An alternative to popular faith

        On September 23, 2009, Ms. Maya MacGuineas, President of the Committee for a Responsible Federal Budget, wrote an article titled, “Can Deficits Fix the Economy” (http://crfb.org/blogs/can-deficits-fix-economy). In the article, she agrees on the need for deficit “ . . . spending on public investments . . .” but she expresses concern about the government’s ability to borrow more money. I wrote her the following note:

Ms. MacGuineas,
         In your article, “Can Deficits Fix the Economy,” I’m pleased to see you understand the necessity of federal deficit spending for economic growth. This puts you well ahead of debt hawks like the Concord Coalition, who actually have called for surpluses large enough to eliminate federal debt, demonstrating their misunderstanding of money and its sources.
        Nevertheless, you said, “. . . given how much we have borrowed in the past, there is little room for deficit financing new investments, and I would instead shift our budget by cutting spending on consumption and directing it toward higher levels of public investment. If we had listened to budget scolds in the past, we would have more room on our balance sheet now for government borrowing – unfortunately, we did not.”
         Exactly the same concerns were expressed by many back in 1979, when the debt was less than $800 billion. In the past 30 years, the debt has grown 1,400% and not only does there remain plenty of room on our balance sheets, but the federal government does not need to borrow at all. See the post:
“How to Eliminate All Federal Debt, Deficits and Interest Payments”

        The government borrows by creating T-securities out of thin air, then selling them. The government far more easily could create money out of thin air, and eliminate the borrowing stage. This also would eliminate misguided concerns about our debt and our ability to borrow.

Rodger Malcolm Mitchell

http://www.rodgermitchell.com