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A 31.4 Trillion Dollar National Debt, and the Debt Ceiling, problem solved. [1]

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Date: 2023-04-27  

Professor Stephanie Kelton, in her recent book, “The Deficit Myth” explains “Modern Monetary Theory” [MMT]. A bedrock principle to understanding how MMT works is to understand the difference between a currency issuer, and a currency user. The Federal Government is the only entity in the United States with the legal authority to issue currency, ie: U.S. Dollars. As the sole currency issuer the Federal Government can issue sufficient funds to keep the economy productive, as long as they do not cause excess inflation.

Therefore, it is the only currency issuer in the United States. State and local governments, the private sector, and the taxpayers cannot issue currency, and are all currency users. MMT recognizes that it is the Federal Government, not the taxpayer, that finances all government expenditures.

The danger of the growing deficit is a myth. The Federal Government, as the only currency issuer, has a virtually unlimited access to dollars, and can pay off the entire deficit any time it has the political will to do so. Congress merely has to pass legislation eliminating the “debt ceiling,” and mandate that the Treasury, pay for any government expenditures previously approved by Congress, and enacted into law. Thus, the current Deficit will disappear, not by magic, but because, it never really existed in the first place, it was solely a creation of Congress in enacting the “debt ceiling,” and once the “debt ceiling” legislation is repealed we will not have to listen Republicans screaming about increasing the “debt ceiling” every few years.

There is absolutely no reason that Biden has to surrender to McCarthy’s attempted extortion, and agree to Republican demands to enact unnecessary budget cuts. If the Republican House refuses to repeal the “debt ceiling” or pass a clean bill raising it before we default this summer, Biden should just publicly declare that he will exercise his authority under the 14th Amendment, and direct the Treasury to pay the nation’s debts regardless of the “debt ceiling.”

Unfortunately, that scary sounding 31 trillion-dollar national debt will remain, safely denominated in our Treasury [Bonds, Bills, Notes, etc] market where it will remain as an important investment option for our economy. I do not believe we would want to pay off this national debt, and completely eliminate the Treasury Market as an investment vehicle for millions of investors.

However, if the 31 trillion-dollar number frightens us we could gradually begin to reduce it by retiring a portion of Treasuries when they mature, and only issue a reduced amount of Treasuries to replace them [maybe 2-5% per year]. Thus, the Treasury could begin to reduce the total debt yearly, and when we reached an amount of debt deemed sustainable, simply replace the total amount of Treasuries retired, by selling an equal amount of Treasuries to the investment community.

We would not longer have to terrorize our citizens by telling them that each and every citizens share of the national debt is more than $90,000 dollars, which their children and grandchildren will have to pay off. That is just nonsense, neither you or your children will not have to sell the house to pay off the national debt. (See: Kelton at 9-10, Third Myth).

I highly recommend you read Professor Kelton’s book on Modern Monetary Theory, it will change your understanding of many of the economic misconceptions currently expounded by too many members of Congress, both Democratic and Republican, including the Congressional Budget Office, and unfortunately, too many Economists.

Let’s admit it. If the Debt Ceiling Legislation made any economic sense, Congress would not have had to raise it 78 times since it was enacted in 1960 (29 by Democrats, 49 by Republicans).

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[1] Url: https://www.dailykos.com/stories/2023/4/27/2157665/-A-31-4-Trillion-Dollar-National-Debt-and-the-Debt-Ceiling-problem-solved

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