This month’s TIME magazine says Make America Solvent Again . Even churches preach about the “debt.” From the United Methodist Church’s Social Principles:
The huge budget deficits produced by years of [government] overspending [and] wanton carelessness cannot continue. [Governments must] reduce budget deficits and to live within their means. …. if deficits are not brought under control, future generations will be shackled with a burden of public indebtedness…
But most advanced economies use “debt-based” money. The debt is the money! If Tom gives Dick an IOU to pay for something, then Dick uses that same IOU to pay Harry for something, the IOU itself becomes a “money thing.” Stores seldom take personal IOUs, but will take a government IOU we call a dollar.
Q: What’s owed for a dollar? A: Relief from an inevitable liability: taxes. Taxes make money valuable.
But what about [gasp!] wanton overspending!
Relative to GDP, U.S. spending ranks 46th. U.S. government spending is modest, especially if you adjust for the military (more than the next 14 nations combined). U.S. government spending ranks between Argentina and Luxembourg’s. Reduce spending by one sixth to adjust for the military, and the U.S. ranks between Laos and Uganda. (Wikipedia’s figures. Clicking headings sorts the list.)
Most of us encounter debt-based money as bank accounts. Those accounts are our assets, but the bank’s liability.
Q: What about the national liability (“debt”)? Whose asset is that? A: It’s the dollar financial assets of the population. Few banks say “We must have smaller deposits!”–because deposits are a liability–but that’s what TIME and the Methodists say.
Uniquely, the Federal government creates dollars, and it owes in dollars–something it can create virtually without cost. The idea of future generations shackled with a burden of public indebtedness is ridiculous. Treasury could mint a few trillion-dollar coins and pay the National “Debt” next week. Not likely, but legally and literally possible. Government could fund even a wanton spending program like a Job Guarantee without raising any taxes!
Typically, reducing “debt” diminishes dollars in circulation. Doing so–as the U.S. did with the Clinton surplus, or in 1929–correlates with the worst depressions and “panics” in U.S. history. (footnote). In other words, Fiscal Responsibility™ crushes households in debt, artificially depriving the economy of dollars. That is exactly the opposite message of the Bible with its prohibition of usury, Jubilee years, and sympathy for debtors.
“B…but if you just print money, you’ll have [gasp!][hyper-]inflation!”
Theoretically, the Fed could run amok and bid up prices, competing with the private sector, but bidding must occur. If it printed money without spending it, no bidding, so no inflation.
Paying off debt (private or public) is un-spending. No bidding or inflation results from depositing trillion-dollar coins at the Fed. Similarly, if government provided a Job Guarantee, since no one else is bidding for the unemployed, no inflation would result. Historically, hyperinflation stems from shortages of goods, never central banks run amok.
Yet we’re only short of money when it comes to climate remedies, funding schools (Federal support for higher education has diminished 55% since 1972), or grandma’s pension. But government just spent trillions for banks and Middle East wars without a peep from the Fiscally Responsible™ people.
What’s finite is the real economy—goods and services, not dollars. The surest way to deny future generations of the benefits of that real economy is to keep factories and human capital under- or un-employed by artificially reducing the supply of dollars with pretended insolvency.