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.

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 Miller’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

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

MONETARY SOVEREIGNTY