Remember that “ticking time bomb”? After 83 years it’s still ticking, and still a scam

The “ticking time bomb” is the federal debt that supposedly is so big as to be “unsustainable.” You remember. It’s the “bomb” that has been sustained for 84 years.

If someone is wrong every year for 84 years, would you believe them? Unfortunately, some still believe the federal debt is “unsustainable,” a “ticking time bomb,” and should be combated with a debt limit.

I have no polite words to describe those people. Sadly, I now must tell you about “the world’s largest Ponzi scheme,” which, by no coincidence, also is the federal debt.

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Peter Schiff

“Ponzi” is the latest term used by people who either don’t understand Monetary Sovereignty or don’t want you to understand Monetary Sovereignty.

‘The world’s largest Ponzi scheme’: Peter Schiff just blasted the US debt ceiling drama. Here are 3 assets he trusts amid major market uncertainty Story by Bethan Moorcraft A ticking time bomb in the U.S. economy is running perilously close to detonation.

With the U.S. reaching its debt limit of $31.4 trillion on Jan. 19, Treasury Secretary Janet Yellen urged lawmakers to increase or suspend the debt ceiling.

Janet Yellen reveals that she knows the debt ceiling is unnecessary, useless, and harmful. Otherwise, she would ask that the debt be paid off.

She knows, however, that federal finance makes that not just unnecessary but impossible simply because the federal government is not the debtor.

That thing called “federal debt” isn’t federal debt. The actual federal debt is the amount the federal government owes to vendors of goods and services purchased by the federal government but not yet paid for.

In short, the real federal debt also is known as “Accounts Payable” plus Interest Payable.

The actual federal debt is in the billions, not the trillions, and it is paid reliably every day.

Treasury securities, T-bills, T-notes, and T-bonds are deposit accounts, similar to bank safe deposit accounts that the government never touches.

When you invest in a T-security, you put dollars into your account from which only you can withdraw. Just as the contents of your bank safe deposit box are not the debt of your bank, the contents of your T-security account are not the debt of your federal government.

The government didn’t borrow those dollars. It merely holds them separately for safekeeping until you take them back.

Her plea was taken by Peter Schiff, famed investor, and market commentator, as an “official admission that the U.S. is running the world’s largest Ponzi scheme.”

Sadly, Schiff doesn’t seem to know what a “Ponzi scheme is. Quoting from Wikipedia:

Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.

The scheme leads victims to believe that profits come from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds.

A Ponzi scheme can maintain the illusion of a sustainable business if new investors contribute new funds. Most investors do not demand full repayment and still believe in the non-existent assets they purported to own.

Federal T-securities have none of these characteristics.

  1. They are not fraud.
  2. Payment does not come from more recent investors but rather from each depositor’s own deposits and the federal government’s infinite ability to create its sovereign currency.
  3. There is no claim that funds come from any business activity, legitimate or otherwise.
  4. The government does not rely on new investors, nor does it rely on new depositors. The government does not have to accept deposits. Even if every T-security owner demanded payment, the government could comply today.

Peter Schiff merely is using a scare tactic to fool the public. Rather than being a Ponzi scheme, U.S. T-securities are the safest investments known to the world and will continue to be safe so long as no political party is foolish enough to enforce the ridiculous debt limit (aka the “screw-depositors-to-make-political-points” action).

A political stand-off over the debt ceiling has been raging since Republicans regained control of the House of Representatives in the 2022 midterm elections.

President Joe Biden beseeched Congress not to hold the item hostage, suggesting a default could be “calamitous.”

His warnings hit deaf ears in the case of opposing Republicans who used their votes on an extension as leverage to seek spending cuts.

The debt limit has nothing to do with spending cuts because it deals with past spending, not future spending.

The Republican extortion attempt just as easily could be directed at any federal laws, even those having nothing to do with federal finances.

How about enforcing the debt limit unless women Senators wear long dresses, Trump’s rioters are released from prison, or the Capital is painted purple.

All of those have as much relevance to a debt limit as demanding cuts to future spending. The debt limit is a child’s game of, “I’ll hold my breath until I get my way.”

The Treasury can use “extraordinary measures” in the coming months to cover its many financial obligations, including Social Security and Medicare disbursements, but these emergency funds are limited.

At the end of the day, the U.S. simply must borrow more money, as it has done many times before.

The notion that the creator of the U.S. dollar needs to borrow dollars from the people who use the dollar is obviously ridiculous. Where would the so-called “lenders” get the dollars to “lend” if the creator is precluded from creating dollars?

Congress has set the limit for federal borrowing since 1917, raising it over time as government spending and borrowing needs have increased.

Notice the arbitrariness of the above sentence. It correctly assumes Congress can, at its discretion, increase the “debt limit” without regard to the wishes of so-called lenders.” If it were a real debt, the “borrower” could not, at whim, decide to borrow unlimited amounts.

“The U.S. Treas. Sec. has admitted the only way to avoid a default on the National Debt is to raise the #DebtCeiling so the Govt. can borrow from new lenders to repay existing lenders,” Schiff, CEO and chief global strategist at Euro Pacific Capital tweeted on Jan. 16.

“This is an official admission that the U.S. is running the world’s largest Ponzi scheme.”

Oh, the ignorance! Oh, the lies. The “U.S. Treas. Sec.” admitted no such thing. The real way to avoid default is to eliminate the useless debt ceiling. We didn’t always have a debt ceiling. Why do we have one now? Taken from Wikipedia:

In 1979, noting the potential problems of hitting a default, Dick Gephardt imposed the “Gephardt Rule,” a parliamentary rule that deemed the debt ceiling raised when a budget was passed.

This resolved the contradiction in voting for appropriations but not voting to fund them. The rule stood until it was repealed by Congress in 1995.

Get it? When Congress voted for an appropriation, it also voted to fund them.

So, if Congress said, “We authorize spending a billion dollars on a dam,” that meant a billion dollars immediately became available to build a dam.

Makes sense to any normal person. Apparently, though, it was too logical for Congress.

In 1995, Congress said, “When we authorize spending a billion dollars to build a dam, we really don’t authorize paying a billion dollars to build the dam.”

And if that makes sense to you, you should run for Congress. Since that convulsion of childish illogic, Congress has plagued the nation with repeated debt limit crises.

The US raised its debt ceiling (in some form or other) at least 90 times in the 20th century.

The debt ceiling was raised 74 times from March 1962 to May 2011, including 18 times under Ronald Reagan, eight times under Bill Clinton, seven times under George W. Bush, and five times under Barack Obama.

In practice, the debt ceiling has never been reduced, even though the public debt itself may have been reduced.

It should be noted that never has the arbitrary increase of the debt ceiling caused any sort of financial difficulty. There has been no time bomb explosion, fraud, or Ponzi scheme.

In his podcast, Schiff claimed the U.S. government is in a doom spiral where it cannot pay its current lenders back, so it borrows from new lenders repeatedly.

And, oh yes, no “doom spiral.” Though the so-called “debt” has risen from $40 billion to $26 trillion, a 65,000% increase, the federal government still has no difficulty paying its bills.

“Why do people willingly participate? It’s because they don’t realize it’s a Ponzi scheme,” Schiff says.

It’s not.

“They think they’re going to get paid back. When they realize they’re going to be paid back in monopoly money, they’re not going to want to lend.

“Monopoly money”? Is that a scare term like “Ponzi scheme” and “ticking time bomb”?

“In fact, they’re not going to want to hold on to these Treasuries, and the only buyer is going to be the Federal Reserve. And that’s when the printing press is going to overdrive, and the dollar is going to fall through the floor.”

Gee, Schiff, exactly when is that going to happen. It didn’t happen while the printing press was running every day, every week, every month, and every year for the past 84 years. Why are things different now?

As Congress fights over the debt ceiling extension, U.S. credit rating and financial markets are at risk – but here are three assets that Schiff likes as hedges against economic volatility.

And here it comes, the real reason Schiff is serving up bushels of BS:

Wealthy young Americans have lost confidence in the stock market — and are betting on these assets instead. Get in now for strong long-term tailwinds.

Gold. Schiff has long been a fan of the yellow metal.

“The problem with the dollar is it has no intrinsic value,” he once said. “Gold will store its value, and you’ll always be able to buy more food with your gold.”

Except, Schiff neglects to tell you that gold has very little intrinsic value. Gold has less intrinsic value than aluminum, iron, copper, or paper. Gold isn’t used for much other than decoration.

A few teeth fillings, some electronics, that’s about it. Rather than intrinsic value, gold has demand value. People want the stuff mainly because it’s pretty.

As always, he’s putting his money where his mouth is.

Euro Pacific Asset Management’s latest 13F filing shows that as of Sept. 30, Schiff’s company held 1.655 million shares of Barrick Gold (GOLD), 431,952 shares of Agnico Eagle Mines (AEM), and 317,495 shares of Newmont (NEM).

In fact, Barrick was the firm’s top holding, representing 6.8% of its portfolio. Agnico and Newmont were the third and sixth-largest holdings, respectively.

Right. He’s promoting his holdings, trying to get suckers to buy gold.

Gold can’t be printed out of thin air like fiat money, and its safe-haven status means demand typically increases during times of uncertainty.

Except, we always are in times of uncertainty, and gold can be mined out of thin air.

The biggest problem with gold is it costs money to ship, costs more money to store, and costs even more money to insure. And the stuff pays no interest or dividends.

Gold is the classic “bigger fool” investment. Fools buy it hoping to sell it to bigger fools. If you are looking for absolute safety, with no shipping, storage, or insurance costs, plus income, buy T-securities.

Other than that, your best bet is one of the big stock funds. based on the S&P index or similar. And stop worrying about the misnamed federal “debt.” It’s not federal, and it’s not debt, and it’s not a ticking time bomb.

It’s just privately owned, federally guaranteed depositories of U.S. dollars. The only way the “ticking time bomb” can explode is if the debt nuts push the “debt limit” button.

The cure for the “debt limit crisis:” Simply return to the Gephardt Rule.  Simple.

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


The Sole Purpose of Government Is to Improve and Protect the Lives of the People.


New York Post tells it like it isn’t — ticking time bomb version

Readers of this blog are familiar with the “ticking time bomb” series; examples are here, here, here and elsewhere.

The point of this endless series is that since 1939, the media, politicians, and economists have been wringing their hands about the so-called federal debt, explicitly claiming it is a “ticking time bomb.”

That’s 84 years of “the-world-is-about-to-end” predictions that demonstrably have been wrong, and the predictors have learned nothing from their ongoing failures.

In 1939, the gross federal debt was $39 billion. Last year it was $27 TRILLION. If my math is correct, that’s a 30,000% increase, not even a firecracker.

Are the doomsday shouters embarrassed by failure? Nah. The New York Post just keeps vomiting up the garbage.

Worse yet, they combine that turd of ignorance by conflating the fake federal debt-that-isn’t-debt with real, private-sector debt.

Overview image
Stephen Moore

America’s ticking time bomb: $66 trillion in debt that could crash the economy
By Stephen Moore
December 4, 2022, 6:29pm Updated

The national debt is $31 trillion when including Social Security’s and Medicare’s unfunded liabilities.

Wake up, America.

That ticking sound you’re hearing is the American debt time bomb that with each passing day is getting precariously close to detonating and crashing the US economy.

The “national debt” is not the “federal debt.” It is Moore’s strange amalgam of all sorts of things he lumped under the word “debt,” perhaps to make them look huge.

Federal debt is deposits into Treasury Security accounts, similar to safe deposit boxes. The federal government never touches those dollars. It merely safeguards them.

And when the accounts mature, and depositors want their money, the government merely sends them the dollars from their accounts.

This return of dollars is not a burden on the government or taxpayers. It’s significantly different from the federal government’s paying for goods and services.

In that case, the federal government creates new dollars ad hoc, which it has the infinite ability to do.

The federal government is Monetarily Sovereign, meaning it made (and still creates) the laws that create U.S. dollars. Because it has the infinite ability to create rules, it has the endless ability to create dollars.

You can’t do it. I can’t do it. Businesses and local governments can’t do it. That is why it makes no sense to lump federal finances with non-federal finances. The two bear no relationship. But that fact doesn’t stop the NY Post writers.

Businesses, consumers, and especially the federal and state governments have become hooked on red ink as if it were crack cocaine.

The federal government has scant red ink. It pays all its bills by creating new dollars. It cannot run short of dollars unless some damn fool politician decides not to allow the federal government to pay its bills (i.e., the so-called “debt limit).

Two factors have fueled this borrowing binge: an era of low-interest rates (that’s coming to an end) and falling real wages thanks to the 15% rise in prices of Bidenflation.

In addition to merging two different situations into one make-believe situation, the Post writer falsely claims the federal government’s non-existent “debt” comes from borrowing.

The federal government never borrows dollars. Given the infinite ability to create dollars, why would it borrow dollars? The writer, a senior advisor to Donald Trump (of course), thinks T-bills, T-notes, and T-bonds, are like personal notes and bonds.

They aren’t. You, your business, and your local government borrow when you need dollars. Not only does the Monetarily Sovereign federal government never need dollars – – it creates them at will — but it never touches the dollars invested in T-securities.

As Fed Chair famously said, “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” 

Why would such a government need to borrow dollars?

Let’s review the borrowing up-escalator that accelerated during COVID but hasn’t subsided.

The King Kong of borrowing is Uncle Sam. The national debt is $31 trillion when including Social Security’s and Medicare’s unfunded liabilities.

No federal obligations are “unfunded.” All are funded by the U.S. federal government’s full faith and credit, which includes the infinite power to create dollars.

That’s getting close to 150% of our national gross domestic product of $22 trillion.

The “debt”/GDP ratio is meaningless. It has neither predictive nor evaluative worth. It tells you nothing about the financial health of a Monetarily Sovereign government.

“Debt” is a many years measure of deposits. GDP is a one-year measure of spending. The two comprise the ultimate in an apples/anvils comparison.

Some $5 trillion has been added in just the past three years. Balancing the budget seems like a pipe dream these days.

More confusion from the Trump writer. First, he talked about state governments. Now it’s unclear what he is talking about- federal or national finances?

In any event, balancing the federal budget would be a disaster for the U.S. economy. A growing economy (as measured by GDP) requires an increasing money supply. But “balancing the budget” implies no growth.

No growth is “recession,” and the word for no growth with population growth plus inflation is “depression.”

Next, add state and local government debt and unfunded liabilities. The American Legislative Exchange Council estimates that at just under $6 trillion.

State and local governments are part of the private sector, including businesses and people. When state and local governments levy taxes, one segment of the private sector ships dollars to another segment of the private sector.

There is no net money growth for economic growth. The sole source of net money growth is the federal government, which has the infinite ability to create dollars.

Now, what about American households? The latest estimate for consumer debt is $16.5 trillion, per the New York Federal Reserve. Most of that debt is mortgages, but increasingly Americans are taking on debt for routine expenses to pay monthly bills like groceries and gas at the pump. Thanks, President Biden.

The federal government easily could ameliorate private debt by enacting Social Security for All, Medicare for All, and other social benefits. Of course, Mr. Stephen Moore would hate that because . . . well, just because.

Then we have corporate America and small businesses. Their debt burden, according to the Federal Reserve Board, just surpassed $10 trillion for the first time. Business borrowing can be a good thing — indicating economic optimism. But we have to wonder how many more FTX-type bubbles are out there inflated by low-interest rates and all that helicopter money from Washington.

Then we have the National Enquireresque’s “we have to wonder” phrasing. He doesn’t know, so he wonders.

So add it all up, and American society now owes $66,000,000,000,000 of debt! That’s roughly three times our annual GDP.

You have just read perhaps the most misleading piece of nonsense you ever will encounter. Moore adds Treasury deposits to personal and business debt, most of which comprises the private sector owing the private sector.

What does he recommend? No mortgages? No business borrowing? If less, how much less?

If that phony “$66,000,000,000,000” is too much, what is the right amount? $0?

Moore never says because he is clueless about federal financing.

Another danger sign: With wages (5% growth) falling behind consumer price inflation (7.5% growth), American families are borrowing more just to maintain their current living standard. Americans on average have lost $4,000 in purchasing power and some $30,000 in 401(k) plans in the Biden era.

It’s not “the Biden era.” It’s the COVID era. Inflation is caused by COVID-related shortages. Prices go up when goods and services become scarce.

COVID, which Trump denied, caused scarcities of oil, food, transpiration, computer chips, and many other products. Staying home with COVID caused service shortages.

By far the biggest debtor has been Uncle Sam — which has created a national culture of living beyond our means.

An entity with infinite ability to create dollars has no “means” to live beyond. That national culture has existed for over 80 years, during good times and bad.

During COVID, President Donald Trump pumped $2 trillion of “stimulus” red ink into the country when the private economy was shut down. But then, in an act of near-criminal financial negligence, Biden entered office and shoveled out $4 trillion more in green-energy giveaways, state bailout funds, student loan bailouts and welfare handouts to families with no one working.

First, Moore complains about people having lost $4,000 in purchasing power and $30,000 in 401(k) plans. Then, incredibly, he complains about the government giving these people money to help with their finances.

That is the kind of idiocy one expects from a Trumpist graduate of the Heritage Foundation.

And now we come to Moore’s virtual admission that he knows nothing about economics.

A new-wave economic strategy called Modern Monetary Theory facilitated this borrowing blowout.

The loony idea is predicated on the notion that because the US dollar is the world reserve currency, we can run up the federal credit card by trillions and still feel good about ourselves in the morning.

Until that is, interest rates start to rise.

OMG! Modern Monetary Theory has nothing to do with the U.S. dollar being the most popular reserve currency. A reserve currency is a currency banks hold in reserve to facilitate trade among nations. It has nothing to do with U.S. borrowing.

While the dollar is the most commonly held reserve currency, other currencies also are held in reserve. The euro, the yen, the lira, and others are reserve currencies. Moore is clueless about this.

Further, using a credit card implies borrowing, which the federal government doesn’t do.

Finally, rising interest rates have nothing to do with the federal government’s ability to pay its bills. It has the infinite ability to pay bills, no matter how high interest rates go.

Consumers are now engaged in the same reckless monkey-see, monkey-do behavior. The latest Federal Reserve Bank of New York report says credit card debt has skyrocketed by 16% this year to above $1 trillion.

The Christmas season is witnessing even more debt to buy Yuletide gifts. Low-income Americans are taking on debt at the fastest pace of all. Come January, don’t be surprised if Americans look at their credit card debt and suffer severe buyers’ remorse.

People may be borrowing more, which could bite them, but it has nothing to do with the federal government spending more. Moore is just lashing in all directions at anything involving more money.

For now, defaults and delinquencies are low, but we should have learned financial seas can shift on a dime. Meanwhile, the feds keep feeding the debt surge by increasing taxpayer mortgage insurance for million-dollar homes.

There is no such thing as “taxpayer mortgage insurance.” Federal taxpayers do not fund anything. All federal tax dollars are destroyed upon receipt by the U.S. Treasury.

The purpose of taxes is not to fund federal spending. Taxes help the government control the economy by punishing what the government doesn’t like and rewarding (tax breaks) what the government wishes to encourage.

You pay your taxes with dollars in the M2 money supply, and when they hit the Treasury, they cease to be part of any money supply measure. They effectively cease to exist.

Debt isn’t necessarily a bad thing. It depends on what we’re getting for it. When we borrow for roads or factories or homes or to finance our military to win wars, borrowing can be necessary and appropriate.

If you know what this last paragraph is supposed to mean, please feel free to let me know.

Stephen Moore is a senior fellow at the Heritage Foundation. He served as a senior economic adviser to Donald Trump. His latest book is “Govzilla: How the Relentless Growth of Government Is Devouring Our Economy.”

Quite a combination: Heritage Foundation + Donald Trump. That says it all.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell


The Sole Purpose of Government Is to Improve and Protect the Lives of the People.


Disgraceful: “Respected” economist repeats all the common myths about our economy.

Imagine someone with these credentials not understanding how federal finance works.

This is a man who spends a good part of his life being asked to pontificate about economics, yet he promulgates the same old intuitive myths that history has disproven.

I’m talking about

“John Howland Cochrane, an American economist specializing in financial economics and macroeconomics. Formerly a professor of economics and finance at the University of Chicago, Cochrane serves as the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution at Stanford University.”

Here he is, on the right, being interviewed on CNN by Michael Smerconish:

John Cochrane (right) being interviewed by Michael Smerconish

I won’t subject you to the entire interview, but rather with the following quotes give you the gist.

John Cochrane: “Sooner or later debt has to be paid off. The real worry for me is there is no plan to pay off this debt.

“Sooner or later bond markets notice you have no plan to pay it off”

Throughout the interview, Cochrane demonstrates he has no idea what Monetary Sovereignty is, and no desire to learn from history.

The federal “debt” (which isn’t really debt as you know it), is instead, the net total of all deposits into Treasury Security accounts.

When you invest in these securities (aka T-bills, T-notes, T-bonds), you actually open a T-security account in your name. It resembles a safe deposit box with one difference: The federal government pays interest into T-security accounts.

The federal government, being Monetarily Sovereign, has the unlimited ability to create its own sovereign currency, the U.S. dollar. Thus, it has no need to borrow dollars and indeed, the federal government does not borrow dollars.

The purpose of normal “borrowing” is to provide the borrower with money to use for some purpose.

But because the federal government has the unlimited ability to create dollars it does not borrow, the T-securities are not “loans,” and the federal “debt” is not a debt.

That is why, for instance, any money you may put into a bank safe deposit box is not considered a debt of the bank, and it is no burden on the bank to “pay off” that box. It simply returns to you what already is yours.

When you open a T-security account, you are aware of the exact date upon which the dollars in the account will be returned to you. That is called the “maturity” date.

During that period of time, your dollars remain in your account, earning interest. They are not used by any agency of the federal government.

At maturity, the dollars in the misnamed “debt”  are paid off (i.e. returned to you) by the simple act of sending the money in your T-security account to your bank checking account.

This is not a burden on the federal government, nor is it a burden on future taxpayers. It is a simple money transfer from one of your bank accounts to another of your bank accounts.

It is not a transfer of dollars from the government to you. “Paying off” federal debt is a transfer of your dollars to yourself.

At one point Cochrane draws a parallel between federal debt and household debt. Thus he demonstrates abject ignorance of federal financing. The federal government is Monetarily Sovereign. You and I are monetarily non-sovereign.

You and I can run short of dollars, which is why we borrow money. The federal government never can run short of dollars, which is why it never borrow moneys.

At one point, Cochrane says:

“The more the government borrows the less is available for private capital.”

This short sentence is wrong on three counts: 

First, the government does not borrow.

Second, the amount available for private capital is based on federal deficit spending and bank lending, not on deposits into T-securities (which in fact are privately owned capital).

Third, according to Cochrane, the federal government has “borrowed” trillions of dollars, yet there is plenty available for private capital. He simply ignores the obvious facts on the ground.

The Cochrane said,

“This is like a financial crisis. It’s like a run on the bank. It’s like an earthquake. You can’t predict it. The sky falls when people lose confidence that the U.S. will pay back the debt.

The next crisis when the U.S. wants to borrow another $10 trillion, and the bond market says, ‘You guys are not worth it.”

The implication is that the federal government can run short of dollars if the “bond market” won’t lend to them. Utter nonsense.

As we’ve said, the federal government does not borrow and cannot run short of dollars. It creates dollars at will, which it surely has proved in the past 12 months by creating trillions of stimulus dollars.

Further, if Cochrane is implying that somehow the federal government will not be able to sell its T-securities, he has it all backward.

The sole purpose of T-securities is not to provide spending money for the government. The sole purposes are:

  1. To help the Federal Reserve control interest rates by setting a bottom rate, and
  2. To provide a safe parking place for unused dollars, which helps stabilize the dollar.

In the event that the federal government wished to sell T-securities but was unable to find a buyer, the Federal Reserve Bank can (and always has) buy whatever it deems necessary.

The Treasury never can be “stuck” with something it really has no need to sell in the first place.

At one point in the interview, Cochrane displays the following graph to shock you:

It shows the absolutely meaningless fraction: Debt/GDP (Gross Domestic Product).

Its rise is a favorite scare tactic by those who cannot explain why the total of deposits into T-security accounts (aka “federal debt”) should have any significant relationship to Gross Domestic Product.

The graph also demonstrates the gigantic increase in the Debt/GDP ratio, which according to debt hawk should by now, have cause an economic disaster of biblical proportions. So where is the disaster?

The fraction Debt/GDP is not predictive of anything and it is not evaluative of anything. It says nothing about future booms, busts, inflations, recessions, depressions, poverty, or prosperity. It is a 100% meaningless fraction that economisfits use all the time.

To demonstrate how meaningless it is, look at these ratios:

Here were some of the lower Debt/GDP ratios a few years ago:


Here were some of the higher Debt/GDP ratios at the same time:

Oh, and did we mention that powerhouse Japan’s ratio was 223?

Niow, looking at just the numbers in these two tables, you would expect Lybia to have the healthiest economy, and Puerto Rice to have the sickest, with the U.S. somewhere in the middle.

So called “economists” ignore these obvious facts.

Finally, after briefly admitting that, yes, the government can’t run short of dollars, Cochrane mumbles something about “that would cause inflation.”

Wrong yet again, Mr. Cochrane. Here are excerpts from an article Cochrane wrote ten years ago:

“For several years, a heated debate has raged among economists and policymakers about whether we face a serious risk of inflation.

“That debate has focused largely on the Federal Reserve — especially on whether the Fed has been too aggressive in increasing the money supply, whether it has kept interest rates too low, and whether it can be relied on to reverse course if signs of inflation emerge.

“But these questions miss a grave danger.

“As a result of the federal government’s enormous debt and deficits, substantial inflation could break out in America in the next few years.”

OMG! That was ten years ago, and this guy still is peddling the same old “federal-debts-cause-inflation” nonsense he spouted way back then (!), and he has learned absolutely nothing since. 

Debt and deficits have grown, while interest rates and inflation have stayed low, and still the same old, same old. 

Oh, but the BS goes on and on: 

“If people become convinced that our government will end up printing money to cover intractable deficits, they will see inflation in the future and so will try to get rid of dollars today — driving up the prices of goods, services, and eventually wages across the entire economy.”

The government has run enormous deficits, and people like Cochrane have been telling the people this would cause inflation.

But being smarter than the know-nothing economists, the people have not tried to “get rid of dollars,” and they have not driven up the prices of goods, services, and sadly, “wages across the country” barely have budged.

“This would amount to a “run” on the dollar.

“As with a bank run, we would not be able to tell ahead of time when such an event would occur. But our economy will be primed for it as long as our fiscal trajectory is unsustainable.

And there it is again, the favorite word of the wrong-for-80-years debt hawks: “Unsustainable.”

Any time you read that the U.S. federal debt is, or even soon might be, “unsustainable,: immediately stop reading. The author knows nothing, and reading what he/she says is a waste of your valuable time.

It’s almost as bad as reading that the federal debt is a “ticking time bomb” (which it supposedly has been since 1940, and still ticking).

I am an economist, but for the past 25 years, I have told all who would listen that economics is not a science. It could be. It should be. But it isn’t, because the practitioners deny the obvious and instead rely on their vague intuition.

Not that there aren’t data in economics. There are mountains of data. But econodufuses would rather juggle abstruse data than look at the clear and obvious facts all around them.

They keep predicting causes and effects when the causes keep happening without the predicted effects. 

They talk about ticking time bombs that never explode. 

They talk about unsustainable deficits and debt that have been sustained for 80 years.

They talk about cutting the debt, when every time the debt is cut, we have depressions. (Once, only a recession).

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.

They keep making claims that the facts on the ground disprove.

This is science?

And then guys like Cochrane repeatedly go on TV, and write articles, and spout absolute nonsense, with no basis in fact. 

And sadly, people believe it. Even President Biden seems to believe it, and that is the real tragedy.

We could have the Ten Steps to Prosperty (below), end poverty, reduce crime, improve education, and make America that “shining city on a hill,” were it not for the debt hawks.

The debt hawks are to economics as the creationists are to biology. 

Those, who do not understand Monetary Sovereignty, do not understand economics.


Rodger Malcolm Mitchell 

[ Monetary Sovereignty, Twitter: @rodgermitchell, Search: #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. 




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.