The bizarre and ironic thing is that Adams’ satirical bit about the tree leaves would be true if that same government declared its refusal to accept anything other than tree leaves for the payment of tax obligations.

No, it’s true even without that.

Couldn’t you at least have the humility to say you might look into these ideas later, when you have the time and/or the interest, rather than pooh-poohing them from the outset? I know you are a person who is very committed to ensuring that their map fit the territory as accurately as possible. Your map is a little bit wonky here, in my opinion.

BTW, quoting Douglas Adams might get applause from the skeptic audience here, but his views on the US monetary system are about as reliable as my views on protozoan epigenetics (i.e. not very reliable at all).

Which is why his being right should be most embarrassing for you.

I agree that it’s not what all debt is. What I’ve described certainly isn’t private debt. Nor is it even all public debt (e.g. local and state government debts do not function this way). But this is an entirely accurate description of the federal government’s debt. Any federal government that issues its own currency and has a floating exchange rate operates as such.

If you think I “don’t seem to have a good command of how economies work, or fiduciary currencies even,” then be specific. I’m not the first person to say the things that I have said. There are a number of statements from leading Federal Reserve board members that implicitly concede what I have mentioned. For example, Alan Greenspan–a gold-worshipping, Ayn Rand-loving nuthead–conceded in a 1997 hearing, that “[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.” Moreover, during the 2011 debt ceiling debacle, he also asserted that the United States government could pay every single debt it has five minutes from now, because “we can always print the money to do it, hence there is zero probability of default [emphasis mine].” But the best statement about all of this comes from the former vice-president of the St. Louis Fed, who declared “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk- free dollar-denominated assets… [emphasis mine]”.

It’s also worth mentioning that Treasury bond auctions are nothing like a regular auction. The participants in this auction, the “Primary Buyers”, have a legal obligation to make an offer for the bonds on sale. In other words, they MUST buy the bonds. And, as I mentioned before, the Fed backstops any IOUs issued by the Federal Government. The Federal Reserve is always there to, in Ben Bernanke’s words, “Do whatever Congress tells [them] to do.”

I’ll mention one more thing. Have you ever paid your taxes in cash? Some people do do it from time to time. Let’s say you went to Washington and paid your income taxes with some really old, worn $50 notes. The person at the other side of the desk would take your money, give you a receipt, and then, once you have left the room, proceed to shred your money to pieces. I’m not bullshitting you; they take your hard-earned and throw it in a fucking shredder. You can actually buy that shredded money as a souvenir in Washington. Now, if I were to use those same old, worn $50 notes to pay my mortage to a bank, they are not going to shred that money. If I were to pay my council rates or my state taxes, neither the local council nor the state government are going to shred those old, worn $50 notes. But the Federal Reserve does. Doesn’t that show you something entirely different is afoot there? It should, because there is: the former are USERS of the currency, the latter is the ISSUER of the currency.

BTW, quoting Douglas Adams might get applause from the skeptic audience here, but his views on the US monetary system are about as reliable as my views on protozoan epigenetics (i.e. not very reliable at all).

What is called the “national debt” is, in fact, just an accounting record of the difference between the aggregate amount of dollars the US has created and how many dollars the US has destroyed.

No, that is not what debt is.

You do not seem to have a good command of how economies work, or fiduciary currencies even. Like, what happens when you try to pay all your debts by printing the money. Douglas Adams had a really funny routine about this, in which a nation tried to solve its debt problem by simply declaring tree leaves to be dollars.

That doesn’t work.

I don’t think this is entirely accurate Richard.

The US government, in tandem with the Federal Reserve, is the combined issuer of the currency. What is called the “national debt” is, in fact, just an accounting record of the difference between the aggregate amount of dollars the US has created and how many dollars the US has destroyed. It is amazing that the mainstream economics profession continues to cling to this superstitious notion of a de facto gold standard.

Whenever the government decides to spend money, it essentially just tells the Fed to credit the recipient’s account. Where does the Fed get the money? Nowhere. It’s just changing numbers on a keyboard.

The usual counter-argument at this point is “Aha! That may be true, but the Treasury requires a positive bank balance, and its account must be debited BEFORE the Fed credits the recipient’s account!” That’s absolutely correct. But it is an entirely self-imposed legal constraint which could be removed tomorrow if the political need arose.

It is because of this self-imposed legal constraint—and not a “scarcity of money”—that the government needs to issue bonds. A typical mainstream economist will argue that bonds are a good thing anyway because they ensure that whenever the government spends money, the private sector is forced to reduce its purchasing power, dollar for dollar, thereby preventing inflation. But this is simply not the case; neoclassical economics relies on a very outdated exogenous money multiplier model of the economy, which has been (a) disproved empirically for decades, and (b) is finally starting to be rejected as utter rubbish by respected institutions like the European Central Bank.

Another counter-argument is “But if expectations about the US ability to pay back the debt got really pessimistic, then you’d see interest rates spike, followed by hyperinflation!” Again, not true. To start with, pick a real-world example refuting that notion: Japan. Japan’s national debt dwarfs the US national debt. Their interest rates are less than 1%, and have been for a long, long time. Why? Because Japan issues their own currency; so if the central bank wants rates below 1%, that’s where they will stay. The private sector knows that the central bank is backstopping of any government loan they have. And the ability of the central bank to pay back any debt is, by definition, always 100% guaranteed, as long as the debt is in the currency that it issues. The Fed is, in fact, legally required to backstop Treasury bonds and keep interest rates stable in order to ensure the stability of the payments system.

I’ve barely scratch the surface here. There’s a shitload more to say on this topic. I myself was skeptical for long, long time on this viewpoint. But I changed my mind after reading the article below. See what you think, if you have 10-15 mins.

bit.ly/1k2zVLq

Rgds
Mojo Rhythm

I concur with all that. But it doesn’t change the fact that the present course is unsustainable and the Republicans have signaled they will do nothing to arrest it. That means we need a strategy now, one that doesn’t rely on the Republicans suddenly becoming rational.

Several countries in modern history have accrued debts as large *or larger* relative to their respective GDPs. This didn’t automatically lead to the destruction of those countries. In fact, over the long term, most of those situations that resolved themselves did so by inflating the debt out of existence.

Most of our current debt was incurred by three factors:

– The Bush tax cuts (about which we’re obviously on the same page re: tax rates, so I shall say no more)
– Healthcare spending (an issue which, hopefully, the ACA will address on the long-term horizon)
– Automatic entitlement spending triggered by mass unemployment

The third is the crux of my issue with your point. Large-scale loss of employment, in my mind, is a MUCH bigger issue facing the health of our economy than the debt itself, because A) it hammers us twice (increased spending as automatic benefits kick in, and subsequent loss of tax revenue from the unemployed) and B) it has an immediate cost in the amount of human suffering it inflicts. If we were to put the chronically unemployed and underemployed back to work, that would do a tremendous amount to address our long-run debt problems.

FWIW, I also concur with your thoughts re: military spending. It’s completely absurd that we spend almost as much on our military as the rest of the planet *combined*.