Debt hawks: “We’ve been wrong every year for the past 80 years. But this time we have it right. Trust us.”

For 80+ years, the debt hawks have told you the federal debt and deficit are a ticking time bomb, a burden on taxpayers, on the economy, and on the government.

By contrast, for the past 25+ years, I have told you the federal deficit actually is too low, is not a burden on anyone, and that deficit spending is necessary to:

  1. Grow the economy
  2. Avoid recessions and depressions
  3. Cure recessions and depressions.

Having learned nothing from historical cause and effect, the debt hawks continue to display massive, mule-headed ignorance about federal financing.

The debt hawks remind me of children who put their hand on a hot stove, are burned, then do it again, and again, and again. Today, they still are being burned, and they still claim, “Next time will be different.”

The following article appeared in that citadel of learning inability,

Does National Debt Still Matter? America’s Greatest Gamble
Fiscal hawks have been sounding the alarm about rising debt levels for decades, but their nightmare scenario of runaway inflation hasn’t come to pass. How do we know if this time is different?

In 2010, when former White House Chief of Staff Erskine Bowles and former Sen. Alan Simpson (R–Wyo.) were appointed to co-chair President Obama’s deficit-reduction commission, the Congressional Budget Office (CBO) offered two projections on the future of American debt. One forecast saw debt ballooning, and the second was much more moderate.

Current projections are somewhere in the middle.

Yes, they were correct. The so-called federal “debt” (i.e. the net total of deposits into Treasury Security accounts) has ballooned. But, it didn’t matter then. It doesn’t matter now.

The federal debt, which because of a legal bookkeeping quirk, is derived from federal deficits. These deficits add stimulus dollars to the economy.

That said, there is no direct relationship between the federal deficit and the federal “debt.” Federal deficits in themselves, do not add to the debt, but:

By its own federal law, the federal government has decided not to allow itself to run a negative balance in its checking account. So it accepts deposits into Treasury Securities, and via bookkeeping magic, claims those deposits offset federal deficits.

It’s all unnecessary bookkeeping legerdemain that could end tomorrow with the passage of a new law that would separate deficit totals from Treasury security accounts. 

Even now, the federal government “cheats” its own law by having an agency of the Federal Reserve make deposits into Treasury Security accounts. 

The debt hawks refuse to admit that:

  1. Federal deficits add dollars to the economy (i.e. the private sector), and
  2. A growing economy requires a growing supply of dollars.
  3. Recessions and depressions follow reductions in deficit spending and
  4. Recessions and depressions are cured by increases in deficit spendings.

There is no mystery to this. The data are there for all to see.

U.S. depressions tend to come on the heels of federal surpluses.

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

The federal debt is reduced on the books by the simple strategy of running federal surpluses. Sadly, federal surpluses are deficits for the private sector, aka the economy.

And when the economy runs deficits, by definition, we have recessions and depressions.

There is no historical relationship between federal deficit spending (red line) and inflation (blue line). Not even close.

Continuing with the debt-hawk article:

And in the 11 years since, America has also made no meaningful structural reforms to deal with the problem.

Congress has doled out more than $4 trillion in response to the COVID-19 pandemic. The U.S. national debt held by the public is currently almost $22 trillion, or about $67,000 per citizen, surpassing the country’s annual GDP for the first time since World War II.

The only problem has been that the federal deficit has been too low, which is why we have suffered an unnecessary recession, every five years on average.

Federal deficits add stimulus dollars to the economy. Insufficient stimulus dollars lead to recessions. Adding stimulus dollars cures recessions.

That is why the federal government now is pumping trillions of deficit dollars into the economy — and notice, without causing inflation.

On the current path, the CBO predicted in March that the debt would grow to 102 percent of GDP by the end of 2021, to 107 percent by 2031, and 202 percent by 2051.

The notorious Debt/GDP ratio is a meaningless, “apples/oranges” relationship, having zero predictive power.

The debt hawks have been “shocked, shocked, shocked” by the growing Debt/GDP ratio for decades, though they have no idea why.

“Debt” is deposits; GDP is spending. There is no reason why the rising “apples/oranges” ratio should trouble anyone.

It also predicted that by 2051, the federal government will be spending more than a quarter of its annual budget just to pay interest on the principal.

But those estimates came before President Joe Biden signed the $1.9 trillion COVID-19 relief bill, which made the long-term budget outlook even worse.

The above merely means that the federal government, which being Monetarily Sovereign, is not constrained by any budgets, will pump more stimulus dollars into the economy. That, dear friends, is a good thing, not a bad thing.

What is the risk to the U.S. economy? Fiscal hawks have been sounding the alarm about rising debt levels for decades, but their nightmare scenario of runaway inflation hasn’t come to pass. How do we know if this time is different?

Indeed, this time will not be different. It will be the same and the “fiscal hawks” will continue to promulgate their tired and completely wrong message. Why? Because they do not want you to understand Monetary Sovereignty.

In 2010, midway through the first term of President Barack Obama and on the heels of the Great Recession, the national debt was skyrocketing. But it wasn’t until a Democratic president championed an $831 billion federal stimulus that Republicans said they had finally seen enough.

Of course. The rising debt is not a financial threat. It is a phony political weapon, that actually benefits the economy.

The Tea Party rose to prominence, riding a wave of public concern over debt levels that they said would hinder economic progress and stick future generations with the bill.

Republicans claimed to be renewing their commitment to fiscal responsibility post-Bush.

President Obama established the Simpson-Bowles Commission, which concluded that disaster was inevitable unless the federal government cut spending, raised taxes, and reformed entitlements. 

“If the Simpson-Bowles had been adopted, we would have been chronically short of demand in the years that followed its adoption,” Jason Furman, who chaired the Council of Economic Advisers under President Obama, tells Reason.

“The unemployment rate would have been higher, growth would have been lower, and when we went into the COVID crisis we would have gone in with a lower inflation rate, lower interest rates, and thus, even less scope to maneuver than we actually had,” Furman says.

Furman was 100% correct. But as always, having learned nothing from plain facts staring them in the face, the debt-hawks continue to claim that the Emperor is wearing clothes. And the public, being bombarded by false information, believes.

Furman has co-authored a paper with his Harvard colleague and former Treasury Secretary Lawrence Summers questioning past assumptions about the national debt. He says that the debt hawks of the 2010s were wrong to worry that America’s balance sheet endangered the economy.

As the industrialized world racked up debt through the 2010s, inflation and interest rates stayed low—contrary to the warnings of the doomsayers.

So far, so good. Summers, who generally is wrong, suddenly sees the light. Right?

Well, maybe not:

This situation, Furman and Summers say, implies that the U.S. government has much more leeway to borrow money, spend it on government projects, and grow its way out of the debt than fiscal hawks have led us to believe.

Oh, dear. Furman and Summers still believe that a Monetary Sovereign government, having the unlimited ability to create its own sovereign currency, still needs to borrow.

Logical? No, but logic and factsdo not seem to stand in the way of belief.

And as far as “growing its way out of debt,” how does that work? Growth of GDP doesn’t affect the deposits into T-security accounts.

The only thing that reduces so-called federal “debt” is running surpluses, which as you saw earlier, leads to depressions.

“There was nothing about the U.S. debt level going into the COVID crisis that created any constraint on the resources available to fight the crisis,” he says.

“The United States was able to borrow an enormous amount, [and] not just the United States. Japan, which has a higher debt level, was able to borrow an enormous amount.”

Except, the federal government doesn’t borrow.

According to Furman, there is no relationship between a country’s debt and its ability to manage the COVID crisis.

Furman is correct (above), but doesn’t it seem as though he is taking two sided of the same issue?

John Cochrane, an economist at Stanford University’s Hoover Institution, disagrees. “If you wait until the crisis comes, everything is much much worse,” he says.

As a fiscal hawk, Cochrane acknowledges that his doomsaying has been wrong for the past decade, but he says that doesn’t mean he’s wrong now.

Hey, being wrong for the past 80 years doesn’t mean you’re wrong now. But it sure doesn’t mean you’re right.

And you can be sure that when he’s wrong in 2021, he still will have learned nothing. He still will believe that large federal debt is a serious financial problem.

And now come the ridiculous analogy:

“I live in California. We live on earthquake faults.” Cochrane says. “We haven’t had a major earthquake, a magnitude nine, for about a hundred years.” It would be foolish to consider someone a doomsayer for preparing for an earthquake in California, he says, despite the fact that major earthquakes aren’t a common occurrence.

Except, Mr. Cochrane, your financial predictions are based on your interpretation of cause and effect, i.e federal large debt causes a financial crisis.

What is the analogous cause and effect for earthquakes? Oh, there is none?

“That’s the nature of the danger that faces us. It’s not a slow predictable thing,” says Cochrane. “It is the danger of a crisis breaking out. So I’m happy to be wrong for a while, but that doesn’t mean that the earthquake fault is not under us and growing bigger as we speak.”

Economist and New York Times columnist Paul Krugman wrote in a December piece titled “Learn to Stop Worrying and Love Debt” that, “It’s a completely safe prediction that once Joe Biden is sworn in, we will once again hear lots of righteous Republican ranting about the evils of borrowing.”

Right about Republicans, but Biden already is planning to raise taxes, unnecessarily.

Krugman is right. Republicans have been complicit in ballooning the debt going back to the Nixon administration.

But scoring rhetorical points about GOP hypocrisy doesn’t address the question of whether or not America’s debt, typically measured as a ratio of GDP, is cause for concern.

The U.S. reached these heights only once before—at the end of World War II.

“The U.S. had a hundred percent debt-to-GDP ratio because we borrowed a ton of money to save the world from fascism,” Cochrane says. But he argues that today’s situation is different because the U.S. stopped spending after World War II.

What Cochrane fails to reveal is that when the U.S. “stopped spending,” (actually, reduced spending) we promptly had recessions in 1945, and again in 1950. Is that his proof deficit spending is a problem?

The war was over and the U.S. ran steady primary surpluses, actually.

And those federal “surpluses” caused recessions, which surpluses always do.

Federal deficit reduction led to recessions in 1945 and 1949

Whereas right now, we’re talking about at least three to five percent primary deficits forever. Plus stimulus for crisis. Plus Social Security and Medicare,” Cochrane says.

“Deficits forever” means that the federal government will forever pump growth dollars into the economy. And is this a bad thing?

But Furman and Summers say that if the government spends money borrowed at low-interest rates on critical infrastructure, it will more than pay for itself in the long run.

“If it costs you…zero to borrow and something does more than zero, it’s worth doing,” says Furman. “It then needs to do a decent amount more than zero such that when you tax it…it pays itself back.”

Except, the federal government does not borrow, though it costs the federal government zero to spend, because it creates the dollars from thin air, at no cost, whatsoever.

Furman claims that the expenditures that do this are limited, but says that the evidence points to the value of investing in children in areas like preschool and child health care.

Cochrane agrees that government spending on certain projects theoretically can boost growth, but he is skeptical of the government’s ability to spend the money wisely.

Somehow, I feel that I’ve seen this movie:

“Stanley, you’ve been wrong for 80 years in a row. Why should I believe you now?

Laurel and Hardy Movies: 10 Greatest Films Ranked Worst to Best - GoldDerby
 “Well Ollie, have you ever heard of anyone being wrong for 81 years in a row?”

“None of the current stimulus payments are going towards things that raise the economy’s long-run growth path,” says Cochrane.

He claims that most of the money spent on COVID-19 relief won’t help the economy’s long-range prospects—and he’s not sure Biden’s $2.25 trillion for proposed infrastructure spending will, either.

“Our government is not very good right now at investing wisely in things that are good projects,” Cochrane says. “Let me point to the California high-speed train for example. It’s going to connect Fresno to Bakersfield at about 60 miles an hour at a cost of $80 billion and has not one mile of track has been built yet. That’s the kind of infrastructure our government tends to [build].

While it’s true that “investing in children in areas like preschool and child health care” has more value than wasteful spending on things like Cochrane’s and Furman’s salaries, even wasteful federal spending (which costs taxpayers nothing) circulates growth dollars through the economy

The Obama administration promised that 90 percent of the jobs supported by the act would be in the private sector. A year after the law’s implementation, four out of five positions created were government jobs.

Each job the stimulus package created cost taxpayers between $100,000 and $400,000, according to a study by two Dartmouth economists.

No taxpayer sacrificed even one cent for the stimulus package. No tax dollars were used. The federal government created all the dollars, ad hoc, from thin air.

From an economic standpoint, government workers are no less important than private-sector workers. They all are people, earning money and spending it into the economy.

Some economists, including Paul Krugman, said that the 2009 stimulus didn’t work because it was too small.

Krugman is correct that the 2009 stimulus was too small, but he is not correct when he said it didn’t work. It prevented a depression.

More than that, the stimulus cured the “Great Recession” of 2008, and grew the economy significantly after that. The economy would have grown faster yet, had the GOP not objected to Obama’s deficit spending.

Federal deficit spending cured the Great Recession and grew the economy afterward.

Today’s $4.1 trillion in pandemic-related spending is a test of this theory. It is an unprecedented sum.

In current dollars, it is equivalent to what the federal government spent both to land a man on the moon and to build the entire interstate highway system—multiplied by 5. And that doesn’t include the Biden administration’s proposed $2.25 trillion in infrastructure spending.

It is a test of the theory, except we have had repeated tests for 80 years. When this new test again shows how deficit spending creates economic growth, the Cochranes and Furmans of America again will ignore the results or create some excuse for why the economy “really didn’t grow” — or something.

Watch for it.

Summers recently expressed concern that inflation actually could be a problem after the U.S. spends trillions on fiscal stimulus.

“There’s a real possibility that, within the year, we’re going to be dealing with the most serious incipient inflation problem that we have faced in the last 40 years,” Summers said in an interview with Bloomberg in February.

Except, when that “most serious inflation problem in the past 40 years” doesn’t happen, will Summers et al apologize? Nah.

Furman believes that more stimulus money was allocated in 2021 than was warranted. 

Warranted by what?

“I think the number could have been even larger if it had been spread out over time,” says Furman. “So I don’t think it was optimally designed from an economic perspective.

I think it creates some risks but I don’t think that those risks are huge. I think [that] on balance it’s more likely that the higher inflation is good than that the higher inflation is bad.

Again, Furman walks both sides of the fence. Be careful not to slip. Ow!

Furman and Summers’ paper also expresses concerns about debt projections beyond 2030 absent Social Security and Medicare reform as baby boomers retire en masse. Simpson and Bowles recognized that the bill on eldercare would eventually be the item to bust the budget.

“Social Security and Medicare reform” is just another way that the right-wing says, “Gut Social Security and Medicare” so that the populace can fall further and further behind the very rich. It’s called “Gap Psychology,” the desire of the rich to distance themselves from the rest of us.

“All else equal, addressing entitlements sooner is better than addressing entitlements later,” Furman says. “If you want to address it more on benefit reduction, then you probably do want an earlier start, I’m comfortable doing it on the tax side.

Right-wingers love nothing more than cutting benefits for the poor or raising taxes on the poor — anything that widens the Gap between the rich and the rest.

Furman says that unlike advocates of Modern Monetary Theory, which posits that near-unlimited government money creation and spending are possible without dire consequences, he recognizes that there are limits.

Of course, he has no idea what these “limits” might be, especially since he has been wrong every time he claims we are nearing a limit.

“The question is where do you want to stabilize the debt,” says Furman.

“People used to think it should be 30 percent of GDP. Is that what we need to do in order to be safe? I think if you’re asking that question without looking at interest rates, then you’re in danger of a very incomplete answer.”

“Stabilize the debt” means not running any deficits. That has proved to be the road to recessions and depressions. There is not one example in American history where running federal surpluses has led to economic growth.

Cochrane says he’s worried that debt will be a drag on economic growth, but he’s especially concerned that the U.S. could face a scenario similar to the sovereign debt crisis that hit Greece in 2010, which caused its economy to shrink by a quarter, and unemployment to climb to 25 percent.

Cochrane says that if a debt crisis like that of Greece hits the U.S., it would be an unimaginable catastrophe. Greece at least had Germany to bail them out, while there is no one to bail out the U.S.

Here Cochrane demonstrates his ignorance of U.S. federal finance. He uses the monetarily non-sovereign Greek government as an example of what can happen to the Monterarily Sovereign U.S. government.

It’s like claiming that bowling balls should be kept in a refrigerator, so they don’t spoil like peaches.

Greece has no control over its money supply or the value of its money, simply because it has no money. It is just a user of the euro, not the issuer.

Cochrane is clueless about the difference.

“Governments that are undergoing a debt crisis grab money everywhere they can. So watch your wallet,” Cochrane says. “All those things that you count on coming from the government disappear. All of a sudden taxes go up very sharply…Basically, say goodbye to your wealth.”

Yet Cochrane believes it is not too late to avert a potential crisis and that the U.S. can look to other countries as examples to follow. He says that in the 1990s, Sweden “recognized that socialism wasn’t working” and reformed its social welfare system. As a result, its economy grew.

Oops. Suddenly Cochrane begins to talk about Socialism. Apparently, he thinks government spending is Socialism. It isn’t. Socialism is government ownership and control of businesses. Socialism is not stimulus spending.

The ignorance is stunning.

Cochrane says that in the meantime, if there’s no political will to cut spending and slow down borrowing, Treasury Secretary Janet Yellen should “borrow long” by taking a slightly higher interest rate for a longer-term loan.

“Then in the event of trouble, we don’t have to pay more interest on the outstanding debt. And that really diffuses the crisis mechanics,” says Cochrane. “Are you going to be so greedy that you’re not going to pay one and a half percent interest rates in order to get rid of the possibility of a debt crisis for a generation? It seems like cheap insurance to me.”

There is no reason to “cut spending,” and the U.S. does not borrow. You borrow; I borrow; the cities, counties, and states borrow. Cochrane borrows. All are monetarily non-sovereign

The U.S., having the unlimited ability to create its own sovereign dollars, does not borrow.

And as for interest payments: The federal government has the unlimited ability to make interest payments; the more interest it pays, the more stimulus dollars enter the economy.

Is there a point where taking on too much debt is an unacceptable risk?

“The United States isn’t going to default on its debt. We borrow in our own currency. So there’s zero default risk,” says Furman.

He’s correct, except for the part about borrowing. We create our own currency. Where does he think the trillions came from that we supposedly now “borrow”?

And then, Laurel and Hardy finish off with a final flourish of economic ignorance.

“There is definitely inflation risk if you borrow too much and can’t pay it off, but it’s not like you go from one and a half percent inflation to hyperinflation in the blink of an eye.

Wait a second. “Can’t pay it off?” Didn’t he just acknowledge that “The United States isn’t going to default on its debt? Huh?

And how does inflation result from the government not being able to pay off its debt??

Inflation is a general increase in prices that always results from shortages — most often a shortage of food or energy, never the U.S. government being unable to pay its debt.

It’s almost as though Cochrane and Furman think something bad results from debt, but not knowing exactly what that bad thing is, they throw in anything they can think of, relevant or not.

There’s a lot of steps between here and there. I think there is certainly some risk and in the event that that risk materializes we will have to, very quickly, sit down and figure out how to raise taxes or cut spending.

Both of which take dollars from the private sector, an act that always leads to recessions and depressions. Nice going, guys.

“Things always go boom all of a sudden, and so the key to fiscal management is to keep some dry powder around to have some ability to be able to borrow more,” Cochrane says.

What does Cochrane’s  “dry powder” comment mean? Is he saying the U.S. government is unable to accept more deposits into T-security accounts? Or is he saying the U.S. government has arrived at its deficit-spending limit?

Does he even know what he’s saying?

“Imagine if world war breaks out, and we’ve already borrowed the 100 percent debt-to-GDP ratio that we ended World War II with.

Well, once we’re at a 100, 150, 200, our ability to meet that next crisis with borrowing is gone and then that next crisis is a catastrophe.”

Wait! He falsely believes the federal government borrows, and its borrowing causes federal debt. So how the hell would more “borrowing” ever meet a crisis of too much debt?

It’s not only nuts but a perfect demonstration of how weak-minded the entire “science” of economics has become.

These guys, and others of their ilk, have been wrong for 80 years, and still they pontificate about nonsense. And people believe them!

Truly pitiful.

Rodger Malcolm Mitchell Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereignty Facebook: Rodger Malcolm Mitchell 


  • Monetary Sovereignty describes money creation and destruction.
  • Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps: 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
  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 “Debt hawks: “We’ve been wrong every year for the past 80 years. But this time we have it right. Trust us.”

  1. You say that “Socialism is government ownership and control of businesses.“ I know that is a popular view of socialism in the USA and to be feared by the people supposedly, but I think socialism has been defined more accurately as the “worker’s ownership and control of the means of production.” That said, in the USA it seems that the right-wing has defined government spending as “socialism” and it is thus to be feared.

    Good article otherwise albeit somewhat long!


    1. Herb, I’m not sure how government SPENDING translates into either definition of socialism. Spending, in itself, is not ownership and control over the means of production and distribution.

      Spending means being a CUSTOMER, and customers exist in all types of economies.

      I do a lot of spending, but have relatively ownership or control over production and distribution. I’ll bet you do, too.


  2. The tag “socialism” is like kids on a playground calling each other names. Adults play the same game only under the guise of sophistication. The effect is the same. You try to put down the opposition. But you need an unsophisticated audience to accept your name-calling. People really need to understand monetary sovereignty to avoid being taken. I dare say that includes Nobel Laureates.

    The USA is probably the most socialized country in the world, albeit indirectly. This began with the New Deal which saved face for and truly rescued capitalism. Ownership and profit were allowed to continue, but only with the help of the USA government acting behind the scene to shore up the economy. Big business could not have survived w/o the FDR’s New Deal. Yet, those same Republican businessmen, who vastly benefited, began a whispering campaign to refer to FDR as that “son-of-a-bitch in the White House.” Like punching someone in the mouth who just saved you from drowning! This is what the GOP was, and their progeny are sliding fast.


  3. Classical economics and industrial capitalism as envisioned by Smith, Marx, Ricardo, Mill, etc. viewed land owners and the rentier class as detrimental to production and trade, and argued that the governments role was to limit the impact of non-productive rent in the economy through taxation (inheritance, wealth, land value), as well as help decrease the cost of production through government investment in infrastructure and key services.

    This is very in line with socialist philosophy, and as such, those who are against socialism are in fact also arguing against industrial capitalism.

    Instead, what they are unwittingly arguing for is our current neo-feudalistic system of financial capitalism, and by extension, lower wages, lower standards or living, higher housing and health care cost, greater inequality and poverty, and lower life expectancy.

    Well at least we have our guns….


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