No, Dollars Do Not Grow On Billionaires - The National "Debt" Panic Debunked

(c) by Mark Dempsey

Virtually every week I come across yet another editorial scolding the public about national "debt." These typically come from right-wing, Koch-funded "think" tanks (Mercatus, Hoover, AEI, Heritage, Cato, etc.), but Democrats promise to reduce "debt" too. These editorials tell how irresponsible Congress is, and say "debt" is going to crush the economy, or our grandchildren, etc.

All of these editorials are lies.

They rely on the public's belief that the federal budget is like a household budget. It's not. Household debt limits financial freedom and must be repaid with dollars earned elsewhere. But the federal government is the monopoly issuer of dollars, and since 1971, when Nixon "closed the gold window," the government can issue as many dollars as it needs at will, without waiting for more gold. Like most modern economies, the US issues "fiat money," not backed by anything other than the government's willingness to accept dollars in payment for taxes.

So the federal government does not need to retrieve dollars from the population. Dollars don't grow on billionaires.

Why impose taxes? Answer: Among other things, to create the demand for dollars.

And the sequence of federal fiscal events cannot be "tax and spend." Where would taxpayers get the dollars to pay taxes if the government didn't spend them out into the economy first?

It must be "spend first, then retrieve some dollars in taxes." What do we call the dollars spent, but not retrieved in taxes? Answer #1: The dollars in your wallet or savings account. The dollar financial assets of the population. Answer #2: national "debt." Both answers describe exactly the same thing. This is like the double-entry bookkeeping description of your bank account: it's your asset, but the bank's liability.

Americans have historically bought the "debt" lies, too, and significantly reduced national "debt" seven times since 1776. In 1835, Andrew Jackson actually paid off national "debt" entirely, leaving no national currency. After that, people did their business with specie (gold) and over 7,000 varieties of private bank notes of varying reliability. Not only were no national projects possible, it was a commercial nightmare. The result was the Panic of 1837--a Great Depression-sized hole in the economy. Every time significant "debt" reductions occur, a massive economic downturn follows. Presidents Coolidge and Hoover reduced the "debt" in the 1920s and we got the Great Depression of the 1930s.

This makes some sense, too. If you reduce the public’s savings by paying down the "debt" then it injects fragility into the economy. People can't pay their obligations and have reduced savings to weather economic difficulties. A wave of asset forfeitures and foreclosures ensues...a Great Depression.

Vulture capitalists love Great Depressions because they can acquire assets on the cheap, so the movement to reduce "debt" persists to serve them. Reducing “debt” also keeps labor humble by disabling social safety nets, reminding workers that they had better take whatever crappy job, or they will suffer. To significantly reduce spending (because tax increases are taboo) we would have to reduce the largest components of federal spending: the military, Social Security, and Medicare. Congress is passing military budgets larger than the Pentagon requests, so the agenda in "debt reduction" talk is to cut Social Security and Medicare.

Meanwhile, 40% of the population can’t handle a $400 emergency without borrowing or selling something, and 65% of seniors have only Social Security and Medicare to fund their retirements. “Debt” reduction is a whip in the hands of the plutocrats.

Many worry [hyper]inflation is the inevitable result of government spending. Even Wikipedia's "Government Spending" article claims such spending "crowds out" the private sector's demand for resources. But that last statement is only true if the economy is 100% employed; otherwise federal spending could mobilize idle resources. And none of the historic hyperinflations were initiated by a central bank run amok, "printing" too much money. Shortages of goods, and balance of payments problems were typically to blame, even in Zimbabwe and Weimar Germany.

The bottom line: the "fiscally responsible™" "debt" reduction editorials are false.