Enjoy the Follies

Follies 05

In Washington DC are thousands of people employed by numerous agencies whose purpose is to maintain the pretense that the U.S. government is “bankrupt” and has a “debt crisis.” It is indeed a pretense, since everyone knows that the U.S. government can “print” limitless dollars.

There is the Government Accountability Office, the Congressional Budget Office, the Office of Federal Financial Management, the Office of Management and Budget, and so on. Together they put on a daily show that I’ll call the “National Debt Crisis Follies.”

Recently Gene Dodaro, the comptroller general for the Government Accountability Office, told the Senate Budget Committee that without action on the “national debt” (such as privatizing Medicare and Social Security), the “national debt” will exceed all the goods and services produced by the entire U.S. economy in the next 15-25 years. In other words the U.S. government will be flat broke. It will “owe” more than it “earns.”

Nonsense of course. The “national debt” is not a debt in the sense of money borrowed to fund the U.S. government. It is simply money that various parties (mainly arms of the U.S. government, plus central banks like that of China) have deposited at the Federal Reserve by purchasing T-securities. These deposits present no strain on the U.S. government, which creates its spending money out of thin air. The deposits are only a “debt” in the sense that the Fed must give the deposit money back to the various investors as their various T-securities mature. The Fed pays interest on these deposits (about $251 billion per year), but the Fed creates that interest money out of thin air. And interest money is only a fourth of what the U.S. government creates out of thin air for the Pentagon, for weapons makers, and for perpetual war.

The “National Debt Crisis Follies” want you to think the U.S. government relies on loans, and on tax revenue, and cannot create money out of thin air. The Follies want you to think that since the so-called “national debt” of $19 trillion is more than the entire US GDP ($16.9 trillion), the U.S. government is “insolvent.” Therefore we must privatize Medicare, Social Security and any other federal social programs that help average people.

I’m not sure if federal bureaucrats really want this, since privatization would cost many of them their jobs (perhaps most of them). Perhaps they just present the Follies in order to make their parasitical do-nothing jobs in Washington seem important and vitally necessary.

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Gene Dodaro also told the senate Budget Committee that the U.S. government is “Very heavily leveraged in debt.”

More nonsense. Leverage (which in the U.K. is called “gearing”) means you go into debt in order to multiply your gains in a market transaction. If you have $100 million, you borrow $400 million (or whatever) to place a bet of $500 million. If you win your bet, you win big. If you lose, you are $500 million in the hole, plus interest (unless you are a big bank, in which case your losses are covered by the U.S. government). No aspect of the U.S. government is “leveraged,” since the U.S. government creates its spending money out of thin air.

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Mr. Dodaro further told the Committee that, “The highest in the United States government’s history of debt held by the public as a percent of gross domestic product was 1946, right after World War II. We’re on mark to hit that in the next 15 to 25 years.”

Dodaro is referring to “war bonds” that the U.S. government sold during WW II in order to control inflation, not to fund the war effort. (See my own explanation of how this worked.) Today the Treasury sells T-securities as a means to control inflation, and to balance the reserves of banks nationwide. (I need to do a post on this.)

The “debt-to-GDP ratio” of the U.S. government is meaningless for the U.S. government. The purpose of these Follies is to make it seem like the U.S. government is “broke.”

Source: an ultra-right-wing blog called the Washington Free Beacon.

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As I noted above, the Follies put on a daily show for your entertainment. Last Wednesday (6 April 2016) the Senate Foreign Relations Committee held a hearing on the fake “national debt crisis.” Sen. Ed Markey (D-Mass.) truthfully told the committee that, “This debt is not actually right now a threat to our country.”

Markey’s truthfulness enraged committee chairman Bob Corker (Republican – Tennessee) who responded that the (fake) “national debt crisis” is a “threat to national security.” Corker said that anyone who calls the (fake) “national debt crisis “fake” is a “crackpot.”

Markey responded that if Corker wants the U.S. government to spend less money, we could start by not spending over $1 trillion to make new nuclear weapons.

Richard N. Haass (former U.S. ambassador to the mass heroin factory known as Afghanistan) countered that the “national security threat” came from spending billions on “entitlements,” not from spending trillions on nuclear weapons.

Source

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8 thoughts on “Enjoy the Follies

  1. I don’t think Debt to GDP ratio is important for any country. Countries which borrow in foreign currency are probably only concerned with their trade balance.

    Liked by 1 person

    1. The debt-to-GDP ratio is indeed important, but its importance varies among nations. For some nations it is extremely important. For others it is trivial.

      Eurozone governments cannot create their spending money out of thin air. Hence their only income is from a trade surplus. If they do not have a trade surplus, then they must borrow all their money, in which case their debt-to-GDP ratio is crucial. If even 25 percent of their economy is devoted to paying the bankers, they will be crippled, since their debt will compound.

      Other governments such as Venezuela’s create their own currency out of thin air, but they cannot create foreign currencies, which they must obtain in order to buy imports. If they must borrow in foreign currencies in order to buy imports, then their debt-to-GDP ratio can become crucial. Again, if even 25 percent of their economy is devoted to paying the bankers, they will be crippled.

      Then there are nations like the USA, whose government creates its own currency out of thin air, while having no need for foreign currencies, since the US dollar is accepted worldwide.

      Thus…

      [1] For euro-zone nations that have trade deficits, their debt-to-GDP ratio is crucially important.

      [2] For nations that create their own money out of thin air, but have a trade deficit, their debt-to-GDP ratio is very important, if by “debt” we mean their debt in foreign currency.

      [3] For nations that create their own money out of thin air, and have a trade surplus, their debt-to-GDP ratio is almost totally unimportant.

      [4] For nations that create their own money out of thin air, and whose money is accepted worldwide (like the UK or USA) their debt-to-GDP ratio has ZERO importance. How can they have a “debt problem” if they can create money out of thin air, and if everyone accepts that money?

      Liked by 1 person

  2. ONLY one question. Your argument, your words give a different conclusion.
    ” For nations that create their own money out of thin air, and whose money is accepted worldwide (like the UK or USA) their debt-to-GDP ratio has ZERO importance. How can they have a “debt problem” if they can create money out of thin air, and if everyone accepts that money?”
    They have a “DEBT PROBLEM” because their creation as a contractual agreement to pay a tax (called interest) to the Private For Profit Banks that create that “money”.
    Read how “Debt is Beautiful” when it is at ZERO interest.
    https://justaluckyfool.wordpress.com/2016/04/04/the-national-debt-a-thing-of-beauty/

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    1. Many people falsely think that all money except coins and notes is created by banks as loans. I wish I had a penny for every post I have written that explains in detail exactly why this is not true.

      Many central bankers like to claim that they create all the money. They are liars.

      All money is debt (and credit) but not all debts and credits consist of monetary loans, or bank loans.

      Moreover the $4 trillion that the U.S. government will spend in FY 2016 is not borrowed from anyone. It is created out of thin air, just as banks create their loan money out of thin air, by the crediting of accounts; i.e. by changing the numbers in bank accounts. It’s like creating points on a sports scoreboard by changing the numbers.

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      1. “Moreover the $4 trillion that the U.S. government will spend in FY 2016 is not borrowed from anyone.”
        What are Treasury Notes and Bonds ?
        If not ‘borrowed money’, why are we paying in 2016, (In the budget as “DEBT SERVICE”), $728 billion in interest ?
        However, please note: IF the U.S. government had NO DEBT SERVICE i.e., NO BORROWING that would make “The National Debt: A THING OF BEAUTY.”https://justaluckyfool.wordpress.com/2016/04/04/the-national-debt-a-thing-of-beauty/

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        1. The money deposited in Fed savings accounts is temporarily on loan to the Fed, but that money is separate from the $4 trillion that the U.S. government creates out of thin air each fiscal year for spending purposes.

          Meanwhile the Fed creates the interest money on T-securities out of thin air. It’s six percent of the federal budget, or about $240 billion per fiscal year.

          By the way, I read your blog post. You start with the false claim that the U.S. budget deficit grows exponentially (it doesn’t “grow” at all) and your errors compound from there.

          Still, I appreciate your visiting and commenting.

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