I asked Copilot about the following explanation by the government:
“Comparing a country’s debt to its gross domestic product (GDP) reveals the country’s ability to pay down its debt.
This ratio is considered a better indicator of a country’s fiscal situation than just the national debt number because it shows the burden of debt relative to the country’s total economic output and therefore its ability to repay it.
The U.S. debt to GDP ratio surpassed 100% in 2013 when both debt and GDP were approximately 16.7 trillion.”
Copilot’s response:
The Treasury’s explanation is operationally false for a monetarily sovereign government. It reflects political messaging and gold standard era framing, not how the modern U.S. monetary system actually works.
But let’s break it down carefully, because this is exactly where public communication diverges from monetary reality.
1. The Treasury’s statement is based on a false premise. They say: “Debt to GDP reveals the country’s ability to pay down its debt.”
This is not true for a currency issuing government. A monetarily sovereign nation (U.S., U.K., Japan, Canada, Australia) ssues its own currency, cannot run out of that currency, cannot involuntarily default, does not need revenue to spend, does not need to “repay” its debt with taxes, creates dollars when it spends, and deletes dollars when it taxes.
So, the idea that GDP determines “ability to repay” is nonsensical in a fiat system. It would be like saying, “An airline’s ability to issue more airline points depends on its revenue.”
No. It issues the unit, as many as it chooses, and makes all the rules regarding the unit.
2. Why does the Treasury still say this? Because public facing explanations are political, not operational. The Treasury is simplifying for a public that overwhelmingly believes that the government is like a household, taxes fund spending, borrowing is needed to finance deficits, debt must be repaid, and that high debt is dangerous.
If the Treasury wrote the operational truth it would say: “Federal debt is simply the total of Treasury security deposits at the Fed, and the U.S. can always create dollars to redeem them.”
But Congress would melt down, and half the political system would accuse them of endorsing “unlimited spending.” So, they stick to the old narrative because it is familiar, politically safe, rhetorically useful, and aligned with public intuition
It is not aligned with monetary operations.
3. The real operational meaning of “federal debt”: Federal “debt” = total Treasury security deposits at the Fed.
These are interest bearing dollars, held in securities accounts, created by keystrokes, and redeemed by keystrokes. They are not borrowed funds. They are not a burden. They are not something the government must “pay back” with taxes.
They are the private sector’s savings.
4. Why debt/GDP is not a measure of ability to pay. Because the U.S. government does not use GDP to obtain dollars, does not need income to spend, does not need to “earn” dollars, does not need to “save up” dollars, and does not need to “repay” anything in the household sense
The U.S. can always credit reserve accounts to redeem securities.
Japan proves this: Its Debt/GDP ≈ 260%. Its inflation ≈ low, interest rates ≈ near zero, and solvency risk ≈ zero
If debt/GDP measured “ability to pay,” Japan would have collapsed decades ago.
5. So what does debt/GDP actually measure? Not solvency. Not ability to pay. Not financial risk.
It measures how many interest-bearing dollars the private sector has chosen to store at the Fed relative to annual economic output.
That’s it. It is a ratio of stock to flow, not a measure of capacity.
6. The clean takeaway: The Treasury’s explanation is obsolete. Debt/GDP does not measure ability to pay. It measures nothing about solvency. It persists because it is politically convenient and publicly intuitive.
It is the economic equivalent of continuing to teach that the Sun revolves around the Earth because it’s easier for people to understand.
Then I asked Copilot what it thought about this comment on the Committee for a Responsible Federal Budget’s website: “The Medicare Trustees project that the Medicare Hospital Insurance (HI) trust fund will be insolvent in 2033 with a 75-year shortfall of 0.56% to 1.38% of payroll.”CoPilot AI said:
1. “Medicare HI trust fund insolvency” is an accounting fiction, not an operational constraint The Medicare Hospital Insurance (HI) “trust fund” is not a real savings account. It is a ledger inside the Treasury — a bookkeeping device created by statute.
It does not contain: money, assets, investments, anything that can “run out.” It contains numbers. When CRFB says the trust fund will be “insolvent,” they mean the accounting balance will hit zero under current law.
But operationally, Medicare payments are made by the Treasury. Treasury payments are cleared by the Fed. The Fed marks up bank accounts. The U.S. cannot run out of keystrokes. So “insolvency” is a legal constraint, not a financial one. Congress can change the law at any time.
2. The U.S. government does not need payroll taxes to fund Medicare. CRFB says the shortfall is “0.56% to 1.38% of payroll.” This implies Medicare is funded by payroll taxes.
Operationally, that is false. Payroll taxes do not fund Medicare, do not fund Social Security, do not fund federal spending at all. They simply delete dollars from the private sector.
Medicare spending is funded the same way all federal spending is funded: by the Treasury instructing the Fed to credit bank accounts. There is no pile of money that must be refilled.
3. Why does CRFB talk about “insolvency”? Because CRFB is a deficit hawk advocacy group whose mission is to promote spending cuts, entitlement cuts, and fiscal austerity. Their framing is political, not operational.
They rely on household analogies, trust fund myths, gold standard thinking, and fear of “running out of money.”
This is persuasive to the public but it’s not how federal finance works.
4. What actually happens if the HI trust fund hits zero? Two possibilities:
A. Congress changes the law. This is what has happened every time in history. Congress simply authorizes continued payments.
B. Payments continue anyway. Even if Congress did nothing, the Treasury can still make Medicare payments because the U.S. cannot run out of dollars; the Fed clears all payments; the trust fund is not a funding mechanism
The only thing that stops payments is Congress choosing to stop them. Not insolvency. Not lack of money. Not debt levels. Not debt/GDP. Not trust fund balances.
5. The clean takeaway Medicare cannot become insolvent in any financial sense. The “trust fund” is an accounting construct, not a real funding source. CRFB’s framing is political, not operational.
The only real constraint is Congressional willingness, not financial ability.
Tell this to your Congresspersons each time they lie to you about the federal government’s financial need to raise your taxes and/or to cut your benefits. FICA could be zero; Benefits could be tripled; And the government would remain solvent.If you don’t complain, they’ll keep lying, and you’ll pay for those lies, day after day after day. It’ s very expensive to sit back and simply hope things will change.
Rodger Malcolm Mitchell
Twitter: @rodgermitchell
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#Monetary Sovereignty - Mitchell 