenues because people need the dollars first, before they can pay the taxes. Dollars don't grow on billionaires.
So it's not "tax and spend," it's "spend first, then ask for some back in taxes." What do we call the dollar financial assets left out in the economy, not retrieved by taxes? Answer #1: the savings of the citizens. Answer #2: national 'debt'... Both answers refer to exactly the same thing. Taxes make the money valuable; they do not (and cannot) provision federal programs. Ask yourself: Where would people get the dollars to pay taxes unless the government spent them out into the economy first?
Is national 'debt' a problem to a sovereign, fiat currency issuer (with a floating exchange rate, and most debt owed in that currency)? Never! Such a currency creator can never run out of money, and can never be involuntarily insolvent. We can no more run out of dollars than the Bureau of Weights and Measures can run out of inches.
This means making national 'debt' into a bad thing is just an excuse for austerity (cf Nancy Pelosi's "PayGo"...something I've read was also a key policy in Edmund Muskie's presidential campaign against Nixon)....They'll say: "Oh, it would be nice to do [some socially beneficial thing], but we simply don't have the financial resources" ... That is the cry of the "Fiscally Responsible[tm]" ... It's bullshit, but very convincing bullshit.
Please also note: Greece is no longer a monetary sovereign, and because it uses euros, and cannot issue drachmas, it's at the mercy of the EU and ECB. This is a very clever way the financial sector is sabotaging the European welfare state, too. We can't have the example of happy populations to contrast with the debt peonage we currently enjoy!
So why is the economy doing well (in some areas) under Trump? Answer: Because the national 'debt' is getting bigger, so the population has more dollar financial assets. <sarcasm>Of course this goes mostly to the rich, but really, they're so much more deserving! </sarcasm>.
And, conversely, why did we have the Great Recession? Not that it's easy to assign causality in a complex / chaotic system like an economy... But it sure looks like it was because Clinton had to be "Fiscally Responsible[tm]" and run a surplus (i.e. diminish the savings in the hands of the population). You can read more about this from MMT's Randall Wray here.
So the Democrats have not been our friends. (See Thomas Frank's Listen Liberal: Whatever happened to the party of the people)
The genocidal Andrew Jackson paid off national 'debt' entirely in 1835. He also closed the central bank, and for his trouble, he got the Panic of 1837.
I told that interpretation of history to a history maven acquaintance, and he replied that attributing the panic to Jackson's debt payoff wasn't accurate. What really happened is Jackson cleared the Indians out of the Southeastern U.S., releasing thousands of acres for cotton plantations. The plantations borrowed heavily to buy the slaves to farm that land, and the resulting surplus in the cotton crop crashed the price, even with 60% of the crop warehoused. The lenders demanded payment that the cotton sales could not support, and a wave of asset forfeitures and foreclosures ensued. That, claimed my history maven, was what caused the Panic.
But take a look at what happened with that 'debt' payoff: the dollar financial assets of the population were withdrawn by Jackson's action. National currency ceased to exist, and gold and bank notes took its place. Without savings, planters were at the mercy of the cotton markets. When the markets failed to deliver the expected income from the sale of their cotton crop, the planters had no backup savings, no reserves with which to pay their loans. So paying off the national 'debt' injects fragility into an economy.
This applies even when currency is (incorrectly) not counted as debt. Lincoln fought the Civil War with greenbacks, but didn't bother to call them debt. When the war was over, the federal government withdrew the greenbacks, and a deflationary spiral set in. Lawrence Goodwyn (The Populist Moment: A Short History of the Agrarian Revolt in America) says there was more currency in Connecticut than in the entire Confederate South.
What did Southerners do? They bought goods on credit from the "Furnishing Man" (later shortened to just "The Man")...at interest rates that would make a payday lender blush. It's not for nothing Southerners hate Northern banks. A life of debt peonage can do that to a person.
OK...that's my summation of the Modern Money Theory (MMT) understanding of national 'debt.' You can read more at the link above, or on my blog (here, here, and here--that last one has an answer to the inevitable "What about inflation?" question--for example), check out videos (here). I'm certainly not the author of all those links, but I get my licks in where I can...;-)
The key to understanding national 'debt' is that it is nothing like household debt. It's like bank debt. If you have a bank account, that's your asset, but to the bank, it's a liability, a debt. It's the money they owe you.
When you write a check, operationally, you're assigning a portion of the bank's debt to the payee. Currency amounts to checks drawn on our central bank (the Fed) made out to "cash" in fixed amounts. The Fed carries not just bonds, but currency issued on its books as a liability, too. Currency is analogous to a checking account's asset/liability, and Treasury bonds & bills are analogous to savings accounts (they pay interest). Just as checks are IOUs, dollars are IOUs. What are we owed for a dollar? Answer: relief from an inevitable liability--taxes.
Now imagine a group of depositors marching down to their bank (with torches and pitchforks) to demand...demand, I tell you!...that the bank diminish its debt. (In other words, reduce the size of their accounts)... Not very sensible, is it? Yet that is exactly the spectacle American media would like to create. (Check out the Time magazine cover here.)
Shouldn't we raise taxes though? Remember: The monopoly creator of dollars cannot be provisioned by tax revenues because people need the dollars first, before they can pay the taxes. Dollars don't grow on billionaires.
So it's not "tax and spend," it's "spend first, then ask for some back in taxes." What do we call the dollar financial assets left out in the economy, not retrieved by taxes? Answer #1: the savings of the citizens. Answer #2: national 'debt'... Both answers refer to exactly the same thing. Taxes make the money valuable; they do not (and cannot) provision federal programs. Ask yourself: Where would people get the dollars to pay taxes unless the government spent them out into the economy first?
Is national 'debt' a problem to a sovereign, fiat currency issuer (with a floating exchange rate, and most debt owed in that currency)? Never! Such a currency creator can never run out of money, and can never be involuntarily insolvent. We can no more run out of dollars than the Bureau of Weights and Measures can run out of inches.
This means making national 'debt' into a bad thing is just an excuse for austerity (cf Nancy Pelosi's "PayGo"...something I've read was also a key policy in Edmund Muskie's presidential campaign against Nixon)....They'll say: "Oh, it would be nice to do [some socially beneficial thing], but we simply don't have the financial resources" ... That is the cry of the "Fiscally Responsible[tm]" ... It's bullshit, but very convincing bullshit.
Please also note: Greece is no longer a monetary sovereign, and because it uses euros, and cannot issue drachmas, it's at the mercy of the EU and ECB. This is a very clever way the financial sector is sabotaging the European welfare state, too. We can't have the example of happy populations to contrast with the debt peonage we currently enjoy!
So why is the economy doing well (in some areas) under Trump? Answer: Because the national 'debt' is getting bigger, so the population has more dollar financial assets. <sarcasm>Of course this goes mostly to the rich, but really, they're so much more deserving! </sarcasm>.
And, conversely, why did we have the Great Recession? Not that it's easy to assign causality in a complex / chaotic system like an economy... But it sure looks like it was because Clinton had to be "Fiscally Responsible[tm]" and run a surplus (i.e. diminish the savings in the hands of the population). You can read more about this from MMT's Randall Wray here.
So the Democrats have not been our friends. (See Thomas Frank's Listen Liberal: Whatever happened to the party of the people)
The genocidal Andrew Jackson paid off national 'debt' entirely in 1835. He also closed the central bank, and for his trouble, he got the Panic of 1837.
I told that interpretation of history to a history maven acquaintance, and he replied that attributing the panic to Jackson's debt payoff wasn't accurate. What really happened is Jackson cleared the Indians out of the Southeastern U.S., releasing thousands of acres for cotton plantations. The plantations borrowed heavily to buy the slaves to farm that land, and the resulting surplus in the cotton crop crashed the price, even with 60% of the crop warehoused. The lenders demanded payment that the cotton sales could not support, and a wave of asset forfeitures and foreclosures ensued. That, claimed my history maven, was what caused the Panic.
But take a look at what happened with that 'debt' payoff: the dollar financial assets of the population were withdrawn by Jackson's action. National currency ceased to exist, and gold and bank notes took its place. Without savings, planters were at the mercy of the cotton markets. When the markets failed to deliver the expected income from the sale of their cotton crop, the planters had no backup savings, no reserves with which to pay their loans. So paying off the national 'debt' injects fragility into an economy.
This applies even when currency is (incorrectly) not counted as debt. Lincoln fought the Civil War with greenbacks, but didn't bother to call them debt. When the war was over, the federal government withdrew the greenbacks, and a deflationary spiral set in. Lawrence Goodwyn (The Populist Moment: A Short History of the Agrarian Revolt in America) says there was more currency in Connecticut than in the entire Confederate South.
What did Southerners do? They bought goods on credit from the "Furnishing Man" (later shortened to just "The Man")...at interest rates that would make a payday lender blush. It's not for nothing Southerners hate Northern banks. A life of debt peonage can do that to a person.
OK...that's my summation of the Modern Money Theory (MMT) understanding of national 'debt.' You can read more at the link above, or on my blog (here, here, and here--that last one has an answer to the inevitable "What about inflation?" question--for example), check out videos (here). I'm certainly not the author of all those links, but I get my licks in where I can...;-)
No comments:
Post a Comment
One of the objects if this blog is to elevate civil discourse. Please do your part by presenting arguments rather than attacks or unfounded accusations.