What is debt really?

To the editor:

Borrowing by the U.S. government is not good debt. The government has not had to borrow from anyone since it was a fledgling country as there was no confidence in the U.S. banking system hundreds of years ago.

By the authority of the U.S. Constitution, the United States Treasury has the ability to create money and spend that money into the economy, the government has no need to borrow from anyone.

All dollars created and spent into the economy are the dollars available to be earned -- no debt, no paycheck.

No dollars can exist without debt.

For some time now, the government has been using the sale of Treasury bonds to fund shortfalls in tax revenue. This is bad debt as it is privatizing government debt, aka "borrowing." Treasury bonds sold domestically have historically had a primary purpose to be used as a tool to take money out of a an overheated economy.

Primary banks are required to buy the vast majority of Treasury bonds from the Federal Reserve. Primary banks use a large portion of Treasury bonds to expand the money supply as Treasury bonds can be used as reserves. This is one way, but not the only way, that a private bank creates money for sole benefit of that institution.

Between 2000 and 2022, the total outstanding of both public and private debt in the United States across all sectors increased significantly, growing from $28.63 trillion to $93.5 trillion.

The country's debt went up to approximately $36 trillion in those years, whereas private debt rose the most by approximately $57.5 trillion.

Private banks do not, and did not ever, have $57.5 trillion hanging around to lend out.

Private banks create credit internally when someone signs a promissory note -- a mortgage, car loan, etc. That credit, aka "debt," gets turned into dollars when the debtor, for example, writes a check on that credit. Private bank debt is where most of our dollars come from. No debt, no dollars, no paycheck.

Banks do not operate like we were led to believe in the fantasy world depicted in the 1946 film "It's a Wonderful Life."

Is it better to have tax dollars sent to the Treasury to fund a circular economy or it it better to privatize government debt or have private debt so some people can buy another mansion in the Hamptons or have a bunker built in Auckland for the end of times?

(My sources for this letter to the editor include: Michael Hudson, L Randall Wray, Warren Mosler, Stephanie Kelton, Bill Mitchell, John T Harvey, and others.)

Owen Geoghegan

Norton