I wonder just how many people know about what our national debt actually is. The term 'national debt' gets thrown around so often and I have yet to hear anyone talk about US Treasury securities in any interview or discussion on TV, Radio, or any mainstream media websites about the so-called debt. People just assume that because I have debt I know what the national debt is because the national Govt is just like me and my household or the business down the street. Well guess what, the Federal Govt is nothing like a household or business. And the 'national debt' is nothing more than the total number of US treasury bonds in existence. So the next time you hear somebody talk about the 'debt being too high' or 'we need to reduce or national debt'.....we must ask ourselves, just why do we really want there to be less US Treasury bonds in existence.
Is it better public policy to have a smaller amount of risk-free financial assets available to the non-Govt?
I am not saying there could never be a situation where the above statement should be answered with a yes.....I am just saying that any time anyone wants to stop issuing Treasury bonds dollar for dollar with the amount of deficit spending, I am game. If only, to put all this 'national debt' silliness to rest once and for all. But is this something that we progressives should advocate for en masse......to shrink the debt by just supporting the repeal of the statute that requires treasury to issue bonds for deficit spending. Its not like the Fed bank would ever 'bounce a Treasury check' although its more accurately described as the Fed would never refuse to use its computer to credit a SS recipient's or Govt contractor's bank account.
Of course the next thing that people are going to say is........
INFLATION!!!!!!!!AAAAAHHHHHHHHH!!!!!!!!
First of all, stop yelling ummmK. Take a deep breath. Lets just think this through for one second..... If the Govt's deficit was $100 million and every penny of the deficit was going to Grandma as her monthly SS check but we didn't issue $100 million worth of various duration Treasury bonds, would we get INFLATION!!!!! in today's economic environment?
No.....why not?
Could it be that the mere act of there not being a corresponding number of new US treasury bonds in existence with the new money that Grandma gets is not inherently inflationary. In other words, its not the issuance or non-issuance of Treasury bonds that is itself inflationary......its the amount of new money and the economic circumstances. That $100 million in new money for our Grandparents wouldn't be inflationary because:
A) its so little new money relative to the amount of economic activity in the US ($15 trillion GDP)
B) If the quantity theory of money is M x V = P x Q where:
M = money supply
V = velocity of money
P = relative prices
Q = quantity of goods and services
Then in a depressed economy which is not running at full capacity, most new (M)oney will be absorbed by a higher (Q)uantity of goods and services in the form of new emplyment.
This can also be thought about as......If grandma gets more money for her monthly SS benefit, she would probably spend more money at her favorite restaurants and bingo parlor which would in turn force those businesses to hire new people to satisfy grandma's increased demand. And as long as there are unemployed workers the business won't be forced to bid up the wages like they might have to if we had a very low full employment rate around 2 or 3%.
In summary, if the Govt didn't issue any more new bonds, then technically the 'national debt' would stop going up.....and maybe we could finally stop hearing about that ridiculous debt clock! And the US Govt would still be fully capable of crediting Grandma's bank account every month. So do we want to stop issuing new Treasury bonds?
Please follow our group Money and Public Purpose. We need more people to understand the operations of our Govt's finances and the Fed so that we can more effectively fight off the regressive deficit terrorists. If we at Kos have a better understanding of the Federal Govt's monetary operations, then the community can better advocate for more progressive fiscal and economic policy.....Thank you.
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