William Peeples
Jul 30, 2017 · 2 min read

Hi Kady. My guess is that you have been give the answer but have chosen to ignore it or possibly you didn’t understand it. I am happy to answer it here for others that may have the same question though.

It isn’t that the national debt/savings doesn’t matter. It just doesn’t matter in the way most people think. While there are varying definitions of national debt, I will use Dollars Spent less Dollars Taxed over the last 180 years or so for this discussion. This is the accumulated deficits definition.

Every dollar that has been created and spent into the economy and not taxed back out of the economy still resides in the economy. It is the dollars that are used on a daily basis and those which make up the savings of the non-fed sector. The amount of dollars in the economy has grown over time with continual deficits. We need some amount for transactions and to satisfy the desire to save. If we had always had a balanced budget, there would be no residual savings in the economy.

While we have had a policy inflation target, a growing population, and a growing economy, the number of dollars has needed to grow as well to accommodate.

Are there limits? Sure. Why not give everyone a million? Because aggregate demand would likely increase beyond productive capacity and resource constraints which would likely lead to higher than target inflation. At the end of the day is is about real goods and resources. Dollars are just how we keep score.

Removing dollars from the economy (i.e. reducing the national debt) typically leads to high unemployment and results in recession or depression. Taxation creates unemployment with too little spending creates unemployment.

The question that I always ask (and have not gotten an answer to) is How many dollars SHOULD we have in the economy if not the current amount? If the answer is less, then why? To what end? Based on what analysis? For what desired economic outcome?

    William Peeples

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