The “National Debt” isn’t national and it isn’t a debt. Eric Boehm remains clueless.

The problem with Libertarians like Eric Boehm . . . where do I begin? They have so many issues.

First, they don’t understand this equation: Gross Domestic Product = Federal Spending + Non-federal Spending + Net Exports.

Gross Domestic Product (GDP) is the most commonly used measure of the economy. The equation tells you that the more the federal government spends, the more the economy grows. But Libertarians don’t like government spending.

How does one reason with such people? Mainly, how does one acquaint them with Monetary Sovereignty, which says, “Federal financing is different from non-federal financing.”

If they can’t understand, or more accurately, refuse to understand, those two concepts—GDP and Monetary Sovereignty—how can their opinions be respected?

Here is the latest “Boehmism,” which, remarkably, may exceed all his previous work in ignorance and/or deception (It’s hard to know which:

The National Debt Is a National Security Issue
The growing debt will “slow economic growth, drive up interest payments,” and “heighten the risk of a fiscal crisis,” the CBO warns.
ERIC BOEHM | 3.21.2024 1:50 PM

It’s a dangerously addictive habit that threatens to ruin our children’s lives and undermine America’s national security—and this week, Congress finally acknowledged as much. However, it remains unclear if lawmakers have the guts to do anything substantial.

No, I’m not talking about TikTok. I’m talking about the $34.6 trillion national debt.

The Senate unanimously approved a resolution on Wednesday calling the debt “a threat to the national security of the United States” and calling expected future budget deficits “unsustainable, irresponsible, and dangerous.”

The Senate votes to please voters, and sadly, most voters believe anything called “debt” should not be large. They don’t understand that federal “Debt” is not federal and it isn’t debt.

“We have more than doubled our national debt in just ten years,” said Sen. Mike Braun (R–Ind.), who sponsored the resolution.

“America is moving down a dangerous and unsustainable path of reckless spending, and the federal government has yet to take it seriously.”

“Unsustainable” is the Libertarian’s favorite word when describing the so-called national (or federal) debt, which is neither national, federal, nor debt.

They use that word because it has no specific meaning. They don’t say precisely what is “unsustainable” about it. The federal government, being uniquely Monetarily Sovereign (Libertarians don’t understand that concept, either), can pay any debt denominated in U.S. dollars.

Whether a debt is $100 or $100 trillion, the federal government could pay it instantly by pressing computer keys.

The federal government pays all its debts the same way. It creates new dollars ad hoc.

To pay any creditor, the government sends instructions, not dollars, to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account.

Those instructions are electronic or paper (a check), saying, “Pay to the order of _____. ” The instant the bank does as instructed, new dollars are created and added to the M2 money supply measure.

Alan Greenspan: “A government cannot become insolvent concerning obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”

That is how the federal government creates dollars and pays its bills. There is no limit to the government’s ability to send instructions, and thus no limit to the government’s ability to create dollars. No debt is “unsustainable.”

The passage of a nonbinding resolution on the Senate floor is several steps short of addressing the federal government’s addiction to borrowing—but, as they say, recognizing that you have a problem is the first step toward solving it.

The federal (or national) debt is not a debt because the federal government does not borrow. Why would it? Given its infinite ability to create dollars, why would the federal government borrow dollars?

It wouldn’t, and it doesn’t.

Those things called T-bills, T-notes, and T-bonds do not represent borrowing. Although “notes” and “bonds” are evidence of borrowing in the private sector, federal finance is different.

T-securities are evidence of deposits into savings accounts at the Federal Reserve, the contents of which are wholly owned by the depositors. The government neither needs nor uses those deposits. It merely holds them in safekeeping for the depositors.

The federal government’s main purpose in offering T-security accounts is to provide the public and other nations with a safe, interest-paying place to store unused dollars, which helps stabilize the dollars.

By paying interest, these accounts help the federal government control interest rates.

The government does not owe the dollars deposited in T-security accounts. The government merely stores them for the depositors.

Upon maturity of any T-security, the government merely gives the dollars, that never had left the account, back to their owner, the depositor.

It’s not a federal debt, just as the contents of a bank safe deposit box are not a bank debt.

And the approval of that resolution was timely. Later on Wednesday, the Congressional Budget Office (CBO) published its latest long-term budget projections. The report shows that annual budget deficits are on pace to grow from an expected $1.6 trillion this year to $2.6 trillion in 2034, $4.4 trillion in 2044, and $7.3 trillion in 2054.

A federal budget deficit is much different from a personal budget deficit.

If you or I were to run a budget deficit, we would have to obtain the money to pay our bills, either by borrowing or from our income or savings.

The federal deficit merely is the bookkeeping difference between taxes and spending. The spending has already been paid for by money creation.

Here again, one must understand Monetary Sovereignty. State and local taxes do fund state and local taxes. The state and local governments are monetarily non-sovereign, like you and me.

So what is the purpose of federal taxes, if not to fund federal spending?

1. To help the federal government control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to reward/
2. To assure demand for the U.S. dollar by requiring federal taxes to be paid in dollars.
3. To make the public believe that federal benefits are limited by tax receipts or borrowing. (This last is at the behest of the very rich, who get wealthier by widening the income/power Gap between them and the rest of us.)

As a result of those rising budget deficits, the national debt will continue to accelerate upward.

The misnamed “national debt” is not a threat or a burden on anyone- not the government or taxpayers. Even if the “debt” were hundreds of trillions of dollars, the federal government could continue paying its bills without collecting a penny more in taxes, nor borrowing a single dollar.

The CBO projects that the federal government’s debt will total $114 trillion by 2054. The debt is already roughly the size of the nation’s economy and is expected to surpass the all-time high of 106.4 percent of gross domestic product (GDP) by 2028.

By the end of the 30-year projection, the debt is estimated to reach 166 percent of GDP.

The oft-mentioned “Debt”/GDP ratio is meaningless for several reasons:

1. The government does not owe or pay the “debt.”
2. GDP does not owe or pay the “Debt.”
3. The ratio says nothing about the health of the U.S. economy.
4. The ratio says nothing about the federal government’s ability to pay its bills.

“Such large and growing debt would have significant economic and financial consequences,” the CBO warns. “

Among its other effects, it would slow economic growth, drive up interest payments to foreign holders of U.S. debt, heighten the risk of a fiscal crisis, increase the likelihood of other adverse outcomes, and make the nation’s fiscal position more vulnerable to an increase in interest rates.”

The above paragraph is wrong in every respect:

1. A large and growing “Debt” merely means our Monetarily Sovereign federal government is pumping more growth dollars into the economy. The larger the “Debt,” the more growth dollars and the faster the economic growth. Remember: GDP = Federal Spending + Non-federal Spending + Net Exports. Federal Spending even increases Non-federal Spending
2. Our Monetarily Sovereign U.S. federal government has the infinite ability to create the dollars that pay foreign holders of U.S. debt. Paying dollars to foreign nations increases foreigners’ ability to purchase our goods and services (Net Exports).
3. No “fiscal crisis” has been or can be caused by the growing federal debt. The federal government always will be able to pay all its bills.
4. The large and growing “Debt” causes no “other adverse outcomes. The Debt/GDP ratio is fiscally meaningless for a Monetarily Sovereign nation.
5. Our Monetarily Sovereign government’s fiscal position is vulnerable only to the ignorance of those who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty. The government can pay any amount of interest simply by pressing computer keys.

In 1940, the federal “Debt” was only $43 billion. Those who are ignorant about federal finances called it a “ticking time bomb.”

Today, the “Debt” totals more than $33 trillion, and that phony time bomb is still a dud—and always will be.

Higher interest rates are already significantly affecting the federal budget. This year, payments on the existing debt will total an estimated $870 billion, which is more than the Pentagon’s budget. Thanks to higher interest rates and a larger debt load, debt payments have jumped by 32 percent since 2023.

Interest payments have indeed had an effect on the federal budget. They have forced the federal government to spend more, which pumps more growth dollars into the economy and increases GDP.

Again, the Libertarians seem to have forgotten: GDP = Federal Spending + Non-federal Spending + Net Exports. Not only does Federal Spending directly lift GDP, but it also lifts Non-federal Spending, which, in turn, lifts GDP

There seems to be no sign that federal spending or federal “Debt” is “unsustainable,” “slows economic growth,” “heightens the risk of a fiscal crisis,” “causes other adverse outcomes,” or makes the nation’s fiscal position more vulnerable to an interest rate increase.”

On the contrary, increases in federal “Debt,” yield all positive outcomes, while decreases in debt cause depressions and recessions:

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 new CBO report shows that debt payments will be one of the fastest-growing parts of the budget for the foreseeable future, along with the twin old-age entitlement programs of Social Security and Medicare.

By 2051, interest payments will be the single largest line item in the federal budget.

If there’s a sliver of good news to be found in the new CBO projections, it is that the situation looks slightly less dire than it did last year. That improvement is due to higher expected levels of immigration and stronger estimates of future economic growth—not because of anything that policy makers in Washington have done.

(If anything, they seem determined to prevent those improvements from coming to pass, whether by limiting immigration or regulating the economy more strictly.)

This is the ultimate of ignorance. The data stare him in the face, but instead of reevaluating his position, he claims the good news comes despite the data. In essence, Boehm has two conclusions:

1. If the data support his belief, he calls attention to that.
2. If the data do not support his belief, he ignores the data.

Thus, he is incapable of learning.

We should also keep in mind the usual caveats here: The CBO does not account for the possibility of recessions, natural disasters, wars, or other unpredictable events that could cause the federal government to borrow more heavily than current law expects.

The past 30 years have included 9/11, the war on terror, the Great Recession, and the COVID-19 pandemic, so it seems pretty likely that the next three decades will include at least a few emergencies that drive deficits higher.

Boehm doesn’t stop to think about why emergencies drive deficits higher: Emergencies, in of themselves, tend to impede economic growth, so the government increases deficit spending to save the troubled economy.

Why does the government need to wait for emergencies before it stimulates economic growth. Why not stimulate growth during non-emergency times, too?

This is a question the Libertarians and the right wing never asks, because the answer goes against their beliefs.

“There is no way to look at these eye-popping numbers without realizing we need to make a change,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, which advocates for lower deficits, said in a statement about the CBO report.

“And yet we have lawmakers promising what they won’t do: I won’t raise taxes, I won’t fix Social Security, I won’t pay for all the things I do want to do. And so we continue on this dangerous path.”

MacGuineas has been president of the CRFB for many years. She and her group are bought and paid for by the rich, so they espouse beliefs that would make the rich righer by widening the Gap between the rich and the rest.

1. “I won’t raise taxes.” That is a good thing. Federal taxes remove growth dollars from the economy.
2. “I won’t fix Social Security.” To MacGuineas, “fix” means cut benefits or raise taxes, both of which are unnecessary and harmful to the economy. The federal government has infinite money to pay for Social Security.
3. “I won’t pay for all the things I want to do.” The government is perfectly capable of paying for anything and everything. It’s people like Boehm and MacGuimeas who hinder the government from doing what it was created to do: Protect and improve the lives of the people.

Indeed, on Thursday, Speaker of the House Mike Johnson (R–La.) told reporters that he supports plans for a so-called “fiscal commission”—which could propose some solutions to Congress’ budgeting problems—but only if the agency could not suggest tax increases or cuts to entitlement programs.

Obama had a “fiscal commission.” Its “increase- taxes, cut-spending” recommendations would have sent the economy into a depression. Fortunately, Congress didn’t listen.

That approach guarantees that the federal government will have to continue borrowing heavily to make ends meet.

Again, the U.S. government never borrows its own sovereign currency. Boehm does not recognize the differences between a Monetarily Sovereign entity and a monetarily non-sovereign entity. Either he is paid to act ignorant or he does it without pay.

Despite the Senate’s declaration that the national debt is a national security risk and the CBO’s attempts to sound the alarm about the federal government’s fiscal trajectory, there’s still a major shortage of elected officials who want to take the problem seriously.

He is correct that there’s “a major shortage of elected officials who want to take the problem seriously.” Without that shortage, the government could fund such benefits to America as:

1. Comprehensive, no-deductible healthcare insurance or every American.
2. More medical personnel at all levels, plus more hospitals with advanced equipment
3. Social Security for Americans of all ages.
4. The reduction of poverty and homelessness in America
5. With the reduction of poverty, there would be a significant reduction in crime.
6. A greater ability to accept fully vetted immigrants, whose work and intelligence would help America grow.
7. Education, including advanced degrees, for all those who want it.
8. More scientific innovation in disease prevention and cure.
9. More efforts to reduce global warming.
10. A dramatic reduction in federal taxes, which do nothing but remove growth dollars from the economy.
11. Pay students a salary so that families would not need to favor dropping out of school to help support the family.

The government can pay for all of it, without taxes and without inflation. Anyone not want it?

Rodger Malcolm Mitchell
Monetary Sovereignty

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

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

MONETARY SOVEREIGNTY