Debt nonsense from The Week Magazine

You must wonder why something so simple and obvious is so widely and regularly misunderstood. I’m talking about the federal debt, which simultaneously is two things:

1. The total of deposits into Treasury bill, note, and bond accounts.
2. The net total of all past federal deficits, i.e. the difference between federal spending and federal taxing.

Here is an article from page 17 of The Week’s June 6, 2025 issue.

 

National debt: Why Congress no longer cares

 

Rising interest rates, tariffs and Trump’s ‘big, beautiful’ bill could sent the national debt soaring

Immediately, you may be reminded of our post titled “Historical bullshit about federal “debt.” From Sept. 26 to May 30, 2025.” where we give examples, beginning 1940, of smart people saying dumb things about the federal debt.

“Now would be a very good time for Washington to bring back its debt obsession,” said Rogé Karma in The Atlantic. That’s because the perfect storm for turning the federal deficit into a “genuine crisis” has arrived.

The above-referenced “Historic bullshit . . .” article was based on the warning, “ticking time bomb.” Now, we must face not a bomb but a “genuine crisis.” Same idea. Same bullshit.

In recent years, the Federal Reserve has “raised interest rates dramatically in an effort to tame inflation.” Since that means the federal government has to pay higher interest on its bonds, “government payments on debt interest soared to $881 billion in 2024.” That’s more than the U.S. spent last year on national defense.

For reasons unknown, the frightening comparison of the federal debt vs. the amount spent on national defense has become de rigueur for debt freaks these days.

Gone are the days when the debt was compared to the cost of 200 airliners or something equally meaningless.

At the same time, President Trump’s tariff policies have led “almost every credible” forecast this year to anticipate slowed economic growth.

When the tariffs take effect, money will be taken out of the economy and sent to the federal government. Taking money out of the economy is recessionary.

Then there’s Trump’s “big, beautiful,” and bloated budget bill, which would add “more than $3 trillion to the deficit over the next decade.”

Translation: Then there’s Trump’s “big, beautiful,” and bloated budget bill, which would add “more than 3 trillion growth dollars to the economy over the next decade.”

(It’s not clear whether the author meant “debt” or “deficit” because deficits usually are calculated annually, and not over 10-year periods. Either way, the shrieking is meaningless. Both deficits and their resultant debt are necessary for economic growth.)

Trump’s bill is a horrible bill, for many reasons, but one of those reasons is not its contribution to the deficit or debt.

According to the formula for economic growth—Gross Domestic Product = Federal Spending + Nonfederal Spending + Net Imports—it is clear that deficit spending boosts both Federal Spending and Nonfederal Spending.

There is only one way for the federal government to avoid a deficit, and that is by running a surplus.

 All U.S. depressions have 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 warning signals are flashing red, and if Washington continues to ignore them, “very bad things can happen,” from 1970s-style stagflation to a panicked flight from U.S. Treasuries and a global financial meltdown.

“Stagflation” is a combination of stagnation (or, more troubling, a recession) and inflation. Recessions are caused by reduced (not increased) deficits and are cured by increased (not reduced) deficits.

As for “panicked flight from U.S. Treasuries,” there are three responses:

1. The federal government always can pay interest on its obligations simply by creating dollars.
2. When the U.S. economy is in trouble, there is a “panicked flight” to U.S. Treasuries, because they are the safest investment from a principal standpoint.
3. Who cares? The federal government does not need to offer Treasuries. Even if the public deposited $0 dollars into T-Security accounts, the government could continue to pay its bills forever.

Back to stagflation, the cause of inflation never has been federal spending but rather the lack of federal spending. Inflations are caused by shortages of crucial goods and services — most often oil and food — and cured by increased federal spending to reduce those shortages.

Lastly, there is concern about a potential “global financial meltdown.” It is unclear what type of “meltdown” the author means. Is he talking about a recession, which would be caused by reduced deficit growth? Or is he talking about a COVID-style recession that would be caused by shortages of virtually everything, and cured by federal deficit spending?

Or is he talking about the federal government being unable to pay its bills, which never has happened and cannot happen to a Monetarily Sovereign government.

So far, bond markets are showing concern but not panic, said Victoria Guida in Politico. The credit rating firm Moody’s slightly downgraded the safety of U.S. bonds, and investor unease pushed interest rates on those bonds above 5%.

That was Moody’s “performance” downgrade. No knowledgeable person believes the Federal government will be unable to pay interest on the securities. As for the principal, it’s locked safely away, never touched by anyone but the depositors.

The government could pay off all the so-called (misnamed) “debt” today, simply by crediting all the depositors’ checking accounts.  A few computer keystrokes should do it.

Still, if Congress doesn’t heed these warnings and “shift the trajectory” of the budget bill—which would add trillions of dollars in tax cuts “without also making politically painful spending cuts”—”something more painful” than a mild Moody’s downgrade could occur.

Don’t bet on lawmakers acting responsibly, said Clive Crook in Bloomberg. The 2008 bank bail-outs and Covid-related spending under both Democrats and Republicans ballooned the national debt to previously unimaginable levels—it’s now $36.2 trillion.

Oooh, “unimaginable.” Is that worse than a “ticking time bomb,” “a perfect storm,” or a “genuine crisis”? Or is that closer to, “I have no idea what I’m talking about, so I’ll use scare words to pretend I do.”

Rather than confront debt of that magnitude, all but a few remaining deficit hawks “just stopped thinking about it.” Facing it would mean huge spending cuts and major tax increases, both of which are very unpopular.

Uh, perhaps it’s because “huge spending cuts and major tax increases” would cause a depression, like they always have.

Here, the author proves they don’t understand the fundamental differences between a Monetarily Sovereign entity like the U.S. government, and monetarily non-sovereign entities like state & local governments, businesses, euro governments, and individuals.

The U.S. has absolute control over the supply and value of its sovereign currency, the dollar. That is what “sovereignty” means. The non-sovereigns do not use a sovereign currency. They spend some other sovereign’s currency, so they have little, if any, control.

State and local governments use the dollar, over which the U.S. government is sovereign. You, I, and American businesses also use the dollar. We, too, are not sovereign, so we all can run short of dollars.

By contrast, euro nations use the euro over which the European Union is sovereign. So France, Greece, Italy, Portugal, et al can and do run short of euros.

Canada, Australia, the UK, and Japan are Monetarily Sovereign, so they cannot run short of dollars. It’s a reason why Japan has no difficulty supporting a so-called “debt” that is massively greater than the size of its economy. If the U.S. debt is a ticking time bomb, Japan’s debt would be an atomic bomb — but somehow, it isn’t.

One wonders how the debt nuts explain it.

Instead, Republicans are now trying to hide the bill’s “unfathomable cost” from voters, said Jessica Riedl in MSNBC.com. But it’s the voters who will suffer as a result.

“Unfathomable cost” — is that ever worse than “unimaginable,” “a ticking time bomb,” “a perfect storm,” and a “genuine crisis”?

I’d prefer “a pseudo-crisis invented by those who either are ignorant about Monetary Sovereignty, or want you to be ignorant so you don’t demand services from the government.”

That way, they have a “good” excuse to cut your Social Security, cut your Medicare, cut you Medicaid, and to deny you all the benefits the government easily could provide. The purpose: To widen the income/wealth/power Gap between you and the very rich political contributors.

The rapidly growing debt and massive interest payments create “economic drag,” diverting wealth “away from the investments that would start businesses, create jobs, and raise incomes.”

The massive interest payments go FROM the government TO the economy, where the added dollars allow for “the investments that would start businesses, create jobs, and raise incomes.”

As Washington continues to take an ostrich-like approach to the national debt, something large and unpleasant is bearing down on all of us.

Yes, that time bomb has been ticking for at least 85 years. It’s still ticking and still “bearing down.” If you can’t learn from 85 years of experience . . . Wow.

Rodger Malcolm Mitchell

Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell; https://www.academia.edu/

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