American debt
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Here is something that may help some to understand the difference between real debt and the ersatz debt of the United States government. Real Debt requires a non-trivial expenditure of time and energy to repay it. The ersatz debt of the United States, on the other hand, requires no significant expenditure of time and energy for "repayment". It has already been "covered" by printing of new money, before it is issued! It's not real debt; it is ersatz debt.
Of course the U.S. has the option of covering a deficit with real debt, but hasn't done this for many years. If the U.S. were to pay off deficit-associated Treasury securities (plus interest) with surplus revenue created by reducing spending or raising taxes, these Treasuries would represent real government debt. The net result would be a reduction in total private sector money*. Consideration of this explains why Wilson's Administration threw the nation into recession by using increased taxes to pay off WWI war bonds. Such is not the current practice however.
For decades, instead of covering deficits with real borrowing, we have covered deficits with newly "printed" money, followed by ersatz borrowing. Ersatz borrowing occurs when we routinely auction Treasury securities in an amount equal to deficits already covered by printing. In contrast to what happens in real borrowing, the net result is an increase in the total money in the private sector. Treasury securities issued in this latter case represent ersatz debt, not real debt, because the money to payoff the ersatz debt has already been printed and returns to the government when the associated Treasury securities are auctioned. As noted, the affect on the economy of real borrowing and acquisition of real debt is profoundly different than the effect of acquiring ersatz debt.**
We can summarize this. Whether real debt or ersatz debt is acquired has to do with how deficits and the associated Treasury securities are covered. If they are covered by future spending reductions and/or tax increases, the associated Treasuries represent real debt. If they are covered by printing, as is the current practice, the associated Treasuries represent ersatz debt.
It is standard practice to refer to outstanding Treasury securities as "debt". That's fine so long as one understands the difference between ersatz debt and real debt. Unfortunately few U.S. citizens, including most older Ph.D. economists, understand the difference. Neither, it seems, do most politicians. We need to change this because our own and our politicians' perception of government's money operations have a profound influence on our government's appropriation and spending.
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*To understand this discussion, we must treat Treasury securities the way MMT economists do, viz., as an interest paying alternative form of money.
**It follows, that in the case of ersatz debt being acquired, the purpose of auctioning Treasury securities cannot be to raise money. In fact, in an ersatz borrowing regime, Treasury securities play an entirely different role than the raising of money, as MMT economists are quick to point out.
Of course the U.S. has the option of covering a deficit with real debt, but hasn't done this for many years. If the U.S. were to pay off deficit-associated Treasury securities (plus interest) with surplus revenue created by reducing spending or raising taxes, these Treasuries would represent real government debt. The net result would be a reduction in total private sector money*. Consideration of this explains why Wilson's Administration threw the nation into recession by using increased taxes to pay off WWI war bonds. Such is not the current practice however.
For decades, instead of covering deficits with real borrowing, we have covered deficits with newly "printed" money, followed by ersatz borrowing. Ersatz borrowing occurs when we routinely auction Treasury securities in an amount equal to deficits already covered by printing. In contrast to what happens in real borrowing, the net result is an increase in the total money in the private sector. Treasury securities issued in this latter case represent ersatz debt, not real debt, because the money to payoff the ersatz debt has already been printed and returns to the government when the associated Treasury securities are auctioned. As noted, the affect on the economy of real borrowing and acquisition of real debt is profoundly different than the effect of acquiring ersatz debt.**
We can summarize this. Whether real debt or ersatz debt is acquired has to do with how deficits and the associated Treasury securities are covered. If they are covered by future spending reductions and/or tax increases, the associated Treasuries represent real debt. If they are covered by printing, as is the current practice, the associated Treasuries represent ersatz debt.
It is standard practice to refer to outstanding Treasury securities as "debt". That's fine so long as one understands the difference between ersatz debt and real debt. Unfortunately few U.S. citizens, including most older Ph.D. economists, understand the difference. Neither, it seems, do most politicians. We need to change this because our own and our politicians' perception of government's money operations have a profound influence on our government's appropriation and spending.
_______________
*To understand this discussion, we must treat Treasury securities the way MMT economists do, viz., as an interest paying alternative form of money.
**It follows, that in the case of ersatz debt being acquired, the purpose of auctioning Treasury securities cannot be to raise money. In fact, in an ersatz borrowing regime, Treasury securities play an entirely different role than the raising of money, as MMT economists are quick to point out.
are you going to tell us "when"?
In recent decades, Japan reduced, by about half, its outstanding JGBs, i.e., it converted them to money in its non-interest paying form. It did not raise taxes or cut spending to do this. In other words, it treated those JGB's as ersatz debt. (see my long post above).
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That's absurd. I'm sure you realize it's absurd.
https://www.pbs.org/wgbh/americanexperience/features/rushmore-sioux/Piezoe deserves to be on Mt. Rushmore
No not all, I'm not the one being absurd.
Here is what Google Gemini AI has to say about it:-
The debate over Modern Monetary Theory (MMT) is ongoing and complex. There's no consensus among economists on its validity or effectiveness.
Here are some key points to consider:
- Core principles: MMT argues that governments with sovereign currencies (like the US) aren't constrained by revenue when spending. They can create money to finance deficits as needed.
1. Modern Money Theory (MMT) | Levy Economics Institute
www.levyinstitute.org
2. Modern Monetary Theory (MMT): Definition, History, and Principles - Investopedia
www.investopedia.com - Supporters: Proponents of MMT believe it can help address economic challenges like unemployment and inequality by allowing governments to spend more freely to stimulate the economy.
1. Modern Monetary Theory (MMT): Definition, History, and Principles - Investopedia
www.investopedia.com - Critics: Critics argue that MMT could lead to excessive government spending, inflation, and a loss of confidence in the currency. They also question the long-term sustainability of high deficits.
1. Modern Monetary Theory (MMT): Definition, History, and Principles - Investopedia
www.investopedia.com
I am not certain I would agree. The empirical evidence to refute MMT's claims may not be limited, as claimed above, rather it might be non-existent. This could explain why you haven't sited any evidence that would refute the basic tenets of MMT economics.
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Read it again.
Its not what I have cited (note spelling) or not cited.
No consensus is no consensus.