There Is No National Debt, Part The Infinity

Close your eyes. Suspend the idea you have any clue about how money works.

Now, explore this concept:

There is no such thing as the national debt. At least in the traditional sense you and I understand debt to be. Effectively, this means our country is not broke.

First, remember two things: 1) Our economic system is a free creation of the human mind. It is not governed by any of the laws of nature. 2) The US currency is not backed by any precious metal. No gold or silver standard. It's paper, and backed only by our belief in it.

I'll pause here for a moment and share with you that my wife thinks I sound like a lunatic when I talk about the US monetary system. Please bear with me and judge for yourself.

Keeping in mind the two important points above, also know you have been trained since birth in the balancing of accounts. It's bad to spend more than you earn (it is) and you must pay all your bills (probably a good idea.) Unless you've been raised by grifters, you've had this coursework drilled into you for years, and it's mostly true. For you, me and any other entity operating in the horizontal banking system. But it's not true for the federal government, which is the sole operator in the vertical monetary system as the provider of a fiat, sovereign currency.

In practice, in reality, what this means is every nickel that 'is owed' by the US government has been paid. What? Yes. We have multiple modes of transactions. Most of us mere mortals use cash or credit cards to pay what we owe on goods or services. The other method is bonds, which are nearly the same as cash - simply a different vehicle of payment.

So, we're not 'borrowing' from anyone, or any country, in practice. The US Congress passed a law many years ago forcing the Treasury to sell bonds in the amount representing the difference between tax receipts and federal government spending. But there's no need. In fact, the US spends first and the bond sales happen well after the spending.

Then why do we pay taxes you ask. Good question. There are two reasons for taxes: 1) they provide a legitimacy for the currency. If we are taxed in dollars, we need to go out and participate in the monetary system to get the dollars we need to pay our tax bill. 2) As a governor on the national economy. If the economy is in a slump, decrease taxes and put more money in the hands of consumers. If the economy is hot, and inflation is approaching, raise taxes and take money out of the hands of consumers. Simple.

Remember, this only applies to the feds as issuers of the sovereign currency. All other players in our economic system must play by the balanced account rules.

I used to think otherwise. Like 90% of the country. Like my wonderful wife who thinks me a lunatic. But I read Warren Mosler and others and now I know better.

There is no national debt.