-Learn to love the debt

An alternative to popular faith

       Deficits are necessary. They add money to the economy. A large economy has more money than does a small economy. Therefore a growing economy requires a growing supply of money. Quod erat demonstrandum.
       Concern about the federal debt revolves around two beliefs: Someone (often characterized as “our grandchildren”) will have to pay those debts, and large debts cause inflation.
      For us citizens, personal debt is concerning, because our debt must be repaid. People go bankrupt when they can’t repay their debts. But, if you owned a magic printing press, and you had the legal right to print as much money as you wished, your debt never would concern you.
       Received a bill for a million dollars? No problem. Turn on the magic press and poof!, it’s paid. Unfortunately, you and I don’t own a magic press, so we worry about our debt.
       The federal government, uniquely among all U.S. debtors does own that magic printing press. It can pay bills of any size, which is how today, it easily services a gross debt of $12 trillion. Not even during the current recession has any federal check bounced. Not even close.
       Still we worry about federal debt as though it were our own. Why? Partly because so many people tell us we owe the federal debt. How silly. Debt is owed by borrowers. We are not the borrowers. In many cases, we are the lenders, the owners of T-securities. The government is the borrower, and we are not the government. There will be no bill collectors on our doorsteps, demanding that we pay our mythical share of the federal debt.
       But won’t “our grandchildren” have to pay for the debt through higher taxes? For the past 50 years, tax rates actually have gone down, despite massive deficits. There is no relationship between deficits and tax rates, which are political, not financial, decisions.
      What if tax rates were to rise moderately? Let’s do the math. Say in Year One, taxes total $10 trillion and spending totals $11 trillion. Spending exceeds taxes, which causes a $1 trillion debt.
       In Year Two, tax rates rise, so taxes now total $11 trillion, but spending rises to $12 trillion, and now the debt has risen to $2 trillion.
       How much of Year One’s debt did taxpayers pay? Answer: None. Taxes weren’t even sufficient to pay for Year two’s spending, let alone pay for last year’s debt. The only time taxpayers pay for debt is when taxes exceed spending, i.e a surplus.
       That is why surpluses have caused all six depressions in U.S. history. Surpluses, not debt, cost taxpayers money.
       The inflation logic is that federal debt increases the money supply (true), which dilutes the value of money (not true). Money value is based not only on supply, but also on demand.
       Money supply can increase massively, and still not cause inflation, if demand goes up as much. Demand is determined by risk and reward. Risk is inflation (which is a result, not a cause), so the key to money value is reward.
       What is the reward for owning money? One reward is the ability to buy things with it, but in a massive economy like ours, there always are plenty of things to buy. The real reward for owning money is interest. The higher the rates, the more valuable the money. That’s why the Fed raises rates at even the hint of inflation, and that also is why in the past 50 years, there has been no relationship between federal deficits and inflation. None. (See: See Do Deficits cure inflation?
       In conclusion, rather than being concerned about federal debt, we should welcome it. Money growth brings economic growth.

Rodger Malcolm Mitchell
For more information, see http://www.rodgermitchell.com

9 thoughts on “-Learn to love the debt

  1. roger,

    what you write is based upon a false model akin to a Ponzi scheme. The growth model for our economy is doomed to fail…at some point. Population growth to sustain a large debt is unreasonable due to its taxing of our resources and ecosystem.

    we need to manage to get by without a growth model economy…a sustainable economy.


  2. I’ve thought a bit more about your post and I realize you believe population growth is necessary to sustain a large debt, because you believe taxes pay for debt. They don’t.

    The only time taxes pay for debt is when we run a surplus, which is the worst possible decision by our government. Please read the original post again, for the reasons.

    Rodger Malcolm Mitchell


  3. There is a NYT article on the US debt today (see post at http://euandus3.wordpress.com/ “12-trillion-in-debt-living-beyond-our-means” ). It hasn’t been just after the financial crisis of 2008 that the US Government has had unbalanced annual budgets… And consider consumer “use” of credit cards? Is there something about our society–about ourselves–that we are missing because we are in it? (e.g. a fish doesn’t “see” its water). I don’t think we are digging deep enough.


  4. Your blog summary says, “We are living beyond our means.” What is the definition of “our means”?

    If your annual income is $100K and one year you spend $200K, are you living beyond your means? Perhaps not, if in other years you spent much less. But if every year you spend $200K, eventually you will find you are living beyond your means.

    So, “our means” is another way of saying, “our ability to pay.”

    What is the limit of the federal government’s ability-to-pay? Thirty years ago, it serviced a debt of $800 billion. What would people have answered then?

    Today it services a debt of $12 trillion, with no inflation and no checks bouncing. So what is beyond the federal government’s “means”? What is beyond the government’s ability to pay?

    Rodger Malcolm Mitchell


  5. I do not agree with you. It was as simple as that why would people be concerned, and why do the Federal Government is BORROWING from China?! I think is WAY more complicated than that, may be so complex you and me dont underastand.!


    1. So we should question the governments stance on man made global warming or Obamacare or any of a number of other things?


      1. Question anything, but a question is not a rebuttal (although Trump supporters and National Enquirer readers think it is).

        Have facts.

        But if you really want to question something, question this:


        Republicans—and members of the media who aren’t thinking this through—are yipping about potential conflicts of interest for Hillary Clinton because of contributions to the Clinton Foundation when she was secretary of state.

        This is a legitimate inquiry, but this “scandal” is about money going to charitable efforts all over the globe, with the names of contributors in the public domain.

        No one has suggested Clinton or any member of her family personally benefited, unless you count the pleasure they might have received in helping battle neglected tropical diseases that ravage underdeveloped nations or from any of the group’s other worthwhile endeavors.

        Compare this with the Trump Organization, which is private and secretive. It puts money directly into his pockets and his kids’ pockets. How much? We don’t know. From where? We don’t know. Is the financial benefit Trump receives from the Trump Organization shaping his foreign policy proposals, as vague as they are? We don’t know.

        You can be absolutely sure that Trump is hiding something big. He wouldn’t risk his campaign by continuing with his phony “audit excuse,” if there was nothing.


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