And
2) The federal debt will not bankrupt the country, or us, or our grandchildren. The federal government cannot default on obligations denominated in its own currency. It can and will create all the dollars needed to pay dollar-denominated debt.
Nor does the federal government have to borrow money to fund spending. The government is not required to borrow by economic necessity, but by laws and policies--political demands--that require it to borrow the difference between what's spent in the budget and what's collected in taxes (by selling Treasury Bonds). That's another relic of an obsolete monetary regime, which is designed to make it seem like there's a relation between the money in those Treasury Securities and government spending that there is not. The "borrowed" money in those securities accounts--dollars that were already in circulation--just sits there; it is not used to "pay for" government programs.
James K. Galbraith summed it up well : "Could the Treasury skip the rigamarole and pay its bills without bonds? Economically, sure. Why doesn't it? Well, the Fed has regulations governing "overdrafts" -- but apart from these, the answer is plain: to do so would expose the 'public debt' as a fiction, and the debt ceiling as a sham."
The Social Network
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