●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive.
Quantum mechanics is counter-intuitive, partly because of the wave-particle duality, which says that something can be both a wave and a particle simultaneously, but when seen as one it cannot be seen as the other.
Measuring the location of a wave-particle is a matter of probability, wherein the location can be anywhere on the wave. For example, where exactly is the particle expressed by this wave?
Is the particle At 1? At -2? Answer: Both and neither. It’s more likely to be at 0, but less likely to be there than at all the other options, combined.
Economics too has its counter-intuitive moments, and one of these has to do with the debt-deposit duality, wherein something can be both a debt and not a debt at the same time.
Question: How much is the U.S. debt?
Is it the red bar(Debt Outstanding Domestic Nonfinancial Sectors – Federal Government Sector)? Is it the blue bar (Federal Debt Held by Private Investors)? Both or neither? My vote: The federal debt is $0, but if you disagree, we have to identify exactly how and what you are measuring.
Assume your friend asks to borrow $10,000 from you. If before lending that money, you discover your friend already owes various people $5 million, you might be less likely to lend him any more, for fear his debts are unsustainable and he is living beyond his means.
Your concern might be exacerbated if you discover he is asking dozens of people for loans. All that debt could be a serious burden on his ability to repay.
Now consider the circumstance in which you deposit $10,000 in your bank checking account. Is your bank now “in debt” to you? Yes, but not in the same way. You don’t view this as a loan to your bank. You view it as a “deposit.”
And if you discover that not only does your bank have many billions on deposit, but it actively is soliciting more deposits, that probably would not concern you. In fact, you may trust bigger (i.e. having more deposits) banks more than smaller banks.
Bank deposits are viewed differently from ordinary loans.
The federal debt is neither more nor less than the total of deposits in T-security accounts at the Federal Reserve Bank, the difference in “debt” amounts, being who owns those T-security accounts. For the red bar on the graph, the T-securities can be owned by government agencies and the private sector. The blue bar shows T-security ownership only by the private sector.
Either way, when you purchase T-bills, you simply have made a deposit in your T-bill account at the FRB. Should you worry about the size of deposits at the FRB?
You might worry about lending money to a friend who already is deeply in debt, and actively is seeking even more loans. But you probably didn’t worry about making a deposit at your local bank. So why would you worry about your deposit at the world’s safest, most powerful bank, the FRB?
JPMorgan Chase & Co. is weak compared with the Federal Reserve Bank, but has more than $1 trillion in deposits (debt). So, with all that “debt,” are they living beyond their means? Probably not. Last year, their profit exceeded $20 billion.
If someone says, “The government is $10 trillion in debt,” that may sound worrisome. But if someone makes the even more correct statement, “People have deposited $10 trillion with the Federal Reserve Bank,” you probably would not think that translates into, “The federal government is ‘living beyond its means.'”
The statements are identical. “Deposits” simply have a different inference from “debt,” though in one sense, deposits are debt.
The agenda for many people, particularly the upper .1% income/wealth group, is to scare the 99.9% with “debt clocks” and frightening statements about the federal debt being “unsustainable” or the government being “broke.” These lies rely on the negative implications of the word “debt.”
The nefarious purpose is to encourage the population’s agreement with austerity (debt cutting), which widens the gap between the .1% and the 99.9%.
Our Monetarily Sovereign federal government is not, and cannot go, “broke.” Deposits at the FRB cannot be “unsustainable.”
The Federal government doesn’t even owe those deposits; the FRB does, which it pays back simply by transferring dollars from holders’ T-security accounts to the same holders’ checking accounts.
And since the federal government doesn’t owe those T-security dollars deposited with the Federal Reserve Bank, I believe the federal debt is functionally $0.
The next time someone tells you the government owes trillions of dollars, which our grandchildren will have to pay, ask him, “Are you referring to the trillions of dollars in deposits at the Federal Reserve Bank, which are paid off simply by transferring dollars from depositors’ T-security accounts to their checking accounts?”
Of course, the person won’t know what you’re talking about, which is O.K., because they demonstrated they also don’t know what they are talking about, either.
Rodger Malcolm Mitchell
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports
24 thoughts on “–The debt-deposit duality. How much is the federal debt? $12 trillion? $10 trillion? $0?”
Rodger, here we go again, but this time I hope for an answer.
Absolutely will agreed that DEBT-MINUS DEPOSIT equals ZERO
but how do you account for INTEREST EARNED. Surely you are aware that if compound interest on a debt will double that debt even if at only 2% for 36 years. So $16 trillion of debt (todays deposits) unpaid will become $32 trillion of debt: therefore 2049 debt $36 trillion minus $16 trillion–OMG I hope you are not going to say is ZERO.
There’s the problem. PFPB made RE loans for $10 trillion on average of 6% for 36 years, knowing that they would have 8 times $10 in 36 years (Rule 72; 6% will double every 12 years). They found a way (derivatives) to get some of that money as cash without waiting the 36 years, or even collecting the first $10 trillion before spending part of that future profit.
Their greed overcame their ability to wait for a kiss before they finished the job. Please consider “What If… We had a CBWFTP instead of working for the PFPB ? (GOOGLE-Justaluckyfool)
Play a simple switch game ” substitue the words “Central Bank Working For The People ” instead of “Private For Profit Banks” .
When you make a deposit in a bank account, think of who pays the interest.
That is the whole point. The federal government doesn’t borrow, nor does it owe on T-securities. Those are FRB instruments, related to CDs.
Debt minus deposit does not equal 0, unless you are referring to a specific case.
Think of this…
A man purchases a 500 thousand dollar car cash. The car company deposits the money at its bank A. Bank A lends bank B 490 thousand. Bank B lends Joe Smoe 480 thousand who uses the funds to purchase a boat. Bank C receives the funds from Joe Smoe.. etc..
As you can see from the above, the same money is lent times over in a fractional reserve system, it’s a pyramid scheme. A deposits of 500 thousand turns into millions in debt, not zero. Although as seen above, debt acts as money, it is not the same. The value of the assets purchased with the debt is questionable should there be a margin call.
Bank B does not need to secure the first man’s $5K deposit to Bank A before making a loan to Joe Smoe. Bank B evaluates the credit-worthiness of Joe Smoe and will credit (out of thin air) Joe Smoe, regardless of their own deposit or reserve position situation. The loan is an asset to the bank. If at the end of the statement period the bank finds itself short of reserve requirements it can borrow necessary reserves from other banks or the Fed… this of course is a liability. The asset and liability net to zero. The loan created the deposit as well as any reserves necessary to support the banking system. The money-multiplier is a myth, or rather an archaic understanding based on fix exchanged currency systems.
“but how do you account for INTEREST EARNED”
Simple. You let the computer do the accounting. A computer can handle any size number. Size does not matter. When the time comes to pay up, you type in the amount owed to the bondholder and hit send or cut a check. It’s all electrons, no paper or metal, fungible at the other end -ATM.
Hmmmm… JP Morgan has trillions over trillions in debt (not deposits) and are making billions of revenue. Heck yes i would be concerned. Maybe not at exactly this minute, but should there be a market event that requires JP morgan to liquidate it’s assetts, they will likely go bust overnight, and so will other large banks.
The fed has made it public that they will buy assets (hint: stocks) to prop up markets. Should the be an event that requires the fed to liquidate the garbage assets it has purchased (as i said before, keep an eye on Japan), they will go belly up overnight. What ensues after is a loss of faith in the currency and a collapse of the currency, the government and society.
Yes Mr Mitchell, a little, just a tad little inflation is worth it… you think?
Does the U.S. government “borrow”? Does it “owe” the “national debt”?
No and yes. NO in the sense that T-securities are a Fed matter. The Fed sells them, and also pays interest on them by crediting accounts.
YES in the sense that T-securities are backed by the “full faith and credit of the USA,” which means the US government is ultimately “responsible” for the “debt.”
Both answers (yes and no) are equally valid, just as a photon is both a particle and a wave. Thus, it is valid to say, “The US government does not borrow, and does not owe the national debt.”
Regardless of semantics, the “debt” is not a problem for the US government. To claim that it is, is like saying, “Since you are threatened by extraterrestrials from Dimension X9, you must submit to more austerity for your own protection. Always more.”
If you ask to see proof of these extraterrestrials, then most people laugh and call you an idiot. Hence they remain slaves.
Change of topic…
Most people know about double-entry book-keeping, in which a bank liability (e.g. a debt) is the same as an asset, yet most people insist that the principle does not apply to the Fed, or to US government finances.
I attribute this blindness to the “habit of stupidity.” People often use smugness to conceal their ignorance, and smugness becomes a habit, as do cynicism and defeatism. Thus, people remain stupid out of sheer habit, and they only pay attention to what they think justifies their habit.
Here is the habit in action: “I have heard all you say about the national debt, but I still say our grandkids must pay it. What part of ‘debt’ don’t you understand?”
This is not concern for the future. It is smugness and stupidity, sustained by habit. We see it in most people.
Here is an example from MMT morons: “Politicians are misguided about national finances.” This is not concern for the public, or for the economy. It is smugness. “We’re smarter than politicians.”
The cure for this habit-of-smugness is generosity of spirit, which consists of a genuine wish for prosperity for all. This spirit does not exist in anyone who says we must reduce the deficit, or uses any word from the austerity lexicon. A “populist” or “progressive” who says we must reduce the deficit is a selfish moron who enjoys indulging his smugness, and is locked into his habit of stupidity. If he truly cared about others, and truly wanted prosperity for all, he would triple-check his facts. He would eliminate his contradictions and unfounded assumptions. He would think about the words he uses. For example, he would ask, “What exactly is debt? What exactly is money, and where does it come from? What is the deficit? How do we know anything about economics?” He would not worry about punishing the rich with taxes, or worry about being “right,” or seeming “smarter” than anyone else. Instead, he would think carefully about problems and their solutions.
(He would also write clearly and cogently, unlike some commentators here who don’t wish to understand anything. They’re just want to indulge their habits.)
There is a simpler way to explain that our “so called” national debt is $0 in a manner that won’t make the ordinary Joe’s eyes gloss over like Rodger’s explantion does.
The key to get people to understand, is to get them to understand that treasury bills are themselves money just like the Federal Reserve notes used to buy them since we left the gold standard.
As long as the ordinary Joe thinks that these treasury bills are not money and just like other debt instruments they will NEVER get it!
Therefore a comparison between the accounting equations of a non-monetary and monetary sovereign will help the ordinary Joe (who at least understand the accounting equation anyway!) understand why the selling of a treasury bill transaction does not end up with the issuer having less equity which is otherwise commonly known as “going in debt”.
This comparison has been the only way I have been able to change an ordinary Joe’s mind that our national debt is $0.
Assets = Liabilities + Equity
The accounting equation after a non-monetary sovereign issues a $50K face value note and sells it for $49K:
Asset = Sale Cash = $49K
Liabilities = Note Payable At Maturity = $50K
Equity = Loss = ($1K)
The accounting equation after a monetary sovereign issues a $50K face value note and sells it for $49K:
Asset = Sale Cash = $49K
Asset = Unmatured Note Converts To Cash At Maturity = $50K
Liabilities = Note Payable At Maturity = $50K
Equity = Gain = $49K
Then I say “So tell me again how the selling of a treasury bill results in “debt?”.
The public hears that the Treasury (not the Fed) pays annually over 5% of the federal budget and over !% of GDP as interest payments on federal debt in competition with other budget items such as Medicaid.
Are they hearing correctly?
My two cents’ worth…
The public is hearing correctly, and yet the public is deceived. The reason is that Fed operations, US government finances, and our entire money system consist of digital accounting fictions that are “real” because society believes they are real. It’s a grand illusion that gives a double meaning to every word associated with the Fed and US government finances. (For instance, “national debt” also means national assets.) This double meaning lets politicians and bureaucrats control the public mind, thereby increasing the wealth gap. For example, the Treasury’s own web site claims that, “Debt held by the public measures the cumulative amount outstanding that the government has borrowed to finance deficits.”
Huh? Does the government “borrow to finance deficits”? Recall the principle of double meaning. Neither the government nor the Fed need to borrow money from anyone, and yet the Fed sells T-securities. The money that investors use to buy T-securities is deposited into a Fed account. That deposited money is lent to the Fed. So in one sense the Fed “borrows” its money. But it doesn’t matter, since money to pay the interest comes from nowhere. It is merely a digital accounting entry.
Likewise, Social Security benefits come from nowhere. The Treasury simply credits the digital bank accounts of 56 million SS beneficiaries. (Treasury no longer mails SS checks.) Meanwhile the Fed’s QE program credits the reserve accounts of banks by $45 billion per month.
Who pays the interest on T-securities? This brings us back to the principle of double meaning. Since the Fed alone decides what interest rate it will pay on T-securities, the Fed pays the interest, yes? And the Fed does so by crediting the accounts of T-security holders. The money comes from nowhere, just as “seven points” on a football scoreboard come from nowhere.
But wait…interest payments on T-securities are included in the federal budget. So the Treasury (not the Fed) pays interest on T-securities, right? After all, T-securities and the dollar are backed by the “full faith and credit of the USA.”
You see? Double meanings everywhere.
Rodger compares national finances to quantum mechanics. Is a photon a particle or a wave? The answer is both and neither. Does the US government “borrow to finance deficits”? The answer is yes and no.
Amid these illusions there is one absolute, namely that “shortages” of federal money are, once again, illusions. All depressions are gratuitous, if the government has Monetary Sovereignty. All societies are governed by illusions that unfortunately keep billions of people in grinding poverty.
The problem is that, with its fiat money, the Fed cannot buy Treasury bonds from the Treasury. Only during World War II did FDR?/Congress/ both? relax that rule to permit Marriner Eccle’s Fed buy T-bills from Treasury “at any price and in any quantity”. That rule has long since been restored.
Yes, a deficit for Treasury is a surplus for the private sector. But the Treasury also has an interest expense liability. Ergo the need to raise taxes, cut spending, borrow, raise the debt limit, etc.- to get the money into the Treasury by hook or by crook..
I see only two ways out of this trap: (1) let the Fed buy an unlimited quantity of zero interest rate perpetual Treasury bonds or (2 ) let Treasury deposit very high value platinum coins in its Fed account, Or is there another way? Let a thousand flowers bloom!
The Treasury will still need Congressional approval for spending but inflation rather “unsustainable debt” will be the only rational reason for Congress to withhold spending.
Another Way, perhaps even a better way.
“I see only two ways out of this trap: (1) let the Fed buy an unlimited quantity of zero interest rate perpetual Treasury bonds or (2 ) let Treasury deposit very high value platinum coins in its Fed account, Or is there another way? Let a thousand flowers bloom!”
“QE 4 The People” by Justaluckyfool.
Fed to purchase assets (RE Loans) and make loans to make private banks solvent. All loans in 2013 shall be at 2% for 36 years. Net result would not be deficit spending and produce an income (revenue) of $5.5 trillion per year for 36 years fer $100 trillion, also the benefit that to prevent deflation the money must be put back into circulation (jobs, SS, Medicare).
A solution that DEMANDS challenge, surely if correct would benefit all.
No matter what scheme we believe will allow the Fed to finance the Treasury, the only one that can possibly work is one that succeeds in swaying the public. So it will best be a simple idea, easily explained, with historic antecedents and crowned with previous success. It will also have to be the only proposal we push to avoid dissipation of the message’s force
If that makes sense, I propose that we all push for allowing the Fed to buy Treasury bonds. It has already been done by FDR during WW II with wartime success followed by a postwar boom. Ask anyone older than 80 how they remember the postwar economy.
It is most easily explained and has the force of experience and legitimacy. It is even sounds more legitimate than Lincoln’s printing of Greenbacks. What’s not to like?
The simplest retort to those who believe that the federal government “borrows” money from countries like China and that this is the same as debt in the sense of “taking out a loan” is to just ask them, so who in the government was responsible for filling out the loan application?
The ignorance is amazing.
I will make simple. Every US citizen has 1 billion dollars at their disposal as of this moment, 22:47 ET.
What more, in terms of goods and services, can you now buy?
NOTHING MORE… BECAUSE THERE IS NOT AN ADDITIONAL OUNCE OF GOODS AND SERVICES. The illusion is only on some people’s brain. Those of us that have to bust our butts to put food on the table know full well it’s a damn lie.
I didn’t know that services could be weighed in ounces, but it must be true, since you wrote it in capital letters.
Here is the reality…
There is plenty of work to be done, and plenty of people to do it.
There are plenty of services needed, and plenty of people to provide them.
There are plenty of goods needed, and plenty of people and resources to produce them.
However, because of austerity, nothing happens, since there is not enough money in circulation. Little gets traded or exchanged. A downswing in exchanges for two or more fiscal quarters is called a recession. When the downswing continues for years (as it has so far) we call it a depression.
The solution is to inject more debt-free money into the system.
For that to happen, we need increased government spending.
You’re referring to Quantitative Easing, which the Fed is doing. It doesn’t work because it doesn’t add dollars to the economy (just shifts them from one private account to another), and reduces the amount of interest the government pays into the economy.
No, QE is an asset swap, dollars for bonds. The swap does not affect Treasury’s account at the Fed. The Fed’s purchase of bonds from Treasury would be a credit to Treasury’s account. That’s what we need.
We would still need Congress’ order to spend but “unsustainable debt” would cease to be a problem.
Marvin, you said, “QE is an asset swap, dollars for bonds. . . . The Fed’s purchase of bonds .. . [is different.]
When someone trades dollars for something, that is known as a “purchase.”
I have no idea what you’re trying to say. Buying bonds with dollars is different from swapping dollars for bonds??
Call it a purchase or a swap. The only question is what happens to Treasury’s account at the Fed. If it gets new dollars, it’s what we want. QE does not affect the account. The Fed’s purchase of bonds from the Treasury would credit the account. That’s what we need.
If the Fed buys from the Treasury, or the Treasury buys from the Fed, nothing happens in the economy. Neither the Fed nor the Treasury lacks dollars, and dollars never hit the economy.
But if the Fed buys T-securities from the public (which is what it is doing), there is a move of public dollars, from checking accounts to T-security accounts. No new dollars are created, but the Fed receives interest that would have gone to the public — which is why QE is negative, not positive, for the economy.
In short, it’s a fraud.
QE effectively makes lending easier. The net reduction in interest payments to the public is a very small part of GDP. The only way to beat the “unsustainable debt” argument to to get a free flow of the Fed’s fiat dollars into the Treasury.
That still won’t get dollars into the economy. That cannot occur without an act of Congress.
Please post, or prove me wrong.
Bernanke has proven that “QE” as a purchase of assets from the private sector does in fact produce a loss or gain in real money when the transaction is completed. Should the transaction result in a loss for the Fed new dollars are put into the economy, when a profit accurs money already in the economy is withdrawn and that money should go to the US Treasury. As for Ben Bernanke , he should get a Noble Prize IF and I repeat IF he changes the beneficiary of his “QE”s to benefit “the people” as he is now doing it to benefit the banks.
Please show me this scenario would be false:
Please do not say “they do not need to do it, or …
why would they… Just an answer as to “Correct or incorrect”
Just an answer as to “What if the Fed were to DO 4 US what they now DO 4 Banks .
What if the Fed were to “QE 4 The People” $100 trillion purchase of residential and commercial AMERICAN REAL ESTATE LOANS .
Modify the loans to be assumable with a rate of 2% for 36 years.
This would produce revenue of $5.5 trillion a year for the next 36 years.
NO more FICA ! No more federal income taxes !
Just a “Central Bank Working For The People” A “CBWFTP” doing 4 US instead of 2 US.
“Marvin Sussman says:April 18, 2013 at 3:47 pm
No matter what scheme we believe will allow the Fed to finance the Treasury, the only one that can possibly work is one that succeeds in swaying the public. So it will best be a simple idea, easily explained, with historic antecedents and crowned with previous success. It will also have to be the only proposal we push to avoid dissipation of the message’s force.
P.S. “QE 4 Students”
SOLUTION TO STUDENT DEBT.
Fed to purchase all student debt and issue all future student debt. All loans will be at 1% for 72 years and payment to the US Treasury will be set at 5% of the students post graduate income until paid in full or borrower becomes deceased.
PERIOD, a central bank doing for us instead of to us.