28 TRILLION AND COUNTING.
THAT’S AMERICA’S DEBT.
WHICH, DESPITE THE SOMEWHAT INTANGIBLE VALUE, IS A VERY REAL NUMBER.
BUT IS THAT ALL IT IS — A NUMBER —
AND NOT A REAL CONCERN?
DOES THE NATIONAL DEBT STILL MATTER?
DEPENDS WHO YOU ASK.
ANDREW LAUTZ: “At the level of $28 trillion. it can seem more and more like Monopoly money. But it’s nonetheless concerning.’’
ANDREW LAUTZ IS WITH THE NATIONAL TAXPAYERS UNION.
HE ALIGNS WITH A LONGSTANDING BELIEF THAT THE NATIONAL DEBT IS SERIOUS BUSINESS.
ON THE FLIP SIDE — A GROWING NUMBER OF ECONOMISTS SAY OUR SKYROCKETING DEBT DOESN’T MAKE A DIFFERENCE.
HERE’S ECONOMIST AND PROFESSOR WILLIAM LASTRAPES.
WILLIAM LASTRAPES: “You can potentially think about the government as never having to pay back its debt.”
CAN THAT REALLY BE TRUE?
FIRST- WE’LL START WITH THE BASICS.
IT’S ALL ABOUT MONEY IN AND MONEY OUT.
EVERY YEAR THE GOVERNMENT COLLECTS TAXES. THAT’S ITS INCOME.
IT SPENDS MONEY ON PUBLIC PROGRAMS, AGENCIES, AND INFRASTRUCTURE. THAT’S ITS EXPENSES.
WHEN IT SPENDS MORE THAN IT EARNS, THE US GOES INTO A DEFICIT…AND IS FORCED TO TAKE ON DEBT.
THE ACCUMULATED DEBT FROM EACH YEAR PLUS THE INTEREST ON THAT
DEBT MAKES UP THE TOTAL NATIONAL DEBT… AND ITS 12 ZEROS.
LASTRAPES: “Debt will grow when the government spending exceeds tax revenues…and this is typical of many developed countries.’’
WHICH IS TRUE. THE PANDEMIC STRETCHED ALMOST EVERY COUNTRY THIN,
BUT EVEN BEFORE 2020, DEVELOPED COUNTRIES LIKE CANADA, THE UNITED KINGDOM AND AUSTRALIA…ALL RAN DEFICITS.
THOUGH, THERE HAVE BEEN YEARS WHERE AMERICA RAN A SURPLUS…MOST RECENTLY DURING PRESIDENT CLINTON’S SECOND TERM.
AMERICA STILL HAD DEBT THEN TOO.
BUT DEBT DOESN’T TELL THE WHOLE STORY.
LASTRAPES SAYS ITS IMPORTANT TO LOOK AT DEBT IN RELATION TO GDP…OR THE SIZE OF THE ECONOMY.
LASTRAPES: “The government can’t control more than GDP. So if you know If the debt runs up to way more than GDP, then the government is overextending in some sense.”
WHICH ALSO MEANS IF THE GDP IS GROWING FASTER THAN THE INTEREST RATE ON DEBT, A COUNTRY IS FINANCIALLY STABLE.
THAT BEING SAID, THE CONGRESSIONAL BUDGET OFFICE ESTIMATES AMERICA’S DEBT WILL SURPASS THE GDP BY THE END OF THIS YEAR… THE BE DOUBLE OUR GDP IN 30 YEARS.
IT WOULD TAKE MORE THAN DAVE RAMSEY TO GET US OUT OF THAT.
DAVE RAMSEY: “The way you get out of debt is, you get mad.”
BUT LET’S STICK WITH THE CURRENT DEBT.
Taxes alone won’t cover the debt, so THE US TREASURY “BORROWS” MONEY BY SELLING THINGS LIKE TREASURY BILLS, NOTES, BONDS AND SAVINGS BONDS TO THE PUBLIC — PEOPLE AND GOVERNMENTS WILLING TO INVEST IN THE US FOR A SMALL RETURN OF INTEREST ON THEIR MONEY.
LAUTZ SAYS IT’S EFFECTIVE, BUT NOT FOOLPROOF.
LAUTZ: “The person taking on that debt has faith that the United States will pay it back someday. The more and more we accumulate our debt, the less sure that that guarantee is going to be.”
HE SAYS TO LOOK AT THE NATIONAL DEBT LIKE YOUR CREDIT CARD DEBT…AS IT ACCUMULATES, YOUR INTEREST PAYMENTS GET HIGHER, YOUR CREDIT SCORE GOES DOWN, AND NO ONE WANTS TO LEND YOU MONEY.
THINK GREECE IN 2009.
BIG DEBT.
PLUS LITTLE FAITH IN THE GOVERNMENT.
EQUALS ECONOMIC CHAOS.
WHAT’S TO PREVENT THAT FROM HAPPENING TO AMERICA?
LASTRAPES: “It was risky to lend to the Greek government, because you didn’t know if you’re going to get paid anything back. // (6:41) In the US, there’s no perception by bond markets that the US can’t pay back its debt, or at least enough debt for the matter.’’
THIS CONCEPT IS WHY SOME ECONOMISTS SAY THE CURRENT DEBT DOESN’T MATTER.
BECAUSE PAYING ‘ENOUGH DEBT’ IS SOMETHING AMERICA HAS BEEN DOING for centuries.
HERE’S A BOND from 1792… ISSUED BY THE NEWLY FORMED TREASURY DEPARTMENT.
REASON ONE NOT TO STRESS THE DEBT – THE US HAS GREAT CREDIT HISTORY.
REASON 2 — BIG GOVERNMENTS LIKE OURS can make ITS OWN CASH- MEANING THEY AREN’T LIMITED TO JUST THEIR INCOME.
ENTER… THE MODERN MONETARY THEORY OR MMT.
Stephanie Kelton: The ESSENTIAL POINT THAT MMT ALWAYS MAKES IS THAT THE federal government of the United States as the issuer of our currency as the issuer of the dollar can never run short of money it can always afford to buy whatever is for sale in its own currency
THAT’S ONE OF MMT’S BIGGEST PROPONENTS, STEPHANIE KELTON SPEAKING WITH RJ ESKOW.
Kelton: WHEN CONGRESS is prepared to act. It can always pass legislation and authorized spending even massive increases in spending without having to stop and worry about this whole Where will we find the money and how are we going to pay for it question that’s so dogged us for years and years.
DOES PRINTING MORE MONEY INCREASE THE RISK OF INFLATION? YES.
BUT KELTON SAYS IT GIVES AMERICA OPTIONS…and AS LONG AS THE TREASURY CAN PRINT AS MUCH MONEY AS NEEDED. AND as long as AMERICA CONTINUES TO MAKE INTEREST PAYMENTS, WE COULD KEEP RUNNING WITH DEBT FOREVER.
NOT EVERYONE BUYS INTO THis THEORY, WHICH IS WHY PEOPLE ARE SO DIVIDED ON THE DEBT. BECAUSE IF IT DOESN’T MATTER…
WHY HAVE A BUDGET AT ALL? AND WHAT ABOUT THIS?
THE DEBT CEILING. THE THREAT OF A GOVERNMENT SHUTDOWN.
IF IT DOESN’T MATTER, THEN IS IT ALL FOR SHOW?
LASTRAPES: “These silly ceilings on the debt that Congress plays with that, there’s nothing economic about that they shouldn’t be there to begin with. And they’re purely political.”
THE PRESIDENT WOULD DISAGREE.
POTUS: “We need to stop playing Russian Roulette with the US economy.”
BACK TO THAT TRILLION DOLLAR QUESTION. DOES THE NATIONAL DEBT STILL MATTER?
IT DEPENDS HOW YOU LOOK AT IT:
THOSE WHO SUBSCRIBE TO MMT SAYS THE DEBT DOESN’T MATTER AS LONG WE CAN CONTINUE TO PAY BONDHOLDERS BY PRINTING MORE MONEY.
CONSERVATIVE CRITICS SAY THAT’S NO WAY TO RUN A GOVERNMENT — AND EVENTUALLY LENDERS WILL LOSE FAITH – INFLATION WILL BE OUT OF CONTROL. OR WORSE — OUR ECONOMY WILL GO BOTTOM UP
WHAT DO *YOU THINK?
LET ME KNOW YOUR THOUGHTS IN THE COMMENTS BELOW. AND HEAD OVER TO OUR WEBSITE TO RATE IT ON THE STRAIGHT ARROW BIAS METER.
