Our problem at the moment is a general misconception, even among many of those who manage our economy, about the process of funding government spending. It is extremely difficult to step away from the rules that govern every other aspect of our financial lives and place them in a mental box where they don’t influence perception. However, that is what we must do, and then force our leadership to do, to understand the dynamics of macroeconomics with a sovereign currency underpinning our economy. This gets even more distorted when the prevailing economic theories taught were arrived at under conditions that changed completely overnight. There are still no textbooks that reflect this new reality, or more than a handful of professors mentioning it in econ courses.
There is also the added factor of politics to deal with when the two accepted philosophies of governance maintain their positions in power by representing disparate views of the system as it “was”. A prominent politician in Washington, when shown the proof of the new reality in the system, stated “I can’t say that”, meaning it is too much of a departure from what the voters believe to be true to ever see the light of day in a campaign. The one common truth of political campaigns is that if you are explaining something you’ve already lost in an environment that accepts nothing but validation of voters belief systems. Credit for that probably is owed to the invisible transition made from the old to new in our financial system exactly for the purpose of avoiding political upheaval, right down to the wording used to describe functions and categories no longer fitting their original intent.
The important thing to understanding modern monetary theory is keeping a mental picture of a spreadsheet of the entire “economic system” in mind so that numbers from the public (government) side must also find their way to an opposing value on the private (economy) side, which is what we really want to influence. In that context “deficits” become income that remain in the economy after other currency is “canceled” by taxation and ends its effective life-cycle. “Debt” then becomes an accumulation of deficits, or savings/wealth in the private sector, represented by Treasury instruments that were purchased with existing currency and only denominated in dollars. This purchase of debt obligations has the same net effect as taxation on the currency supply in the economy except it offers an interest component used to give a rate floor to investors and set bond prices. It is accounted for in a naming system adopted from the accounting practices of the gold standard which fails to accurately describe how the currency moves across the divide between public and private, and therein lies the source of confusion.