Pundits and news publications seem to be terribly concerned with how much money federal governments are spending at any given time, running headlines implying they could run out of money at any moment.
But unless they are referring to countries like many in the EU that have given up their right to fiscal policy by replacing their national currency with the Euro and handing over monetary policy to the European Central Bank, this is simply an impossibility.
The term ‘government debt’ is itself misleading. Below we explore the nature of national government debt.
The national debt is simply the net financial assets of the non-government sector, denominated in the currency of whichever federal government is issuing it.
Governments, some reporters and pundits like to treat the federal budget as though it operates in the same way as a household, but the two couldn’t be more different.
In America, the national debt is the sum-total of all US dollars ever issued by the Federal Reserve, that have never been taxed away by the Federal Government. The same applies to Canada, the UK, Australia, China: any government that issues its own currency.
‘Paying down debt’ therefore, is a matter of destroying dollars, or pounds, or yen etc by taking them out of circulation.
“All base money (including notes and coins) is itself is government debt,” economist, Dr Steven Hail tells Renegade Inc.
Economist, Professor Randall Wray tells Renegade Inc. there were only six times in US history where budget surpluses were achieved for long enough to retire a significant amount of debt. Five of those were followed by depressions, the last of which culminated in the Great Depression of the 1930s.
The last time America ran a significant budget surplus was under President Clinton and it led to a recession. The private sector was forced into deficit, consumer spending fell, unemployment increased. Economic growth was fuelled by property and other investment bubbles which crashed in 2007, helped along by dodgy derivatives trading and massive deregulation of the financial sector.
“If America tried to repay all its national debt tomorrow, we very likely would crash into the mother of all great depressions long before the debt is ‘paid off”, says Professor Wray.
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