U.S. Debt on Pace to Top $56 Trillion Over Next 10 Years https://www.nytimes.com/2024/06/18/us/politics/us-debt-economy.html The Congressional Budget Office said on Tuesday that the U.S. national debt is poised to top $56 trillion by 2034, as rising spending and interest expenses outpace tax revenues. The mounting costs of Social Security and Medicare continue to weigh on the nation’s finances, along with rising interest rates, which have made it more costly for the federal government to borrow huge sums of money.
We have something in common. We both like T-Bills right now. It's taken me awhile to recognize that in ordinary lending and borrowing the perspective of the transaction is the same for the lender and borrower, whereas in ersatz borrowing, which is what the governments of wealthy, advanced nations engage in, the lender sees the transaction as unremarkable, whereas the government is doing something that only governments that print their own sovereign money can do... The governments of wealthy nations with more or less comprehensive economies can issue ersatz debt. Today, ersatz debt is the only kind of debt the U.S. issues. I am not surprised that you, as a purchaser of U.S. government securities, and therefore a “lender” to the U.S. government, are unaware that the “borrower”, i.e., the government, is acquiring no real debt and consequently there can be no real borrowing and no risk of default.* When the U.S. appears to be borrowing it isn't for the purpose of raising money to spend as would be the purpose of real borrowing. It is for entirely different purposes, some of which, I have addressed elsewhere in the Economics Forum. The nature of government, ersatz borrowing is opaque. This opaqueness has led to misunderstandings, including such oddities as politically inspired “debt limits”. It would be an understatement to say, “the general public does not understand government money operations.” They incorrectly think that the government is constrained by the same factors that constrain their own private sector finances. Nothing could be further from the truth. The Congress, using the Treasury and the Central Bank as its agents, can legally print an unlimited amount of money and designate it as legal tender. All U.S. deficits are covered by printing of new money, and not by borrowing. Only later does the government give the appearance of borrowing to cover the deficit, when in fact the deficit has already been covered by printing, and the Treasuries that are subsequently auctioned as a consequence of deficits, are been sold for reasons entirely apart from the need to raise money to spend! Here is a thought experiment I hope will help explain the ersatz debt that results from U.S. deficit spending: Suppose the government prints money, because it has insufficient revenue, and uses it to buy a car. Now the government has a car, and the car dealer, who is in the private sector, has the money that was printed. At this point, the private sector money supply has increased by the amount paid for the car. Then suppose that later the government auctions a bond in the amount of its deficit created by its purchase of a car. The car dealer may buy the bond by "loaning" back to the government the newly printed money used to buy the car. Now the government has both the money it printed and the car; the dealer has the government's bond. Eventually the government may redeem the bond by returning money, in the amount previously printed (plus interest), to the dealer. Now the dealer has the printed money and interest, and the government has the car. In effect the government obtained a car with printed money without significant expenditure of time or energy. In summary, the government bought a car with money it printed “out of thin air”! Then, later, it exchanged a bond for the money, and finally it redeemed the bond by returning the money to the car dealer. The net, final result of this ersatz borrowing cycle was that the private sector money supply increased by the amount of the loan principle plus interest. [This is why one might think of government bonds as latent money supply, or "latent" inflation.] In the simple example I gave, the car dealer experiences the transaction first as a simple sale of a car to the government in exchange for money, then later as a lending of money to the government in exchange for a bond. In reality, in the second part of the transaction, the government exchanges the dealer's circulating, non-interest-paying money, for non-circulating, interest paying money in the form of a bond. This is why MMT economists look at Treasuries as a highly liquid, non-circulating, interest paying form of money. They have recognized, correctly in my view, that bond issuance coupled,after the fact, to deficit spending using newly printed money is ersatz borrowing. Coupling bonds to newly printed money increases the total money in the private sector without increasing the money supply! --- longer term treasury securities are not part of the M2 money supply. It is only after the bond is paid off that the private sector money supply is increased by principle amount of the bond plus interest. The first part of the deficit spending transaction, in which the the car dealer is paid newly printed money in exchange for a car, increases the private sector money supply and could therefore potentially contribute to inflation, depending on other factors. The subsequent issuance by the Treasury of a bond in equivalent amount, however, negates this money supply increase. (This is a fundamental reason The U.S. government routinely auctions securities in amounts matching the new money printed to enable deficit spending into the economy.) To avoid writing a book, I am intentionally leaving out any discussion of related C.B. action. I have discussed the C.B.'s role (our "Fed") in many other posts in the economics forum. If you have a background in economics I could suggest Randall Wray's detailed, and now classic monograph "Understanding Modern Money" . It's is out of print, but still available at high cost. (It has been updated and reissued in paperback under a less expensive, slightly different title, I think?) An easier, but less comprehensive read, can the found in Stephanie Kelton's book, "The Deficit Myth". Kelton is a Former Senate Economist. Besides Wray's classic study of sovereign money, other relatively advanced treatments of these subjects can be found in Warren Mosler's books or in a number of blogs including William Mitchel's and Nathan Tankus's. The latter offers a fresh, innovative perspective. Also, Joseph Wang's "Central Banking 101" can not be recommended too highly. There is a new undergraduate Macroeconomics text by Wray and Mitchell. It's the first basic text to get the "money multiplier" and several other aspects of money and banking correct. All other texts to date have serious errors in their chapters on money and banking. A closely related read is Minsky's wonderful “John Maynard Keynes”. Minsky influenced today's MMT economists, and in fact Wray is a Minsky protege. Minsky is where you will find detailed discussion of Inside and Outside money, which is an essential concept if the money supply is to be thoroughly understood. Minsky, however, is not light reading. _____________ *Other than voluntarily created political risk of course. **interest is like any other non-discretionary spending. It too can be, at least for a time, covered by printing when taxing is insufficient. Regardless, deficits chronically growing, in aggregate, faster than the economy can not be sustained forever; either tax increases , spending cuts, or both, must eventually ensue.
I do not understand why you're so convinced of this drivel. Let's say I started printing "engineering bucks" and I gave you some. It doesn't mean I can't borrow them back and pay interest. You can argue about what the effects my actions might have on the exchange rate or purchasing power, but saying that it's impossible for me to borrow something I made is just stupid. Your politics are showing. You might not agree with something but it's ridiculous to assume everyone on the other side of the argument is "misunderstanding" something.
I'm starting to agree with the rest of the masses here, piezoe...You have no idea what you are on about. You are reading like an out-of-date financial textbook from high school (which do not exist). And from a time of financial illiteracy...
This has to be one of the most hated songs of the 90's. It's gotta be the most un-grungy of the grunge songs.
I've heard numerous times that the U.S is actually OWED more than what it owes others ie. its Assets exceed it's Liabilities. Anyone know if that's correct?
If you read this book and read that book, no no don't read that book - then you to will believe borrowing by gubmints where you gave them money and they pay you back in the future with more money is not ........... borrowing. Kinda like stolen elections there were not stolen .... still are somehow stolen elections.