The funds from these loans go into our public spending (so not everything the government does is with your hard-earned tax dollars!). Bonds have helped to fund several things, from our efforts in World War II to the 2009 Stimulus Package.
As soon as I saw this I knew any further reading would be pointless and I had to decide whether to keep going and respond to each misconception that arises from this error, or to move on. As it turns out, I have some spare time to kill, so I’ll get on with it. Keep in mind that I agree with your assessment of the non-issue of our debt, but feel that you are not doing any service by further perpetuating misconceptions.
Our monetary system was designed with one primary goal; to defend the now non-existent gold reserve. Since spending must always precede tax collections (or there’s no currency to collect) Treasury issued bonds to “remove” currency from reserves to prevent the money supply from exceeding the gold reserve between spending and collection of taxes. While the gold reserve is now defunct bonds remain in the system to give the Fed a way of controlling interest rates by purchasing and selling them on the secondary market and to provide a floor for investors (welfare).
Their purpose and function has not changed, and they still don’t “fund” anything. While they are accounted for in the total M3 money supply, they are not in circulation. That simply means that reserves were moved from M1/M2 and given a different label, but they always contain their purchase price when the time comes to redeem them at their maturity, with only the difference of earnings to bring them to face value needing to be created as new currency. To spend their proceeds would defy their purpose, which became even more true when we finally ended convertibility of dollars to gold, making the currency a no-cost commodity to affect the goals of Congress that it can never run out of.
Conservatives and libertarians nevertheless worry about the impending retirement of the Baby Boomer generation and the enormous costs in Social Security spending that this will incur, which might turn the tides of this beneficial trend. They often suggest austerity and cuts to government spending, as a solution.
No, conservatives and libertarians cause others to worry about the impending retirement of the baby boomer generation as a tool to justify destroying Social Security, and have from the minute the bill was signed. They also suggest austerity and cuts to government as the fix all solution to all problems, so no surprise there. It is government itself they object to, not any particular program, so they would be gleeful to see Social Security fail, which was the purpose of the “fund” to begin with. Gotta give them credit for taking the long view though.
Are higher taxes to address this issue really that much of a problem, however? Former Secretary of Labor Robert Reich seems to think otherwise.
Reich, like his former boss, is a neoliberal scammer. He fully understands that taxes, like bonds, don’t “fund” anything for the federal government. They are only a more permanent method of removing currency from circulation and to maintain some balance in income equity, although that part is mostly lost on people currently. Again, because spending always proceeds collecting taxes, they are simply destroyed upon collection, not re-spent.
The “solution” to this non-problem is to end the sham of FICA deductions, which are the most regressive taxation possible, and simply decide that a civilized society takes care of its elderly and disabled without them needing to “pay for it” in advance. The payment of benefits is completely accomplished via new currency creation anyway, as the federal government never “has” or “doesn’t have” money at any time. Tax revenue is mostly an oxymoron meant to give a false impression to regular morons when the government neither needs nor uses revenue.
In fact, we have good reason to believe that cutting spending (to SS and other programs) would actively be bad for the economy. According to William R. Emmons, the primary component of growth in America’s economy has been household spending, at about 83%. With a greater share of those households becoming aging Baby Boomers, cuts to public programs upon which the elderly depend would directly undermine our growth (and consequently our ability to pay off debt).
Bravo. You nailed that one, even with the misconception added at the end that implies that the monopoly issuer of the currency could ever fail to pay any obligation denominated in the currency it creates. The federal government simply doesn’t function like your household budget, but you understand the importance of its spending to the economy, at least.
A similar history is found in the austerity measures imposed by the IMF on Latin American and Asian countries in the late Twentieth Century. When spending is key in the U.S., as it is for a nation like Greece, to cut it is to undermine our own economic foundations and reduce our well-being.
The problem with those countries, especially Greece, is they took on debt in a foreign currency they didn’t control. This is a common error and seems to be encouraged by the IMF. If that foreign debt is large enough to drive inflation of the currency it’s just a few circles of the drain from default. It appears that all nations that accepted the Euro as the denomination of their debt (except Germany) are struggling, while those who retained their sovereign currency are doing much better. Even as this basically turned those countries into “states” I would much rather be poor in Greece than in Mississippi, so the US has no bragging rights there.
The real question is whether or not cutting spending actually solves them at the root. At this moment, we have reason to believe that spending is what is preventing hardship, not causing it.
Bravo again.
However, this is far more than a “at the moment” thing. Once you apply the logic of dual entry spreadsheet accounting to taxation, understanding that recycling taxes to spending isn’t possible as long as we have debt (which cancels tax collections upon receipt), but that the “debt” is nothing more than dollars created in the past by Congress and not yet used to pay a federal tax obligation, you will understand economics in a sovereign fiat currency regime.
The debt isn’t just extra money Congress decided to spend, as it was with a gold standard. It is “ALL MONEY” spent into the private sector and not taxed back. It is nothing but an accounting entity meant to advise Congress of the money supply, not a mortgage that we have to pay. Paying off that number, as big as it is, means eliminating “ALL” currency in circulation and forcing default on all private bank debt. Gee, we have only attempted that seven times in our history and it went so well (giving us a deep recession or depression every time we got within shouting distance) that we should try it again, right?
Is $21 Trillion too much currency to have in the private sector? As lousy as the economy is at the moment I’d suggest not, or that it is grossly misappropriated ( Probably a bit of each?), but lets have that debate, not simply pass it off as doom and gloom because of its label. The red ink of the government is the only net source of black ink we have, so let’s think about renaming the “debt’ to something less difficult for the plebes to understand, like “private sector reserves”.
“Debt” might sound like a scary word to most of us. Generally speaking, we do not want to be in debt. Nevertheless, there are clear advantages in life that come from having a good credit score. It gives us access to more than we would have otherwise. Taking out a loan for a car or a house can stabilize a person’s life and provide them the means to hold a job and accrue wealth. The same logic holds for what public debt is able to finance nationwide.
The term “debt” only applies from the perspective of the government’s side of the balance sheet. When we used the gold standard this number would have been reduced by the value of the gold reserve. The only reason it is represented by Treasury bonds is a self imposed mandate within the Federal Reserve Act (1913) that requires that any spending that would cause the money supply to exceed the gold reserve to be “matched” by bond issues to draw down reserves and prevent inflation of the currency. When viewed from this proper perspective it becomes obvious that bonds and taxes never “funded” spending, and that spending was always accomplished via new currency creation.
