The $39 Trillion National Debt Is a Loud Tell That the U.S. Isn’t “Printing”
No one buys, sells, borrows, or lends with “money.” Production buys and sells production, while borrowing and lending are an exchange of products over longer stretches of time in return for more products (interest).
It’s worth keeping in mind as members of the Austrian School claim that the only limit to government borrowing is the speed of the printing press, and as scholars at Cato claim that central banks enable bigger government. They ignore that production is the only source of demand. To suggest that governments, or that creations of government can create demand out of thin air isn’t just to dismiss Say’s Law, it’s to support Paul Krugman’s dangerously incorrect view that governments can stimulate demand.
No, they can’t. There’s production and there’s nothing else. As producers of nothing, governments are in the “nothing else” category.
Despite these economic absolutes, the myths continue. Which is why the existence of $39 trillion worth of federal debt is useful.
Tragic as the number is as an indicator of how much the rich in the U.S. are excessively taxed, and much worse, how much more tax revenue they’ll provide Treasury in the future (hence all the debt), it thoroughly rejects the popular view that printing presses and central banks enable government growth.
Implied in what vandalizes logic is that lacking sufficient revenues, governments either print to pay off debt, or they enlist central banks to buy the debt. Never explained by the proponents of what’s absurd is not just how demand could be “printed,” but how governments could expand themselves just by creating another governmental entity to help them expand? Furthermore, if capable of expanding themselves through the creation of an other, why bother with the creation? But that’s a digression.
The bigger, much more relevant truth is that there wouldn’t be $39 trillion worth of debt if Treasury were even a little reliant on the printing presses (Austrian School) or central banks (Cato). Lest we forget, ownership of Treasuries is global which means ownership of dollar income streams is global. That wouldn’t be true if a printing press or central bank paid the debts.
No doubt the Fed is a size owner of Treasuries, but production preceded those purchases. In other words, a Fed that only has demand insofar as it’s backed by a federal government with taxable access to the most productive people in the world, can borrow the monetary fruits of production from banks that it can use to buy Treasuries. Production buying production. Always.
Still, it’s probably worthwhile to reduce what’s absurd to the absurd. Assuming Treasury could “print” demand as modern Keynesian, monetarist, and Austrian religions imagine, then logic dictates there would be no taxation. Really, why extract spending sustenance from the productive when it can just be printed? Readers know the answer, or they should by now.
Governments that print demand have no demand. Conversely, governments that have demand only have it insofar as they have taxable access to actual production.
Applied to the U.S. and its $39 trillion worth of debt, the U.S. can borrow not just because it overspends (Cato), because it has a central bank (Austrian School, Cato) or because it has a printing press (Austrian School), but because markets foresee the opposite of revenue insufficiency in the future.
Meaning the debt is an effect of an expectation of excessive taxation of soaring future production. Yes, too much tax revenue in the future, not too little. The markets are speaking, but for now the free-market religions are ignoring them.
Originally published on Real Clear Markets.