There you go again. The same old, wrong story about federal “debt.”

And to quote President Ronald Reagan, “There you go, again.”

Except the first time he was talking about President Jimmy Carter’s charge that Reagan opposed Medicare. This time, we reference the Libertarian ongoing, interminable, economically ignorant claim that the so-called “federal debt” is too high by once again calling it a “ticking time bomb.”

I won’t go into details about why the federal “debt” is not a debt in the usual sense; rather, it is deposits that easily are paid off simply by returning them to the depositors. You can read about that, here.

Instead, we will dive directly into an article written by Todd G. Buchholz, “a former White House director of economic policy under President George H.W. Bush and managing director of the Tiger Management hedge fund, who was awarded the Allyn Young Teaching Prize by the Harvard Department of Economics. He is the author of New Ideas from Dead Economists and The Price of Prosperity.

In  75 years, a 90-fold increase in debt (blue) vs. a 10-fold increase in inflation (red). Still no “time bomb” explosion.

America’s New Debt Bomb, Aug 20, 2020, by TODD G. BUCHHOLZ

Like in World War II, the United States is piling on debt to confront a whole-of-society crisis, raising the question of who will foot the bill in the long term.

Immediately, we come across a misstatement. There is no “bill” for the federal debt. No one ever will pay for the federal debt, not today’s taxpayers nor tomorrow’s. Federal taxes do not fund federal debt.

Federal finances are nothing like personal finances, which require income to fund outgo. The federal government requires no income. It never can run short of dollars, and it does not use taxes to fund spending.

But, unlike the post-war era, the underlying conditions for robust economic recovery today are less than favorable, placing an even greater onus on wise policymaking.

The United States today not only looks ill, but dead broke. To offset the pandemic-induced “Great Cessation,” the US Federal Reserve and Congress have marshaled staggering sums of stimulus spending out of fear that the economy would otherwise plunge to 1930s soup-kitchen levels.

When someone or something is “dead broke,” they are unable to pay their bills. But the federal government never is unable to pay its bills. Being Monetarily Sovereign, it has the infinite ability to pay bills, even without collecting taxes.

The 2020 federal budget deficit will be around 18% of GDP, and the US debt-to-GDP ratio will soon hurdle over the 100% mark. Such figures have not been seen since Harry Truman sent B-29s to Japan to end World War II.

The debt/GDP ratio is completely meaningless. “Debt” is the net total of deposits into Treasury Security accounts in the 240+ years since the U.S. became a nation. GDP is one year’s total American spending — the ultimate apples/oranges comparison. There is no relationship between the debt/GDP ratio and America’s economic viability.

Assuming that America eventually defeats COVID-19 and does not devolve into a Terminator-like dystopia, how will it avoid the approaching fiscal cliff and national bankruptcy?

To answer such questions, we should reflect on the lessons of WWII, which did not bankrupt the US, even though debt soared to 119% of GDP.

The federal government cannot go bankrupt. It is a mathematical impossibility for a nation with the infinite ability to create its sovereign currency.

By the time of the Vietnam War in the 1960s, that ratio had fallen to just above 40%. WWII was financed with a combination of roughly 40% taxes and 60% debt.

Mr. Buchhotz first advises reflecting on the lessons of WWII, then promptly forgets what he has written.

WWII was not finanaced with taxes or with debt. It was financed with federal money creation. Even if the federal government had collected zero taxes and zero deposits, it easily could have paid all war bills. That is the fundamental difference between personal finance and federal finance.

These US bonds were bought predominantly by American citizens out of a sense of patriotic duty.

Fed employees also got in on the act, holding competitions to see whose office could buy more bonds. In April 1943, New York Fed employees snapped up more than $87,000 worth of paper and were told that their purchases enabled the Army to buy a 105-millimeter howitzer and a Mustang fighter-bomber.

It was a con job by the government, to make Americans feel they were part of the war effort. Similar psychological efforts included school children saving and turning in newspapers and housewives turning in used cooking oil.

Neither the newspapers, nor the cooking oil, nor the “war bonds” had any utility for the government.

Patriotism aside, many Americans purchased Treasury bonds out of a sheer lack of other good choices.

Until the deregulation of the 1980s, federal laws prevented banks from offering high rates to savers. Moreover, the thought of swapping US dollars for higher-yielding foreign assets seemed ludicrous, and doing so might have brought J. Edgar Hoover’s FBI to your door.

While US equity markets were open to investors (the Dow Jones Industrial Average actually rallied after 1942), brokers’ commissions were hefty, and only about 2% of American families owned stocks.

Investing in the stock market seemed best-suited for Park Avenue swells, or for amnesiacs who forgot the 1929 crash.

Today, bonds have two primary purposes:

  1. To provide a safe “parking place” for unused dollars (which helps stabilize the dollar) and
  2. To assist the Fed in controlling interest rates (which helps control inflation.

In no case are bonds a method for the U.S. government to obtain dollars. The federal government (unlike state and local governments) creates dollars, ad hoc, by spending dollars.

How, then, was the monumental war debt resolved? Three factors stand out.

First, the US economy grew fast. From the late 1940s to the late 1950s, annual US growth averaged around 3.75%, funneling massive revenues to the Treasury. Moreover, US manufacturers faced few international competitors. British, German, and Japanese factories had been pounded to rubble in the war, and China’s primitive foundries were far from turning out automobiles and home appliances.

Second, inflation took off after the war as the government rolled back price controls. From March 1946 to March 1947, prices jumped 20% as they returned to reflecting the true costs of doing business.

Third, the US benefited from borrowing rates being locked in for a long time. The average duration of debt in 1947 was more than ten years, which is about twice today’s average duration. Owing to these three factors, US debt had fallen to about 50% of GDP by the end of Dwight Eisenhower’s administration in 1961.

The “monumental war debt” (i.e. the total to deposits into Treasury Security Accounts) was “resolved” (reduced) when existing bonds matured and fewer people wanted to make deposits into new bond accounts.

This “resolution” neither benefited, nor was a burden on, the U.S. government. The government has total control over the number and face amount of bonds outstanding.

If it want more deposits, it either can raise interest rates or the Fed itself can create dollars and make those deposits.

So, what’s the lesson for today?

For starters, the US Treasury should give tomorrow’s children a break by issuing 50- and 100-year bonds, locking in today’s puny rates for a lifetime.

The above makes the implicit and false assumption that “tomorrow’s children” will fund federal debt. Again, this belief is based on the false assumption that Federal debt is like state/local debt and personal debt.

Finally, what about the post-war experience with inflation?

Should we try to launch prices into the stratosphere in order to shrink the debt? I advise against that. Investors are no longer the captive audience that they were in the 1940s. “Bond vigilantes” would sniff out a devaluation scheme in advance, driving interest rates higher and undercutting the value of the dollar (and Americans’ buying power with it).

Any effort to inflate away the debt would result in a boom for holders and hoarders of gold and cryptocurrencies.

Utter nonsense. Inflation does not “shrink the debt” (total deposits), and though inflation can shrink real deposits (i.e. inflation-adjusted, total deposits), there is no purpose served in trying to shrink it.

Further, inflation neither is caused nor cured by federal debt. All inflation, down through history, has been caused by shortages, usually shortages of food and/or energy. Inflation is cured by curing the shortages, which sometimes requires increased deficit spending.

The federal debt (total deposits in T-security accounts) is not a burden on the government, not a burden on taxpayers, not a burden on future generations, and not a burden on the economy.

The “debt” has increased massively, with no adverse effect on anyone. But the debt-scare-mongers are immune to learning from experience, which is why we continually add to the following list:


September, 1940, the federal budget was a “ticking time-bomb which can eventually destroy the American system,” said Robert M. Hanes, president of the American Bankers Association.

September 26, 1940, New York Times, Column 8

By 1960: the debt was “threatening the country’s fiscal future,” said Secretary of Commerce, Frederick H. Mueller. (“The enormous cost of various Federal programs is a time-bomb threatening the country’s fiscal future, Secretary of Commerce Frederick H. Mueller warned here yesterday.”)

By 1983: “The debt probably will explode in the third quarter of 1984,” said Fred Napolitano, former president of the National Association of Home Builders.

In 1984: AFL-CIO President Lane Kirkland said. “It’s a time bomb ticking away.”

In 1985: “The federal deficit is ‘a ticking time bomb, and it’s about to blow up,” U.S. Sen. Mitch McConnell. (Remember him?)

Later in 1985: Los Angeles Times: “We labeled the deficit a ‘ticking time bomb’ that threatens to permanently undermine the strength and vitality of the American economy.”

In 1987: Richmond Times–Dispatch – Richmond, VA: “100TH CONGRESS FACING U.S. DEFICIT ‘TIME BOMB’”

Later in 1987: The Dallas Morning News: “A fiscal time bomb is slowly ticking that, if not defused, could explode into a financial crisis within the next few years for the federal government.”


In 1992: The Pantagraph – Bloomington, Illinois: “I have seen where politicians in Washington have expressed little or no concern about this ticking time bomb they have helped to create, that being the enormous federal budget deficit, approaching $4 trillion.

Later in 1992: Ross Perot: “Our great nation is sitting right on top of a ticking time bomb. We have a national debt of $4 trillion.”

In 1995: Kansas City Star: “Concerned citizens. . . regard the national debt as a ticking time bomb poised to explode with devastating consequences at some future date.”

In 2003: Porter Stansberry, for the Daily Reckoning: “Generation debt is a ticking time bomb . . . with about ten years left on the clock.”


In 2005: Providence Journal: “Some lawmakers see the Medicare drug benefit for what it is: a ticking time bomb.”

In 2006:, “We have to worry about the deficit . . . when we combine it with the trade deficit we have a real ticking time bomb in our economy,” said Mrs. Clinton.

In 2007: USA Today: “Like a ticking time bomb, the national debt is an explosion waiting to happen.

In 2010: Heritage Foundation: “Why the National Debt is a Ticking Time Bomb. Interest rates on government bonds are virtually guaranteed to jump over the next few years.

In 2010: Reason Alert: “. . . the time bomb that’s ticking under the federal budget like a Guy Fawkes’ powder keg.”

In 2011: Washington Post, Lori Montgomery: ” . . . defuse the biggest budgetary time bombs that are set to explode.”

June 19, 2013: Chamber of Commerce: Safety net spending is a ‘time bomb’, By Jim Tankersley: The U.S. Chamber of Commerce is worried that not enough Americans are worried about social safety net spending. The nation’s largest business lobbying group launched a renewed effort Wednesday to reduce projected federal spending on safety-net programs, labeling them a “ticking time bomb” that, left unchanged, “will bankrupt this nation.”

In 2014: CBN News: “The United States of Debt: A Ticking Time Bomb

On Jun 18, 2015: The ticking economic time bomb that presidential candidates are ignoring: Fortune Magazine, Shawn Tully,

On February 10, 2016, The Daily Bell“Obama’s $4.1 Trillion Budget Is Latest Sign of America’s Looming Collapse”

On January 23, 2017: Trump’s ‘Debt Bomb’: Deficit May Grow, Defense Budget May Not, By Sydney J. Freedberg, Jr.

On January 27, 2017: America’s “debt bomb is going to explode.” That’s according to financial strategist Peter Schiff. Schiff said that while low interest rates had helped keep a lid on U.S. debt, it couldn’t be contained for much longer. Interest rates and inflation are rising, creditors will demand higher premiums, and the country is headed “off the edge of a cliff.”

On April 28, 2017: Debt in the U.S. Fuel for Growth or Ticking Time Bomb?, American Institute for Economic Research, by Max Gulker, PhD – Senior Research Fellow, Theodore Cangeros

Feb. 16, 2018  America’s Debt Bomb By Andrew Soergel, Senior Reporter: Conservatives and deficit hawks are hurling criticism at Washington for deepening America’s debt hole.

April 18, 2018 By Alan Greenspan and John R. Kasich: “Time is running short, and America’s debt time bomb continues to tick.”

January 10, 2019, Unfunded Govt. Liabilities — Our Ticking Time Bomb. By Myra Adams, Tick, tick, tick goes the time bomb of national doom.

January 18, 2019; 2019 Is Gold’s Year To Shine (And The Ticking US Debt Time-Bomb) By Gavin Wendt

[The following were added after the original publishing of this article]

April 10, 2019, The National Debt: America’s Ticking Time Bomb.  TIL Journal. Entire nations can go bankrupt. One prominent example was the *nation of Greece which was threatened with insolvency, a decade ago. Greece survived the economic crisis because the European Union and the IMF bailed the nation out.

July 11, 2019National debt is a ‘ticking time bomb‘: Sen. Mike Lee

SEP 12, 2019, Our national ticking time bomb, By BILL YEARGIN
SPECIAL TO THE SUN SENTINEL | At some point, investors will become concerned about lending to a debt-riddled U.S., which will result in having to offer higher interest rates to attract the money. Even with rates low today, interest expense is the federal government’s third-highest expenditure following the elderly and military. The U.S. already borrows all the money it uses to pay its interest expense, sort of like a Ponzi scheme. Lack of investor confidence will only make this problem worse.

JANUARY 06, 2020, National debt is a time bomb, BY MARK MANSPERGER, Tri City Herald | The increase in the U.S. deficit last year was about $1.1 trillion, bringing our total national debt to more than $23 trillion! This fiscal year, the deficit is forecasted to be even higher, and when the economy eventually slows down, our annual deficits could be pushing $2 trillion a year! This is financial madness.there’s not going to be a drastic cut in federal expenditures — that is, until we go broke — nor are we going to “grow our way” out of this predicament. Therefore, to gain control of this looming debt, we’re going to have to raise taxes.

February 14, 2020, OMG! It’s February 14, 2020, and the national debt is still a ticking time bomb!  The national debt: A ticking time bomb? America is “headed toward a crisis,” said Tiana Lowe in The Treasury Department reported last week that the federal deficit swelled to more than $1 trillion in 2019 for the first time since 2012. Even more alarming was the report from the bipartisan Congressional Budget Office (CBO) predicting that $1 trillion deficits will continue for the next 10 years, eventually reaching $1.7 trillion in 2030

April 26, 2020, ‘Catastrophic’: Why government debt is a ticking time bomb, Stephen Koukoulas, Yahoo Finance  [Re. Monetarily Sovereign Australia’s debt.]

August 29, 2020LOS ANGELES, California: America’s mountain of debt is a ticking time bomb  The United States not only looks ill, but also dead broke. To offset the pandemic-induced “Great Cessation,” the US Federal Reserve and Congress have marshalled staggering sums of stimulus spending out of fear that the economy would otherwise plunge to 1930s soup kitchen levels. Assuming that America eventually defeats COVID-19 and does not devolve into a Terminator-like dystopia, how will it avoid the approaching fiscal cliff and national bankruptcy?


Rodger Malcolm Mitchell

Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell …………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..


The most important problems in economics involve:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all or a reverse income tax
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.


4 thoughts on “There you go again. The same old, wrong story about federal “debt.”

  1. It is amazing that even to this day, so many people fail to recognize how we “paid” for WWII. FDR was a “student” of John Maynard Keynes, and it was Keynes theories that led to the elimination of the gold standard 1933 (domestic convertibility), the New Deal, and the financing of WWII. John Maynard Keynes wrote his radical book “How to Pay for the War” published in 1940, which was a macroeconomic strategy for sustaining a prolonged war.

    Per Keynes there were basically two objectives:
    1) Maximize resources and productive output toward the war effort
    2) Minimize (but not necessarily eliminate) inflation and shortages for the population

    The first is achieved through deficit spending, which requires elimination of gold standards and currency pegs, and the second is achieved through reduced private consumption, which can be achieved through taxation (mostly on the rich), deferred wages (mostly on working class), and/or voluntary or compulsory savings. Taxes and bond issuance did not finance the war, their only purpose was to reduce private consumption to control inflation and shortages, in order to minimize need for rationing and price controls.

    All of the policy choices had some potential negative aspects (especially after the war ended) and in the end, Keynes advocated voluntary savings as the best route, especially for working class. War bonds (or federal debt) were issued to defer consumption, in order to maximize resources toward the war, while minimizing inflation and shortages. The government promoted them as “patriotic duty” in order to keep the program voluntary rather than compulsory.

    Liked by 1 person

    1. We can minimize inflation and shortages, not by reducing demand, but rather by increasing supply, which counterintuitively, can be accomplished via deficit spending.

      Demand reduction alternatives (taxation, deferred wages, compulsory savings), aka “austerity,” impoverish the populace.

      Instead, I suggest supply increases which enrich the populace.

      In short, deficit spending alone can accomplish all our goals, without the need for placing weights around our ankles.

      The question, “How will the federal government pay for __________________” always is answered the same way: Via money creation. Federal taxes pay for nothing.


      1. I completely agree in regard to today’s economy, but WWII presented a unique sort of short term resource constraints that couldn’t be solved by deficit spending alone. WWII was an existential threat to the allied nations in which failure was not an option, so all available resources needed to be rapidly diverted to the war effort.

        Keynes recognized that deficit spending to increase productive output for the war would put more money in the pockets of the citizens, but given what was at stake, no sane person would recommend diverting (human) resources away from the war effort just to meet the resulting increase in consumer demand. Alternatively, allowing shortages and inflation to run unchecked would simply reduce spending power and transfer wealth from the worker to the owner class.

        Keynes did not really support increased taxation (except on the rich), compulsory savings, or deferred wages due to the negative effects. The ideal solution was to reduce consumption though voluntary incentives (war bonds) that required short term sacrifice without impoverishing the citizens through excessive shortages, high inflation, or an imposed austerity that would risk undermining public support for the war.

        The strategy also created high levels of pent up consumer demand and available savings at the end of the war, which mitigated the effects of the enormous drop in GDP as the war effort wound down, and helped fuel America’s economic expansion and growth of the middle class in the 1950’s.

        We simply haven’t seen these sort of conditions since, so your points about deficit spending to increase supply vs. demand reduction are much more valid in today’s economy.


  2. The ticking “time bomb” is of course a metaphor, but it has a realistic effect on the average citizen: FEAR the future! Big trouble ahead!
    Notably, the solution is always tighten the belt, prepare for sacrifice, etc. None of these doomsayers have a happy solution. It’s always negative and a negative solution never works; if it did, it’d be considered positive.
    Economics taught from this gloomy perspective isn’t real economics. We supposedly teach students about reality and give them the information ‘tools’ to deal successfully with their future. But with economics we’re handing over yesteryear’s monkey wrench.
    Until money is equal to its always improving high tech-knowledge-y “printing press”, it will never be on par with that technology and the rich-poor gap will never close.


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