The Five Worst Reasons Why the National Debt Should Matter To You: Part One, High Debt Levels and Jobs

By Joe Firestone

I came across a post from the “Fix the Debt” campaign last month called “The Top Five Worst Reasons Why the National Debt Should Matter to You.” It’s a post full of debt/deficit lies that cry out for correction. That’s what I’ll provide in this series.

1. High debt levels = fewer jobs and lower wages

In times of fiscal and economic uncertainty, consumers and businesses reduce investment and delay projects because investment is costly to reverse. Higher government borrowing can also drive up interest rates once the economy recovers, reducing the access and affordability of funds for consumers and businesses to borrow and invest in new ventures and ideas. This can hold back the economy, resulting in fewer jobs and lower wages down the road.

Response: What’s with the colloquial use of the ‘equals sign’ in this statement? Is the “Fix the Debt” campaign trying to say that there’s an identity between high debt levels and fewer jobs/lower wages? Is it trying to say that fewer jobs/lower wages cause high debt? Are they trying to say that there’s mutual causation between the two over time? Or are they trying to say something more complex than these things?

The summary statement after the headline indicates that the “equals” is an ambiguous way of making the straightforward claim that high debt levels trigger a causal chain ending with fewer jobs and lower wages. Here are two ways of addressing this claim: is it true, or even likely, given the data; and even if it is true, then so what?

Addressing “truth” first, it’s not! There’s plenty of evidence (See Part Two) refuting the idea that high public debt levels cause fewer jobs and lower wages in nations like the United States that use a non-convertible fiat currency, a floating exchange rate, and have no debts in currencies they do not issue.

In fact, even before 1971, when the United States closed the gold window allowing convertibility to gold on international exchanges and arrived at our current fiat currency system, the data still refute this claimed identity and suggest, that, if anything, the causation is reversed. In Part Two I’ve added a historical addendum dating from 1930 to the present showing that the evidence refutes this theory about the causes of higher unemployment.

Read it and see what’s happened for yourself; but the upshot is that this theory is pure fiction. Its narrative hasn’t happened once in the United States since 1930.

Now, on to “so what.” Let’s, for the sake of argument, say that high debt or debt-to-GDP levels did cause high unemployment, and that Government debt is a problem. The “Fix the Debt” campaign wants to respond to this by cutting Government deficit spending, raising taxes and following a long-term deficit reduction program featuring cuts to social safety net programs.

But why follow that unnecessarily painful economy-contracting, middle-class depriving strategy? The United States is a fiat currency sovereign. It doesn’t have to borrow back its own currency and reserves from people who are holding those.

It doesn’t have to sell any more debt instruments, providing unearned profits primarily to wealthy individuals and foreign nations. Congress can either provide the Treasury Department with the authority to create whatever money it needs to repay the debt as it falls due and to perform whatever deficit spending chooses to appropriate; or the Executive branch can use existing Platinum Coin Seigniorage (PCS) authority to fill the public purse with all the dollar reserves needed to do both of these things.

I’ve outlined how this works in numerous posts at this site and others, also in my kindle e-book. The process is very straightforward, will not cause inflation, and is legal under current law. So, if the “Fix the Debt” campaign is really worried about high unemployment and fixing the debt, then I challenge “Fix the Debt” to support my petition for the President to order the Secretary to mint a $60 T platinum coin immediately to accomplish this without in any way compromising the safety net or hurting the economy.

I don’t think “Fix the Debt” will support this proposal however. The reason why is that “Fix the Debt” is a front group for a very long-term effort by Peter G. Peterson to gut the social safety net and privatize Social Security. Peterson and the various front groups he funds through the Peter G. Peterson Foundation aren’t really interested in fixing the debt. They understand that the public debt is no danger to a fiat sovereign like the US, and doesn’t cause high unemployment.

What they are really interested in is persuading the public that patriotism demands crippling the safety net in the name of fiscal responsibility. If they were not, and they really think that “teh debt” is a cause of high unemployment, then they would join me in supporting one of the two proposals I advanced earlier for “Fixing the Debt.”

28 responses to “The Five Worst Reasons Why the National Debt Should Matter To You: Part One, High Debt Levels and Jobs

  1. Aloha! I agree the debt does not force high unemployment, but all the other misgiven US Fed and Congress based regulations and policies do. As a soon to be retiree I am more concerned about the correlation between high debt levels, government policy, fed monetary policy and the debasement of the currency. If when I retire at 65 in 2018 I can still buy gasoline at $0.35 a gallon with my Social Security benefit check like when I started paying into the system in 1971 then I will be happy and agree that debt matters not one bit. I am hoping I do not have to resort to dumpster diving and cat food eating like so many other elder Americans do now. I have been a small business owner for 30 years now and I have yet to see input prices like cardboard, cotton, plastic bags and FedEx rates go down, even after the 2008 crash and the latest commodity COMEX crash. In fact I just got a notice from my cardboard box supplier that prices will go up 8% in Aug. They went up 22% last year. Know anyone who does not ship using cardboard boxes? I would love to shop where the US Fed shops for that low 2% discount. Oh, and also I’d love to have my own “discount window” thrown in! In the end nobody in America cares about debt, hardly even their own debt either. Record BKs seem to be the norm! We are one of the most indebted countries in the world so “debt on”! I do however care deeply about what sort of goods and services I can buy five years from now when I do retire. Then in another ten to twenty years after that when I am stuck on a fixed income. What sort of debt guarantees can you give me for that?

    • Auburn Parks


      If you’re worried about your income increasing at least on par with inflation when you retire, then certainly you would agree that our American retirement programs should be more generous in order to afford our retired workers a financially secure life after labor. I couldn’t agree with you more, its not like the Govt cant afford it.

  2. Great post Joe. With the next debt ceiling nonsense about to consume Washington once again, perhaps the Platinum Coin idea will get a more serious look this time around, although I doubt it. The nonsensical “debt ceiling” is one of the last remaining points of leverage that the dying extremist right wing in this country has to curtail our democracy. As long as they have any power, they will never allow our government to meet the needs of its people.

    • Joe Firestone

      I generally agree, but we can always hope that the tea guys and gals are so stubborn that Wall Street screams at Obama to do something, anything, and then he turns to the platinum coin in an atmosphere of crisis. That’s why we have to make sure that everyone knows that he has that option.

  3. a short and snappy response to each ‘fix the debt’ point would be good. These guys have managed to boil their message down to short statements and soundbites that people instinctively accept, after hearing them repeated so many times in exactly the same way. We need an equivalent.

    • There is one message that really sticks. I haven’t turned a slogan yet, but the crux of it is to get people to understand that there are ways for federal govs to provide for the common good with out raising everybody’s taxes. That seems to work regardless of political stripes and has the fringe benefit of making people wonder what all the polarized politics are about in the first place. The myths about taxes and debt are the Achilles heal of extreme right wing polemics; spinning them works every time. Who can argue against support of the common good when it doesn’t cost anything at a personal level!
      You don’t have to win over the extreme right themselves, they are motivated by things other than the myths they feed their puppets and are probably beyond hope. You just have to be able to disarm them and MMT can do that.

    • Joe Firestone

      Well, I could have stopped at the end of the first paragraph and gone on to the other points where I’ve been “snappier.” The problem is that when a snappy point is countered by another snappy point, people who can’t tell which snappy point is right, tend to go with the more familiar one. So, people with uncommon views have to explain them.

      • That does seem to be the case Joe. It takes a fair amount of explaining to solidify the salient points. If a person doesn’t get a solid grasp on the basics it’s too easy for them to second guess themselves or get tripped up. That’s why I just try to whet the appetite for a better understanding and then point them in the direction of the literature.
        People do seem to want to know more after hearing something that seems promising. My first introduction to the term MMT actually came from Michael Hudson’s blog when he mentioned that money is just created by keystrokes on a computer. That got my interest peaked enough to learn more on my own time. I think many others would do likewise once they hear a professional confirming the intuition that they have been spun for decades.
        I keep seeing a picture of a dog sitting proudly WITH a bone in his mouth with a cute caption like: modern money talks BS walks on a tee shirt though!

  4. charles fasola

    Hopefully, the likes of Peterson, the Koch’s and many of their ignorant, senior Tea-Republican supporters will vanish from this earth before they render it a social and environmental wasteland for future generations.

    • Joe Firestone

      No such luck! They’re hiring plenty of young people to replace them when they die. We just have to win the fight.

  5. Bold devils who would try to make themselves the de facto government! Or are they merely delusional? At what point will the cavalry storm in to stop this crazy coup?

  6. Sunflowerbio

    The first point in the Fix the Debt post isn’t even talking about the size of the debt, only about fiscal and economic uncertainty, future borrowing and interest rates. If we could just locate the Confidence Fairy and feed her enough gold dust we could eliminate the first reason why the debt should matter.

    • Joe Firestone

      Well, I think their notion is that the high debt creates uncertainty, especially when people like them tell everyone that it will cause the sky to fall. Even if “uncertainty” were as important as they think it is, it would still be a case of the self-fulfilling prophecy, since their propaganda, along with the policies that follow from it, is creating it.

      • Nothing seems to cause more uncertainty right now than the Fed does every time it discusses throttling back on quantitative easing. For a policy that has had very little measurable effect on the economy other than on interest rates, its ending seems to rank right up there with the Apocalypse.

  7. I would say that statement was misleading but not entirely wrong. The first sentence seems very true. During uncertain times it seems natural to reduce investments. After that it gets tricky. Right now, for example, interest rates are low, but trending up. There has been an uptick in mortgage rates and it is having an effect on home sales. (See Warrens current post for more.) The fed is talking about tapering QE too. The market has reacted to that eventuality and has pulled back in recent days. The fed seems to think the economy is strong enough to withstand that action. But perhaps not business.
    Now QE reduces the interest on treasuries. Once it is withdrawn one would expect rates to rise. So the market is now pulling back. Higher rates will tend to hold back investments. That, in turn, will hold back the economy. So it is not the debt, per se, but the knock on effects of the fed buying securities or not. I noticed somewhere that interest on the ten year has increased 135 basis points. (not sure of the time frame.)
    So while I think the statement is misleading, it may not be entirely off base. The interest impact of the fed is a non zero impact on the economy. The only sure way to fix it is to have a zero rate on treasuries and not issue anything beyond short term ones. But then, why have debt at all, since that just makes them cash equivalents.

    • Joe Firestone

      Times are “uncertain” because sales are way low. Sales are way low because the debt hysterians won’t let the Government deficit spend on programs that will create sales, or enact tax cuts on the people who would then use the money to buy things. So, the opposition of the austerians to further debt and their attempts to at deficit reduction are, in fact, the cause of the maintenance of the very “uncertainty” they are complaining about. As I said earlier, it’s purely self-fulfilling. They’re creating a vicious cycle.

      • True enough. Yet, the Feds may still withdraw what little stimulus they can via QE and low interest. The whole game is rigged.

  8. Marvin Sussman

    Q: From the standpoint of THE TAXPAYER ONLY, is our “national debt” really a debt?
    A: No, our so-called “national debt” is not really a debt FOR THE TAXPAYER because it has none of the three essential qualities of a debt:

    1. That the debt must be a burden TO THE TAXPAYER.

    When the Treasury auctions bonds, it does not assume a burden and become a debtor like a home-buyer timidly undertaking a mortgage. It merely accepts offered money and becomes a custodian like a bank gladly accepting deposit accounts. The Treasury auctions bonds only because Congress requires that the proceeds cover the annual budget deficit.

    Such “borrowing” is an unnecessary relic of the former gold standard regime. This requirement was suspended during World War II, during which the Fed bought Treasury bonds directly with simple entries in a journal. This was followed by 35 years of strong economic growth without harmful inflation. There is no reason to believe that deficits cannot again be successfully financed by simple keystrokes instead of “borrowing” with bond auctions.

    2. That the debt must be repaid BY THE TAXPAYER.

    Yes, bonds are redeemed at maturity, but the “national debt” is the total value of all outstanding Treasuries. In our history, we have rarely had even a modest annual budget surplus. No serious politician today has any plan whatsoever for a budget surplus. In effect, the “national debt” has never been repaid and never will be repaid.

    3. That a significant debt interest must be paid BY THE TAXPAYER.

    Yes, the bond-holders receive significant interest payments, but the Treasury pays the interest by simply auctioning more bonds, ad infinitum, with no burden other than a few keystrokes. Economists recognize this by declaring that our “primary” annual budget deficit does not include debt interest payments because they never consume physical resources and have no economic effect.

    Q: Could there be a run on Treasuries?
    A: Where would the bond-sellers put $11T in cash? Corporate bonds? Illinois bonds? Detroit bonds? CDs? Bank accounts? There’s nothing but Treasuries for risk-free interest, even if the real (inflation-adjusted) rate is negative. Safety is not everything. Safety is the ONLY thing!

    Q: What if buyers prefer foreign bonds?
    A: That could only happen if another nation’s bonds become safer than ours. And that can only happen if that nation’s infrastructure becomes better than ours. And that can only happen if US voters worry more about our “national debt” than they worry about China’s approaching infrastructure advantage.

  9. Aloha! Why would anyone bother with going to the extremes of transporting the platinum and then the process of minting a coin what with all the design work and fabrication when all you have to do is go here and just type in a new “book value” number at the top by changing that 11 to a 16 and adding three more zeros on the end before the 16 cents. Leave the 16 cents though. It makes it look more “real” …


    Use it or lose it …

    • kaimu, what you propose could be undertaken, but you can be sure the Republicans, tea-partiers, and blue dogs would absolutely hit the ceiling and call for impeachment, accusing the President of fraudulent inflating the value of Treasury’s holdings. And they would probably be right. The platinum coin would be a different matter, although the same parties would no doubt raise a stink. First, the platinum coin is legal according to the 1996 law, which has already been used to mint $100 platinum coins that you can buy form the Treasury for about $1800, helping to fund government (Treasury, specifically) operations. Second, the Treasury has designers and engravers on the payroll, and has or could easily obtain enough platinum to strike one or even 100 trillion dollar coins. The coins do not need to be 99.997 % platinum to be legal tender. A platinum veneer and the face value struck on the coin is all that is required, just like some of the “gold” commemorative coins that you can also buy from the Treasury.

      • Aloha! Seriously if trillions of debt can be “coined” away with platinum then why would anyone care about the gold price? If anything raising the value of the US Treasury gold reserves would enhance the US Treasury’s balance sheet right? The largest holders of gold are the US Treasury and foreign countries and their central banks. Why would the US Treasury price their 7,300 ton gold reserves at $42.22 an ounce when the Australian government prices their 80 ton reserves at the current $1500A spot price? In fact just re-pricing the US Treasury gold reserves at the COMEX spot price would add another $355BIL to the asset side of their ledger! Who here couldn’t use $355BIL right now? The government can make any price legal it wants to. Why would the US government care what the prices are at the COMEX? Why not price the US Treasury gold reserves at $20,000? Heck make the US Treasury debt backed by $60,000 an ounce gold, right? No more debt … Like Warren Buffet says that gold pays no interest so may as well up the price and force it onto our creditors as collateral! Ever hear of a “collateralized” debt obligation? Collateralize the US government gold vaults. Since its not paying interest then put it work for a change!

        You’re probably saying that’s messing with the “free markets” and you can’t have one price for gold at the US Treasury and another price at the COMEX. Why not? The US Treasury already does that with the debt markets as most of the nominal debt at the US Treasury is “non-marketable” debt. Then the US Fed gives its own member banks a lower rate at the discount window than you can get in the mortgage market. A double standard debt market exists so why not a double standard gold market?

        In fact why bother with debt and gold and platinum at all. Just create another currency based on America’s square footage. Then whoever owns the currency owns a piece of America! When we run out of square feet then convert the currency to square inches! If we run out of inches then we convert to metric and go with cms! We have 3.8 million “square miles” to work with! If we run out of square cms then monetize the moon! We already own it since we were first there to plant the flag! That counts … May as well monetize the moon its not paying interest either!

        It’s a win-win for everyone right? All it takes is a keyboard hooked up to the fms with the right password (baloney1) and 2 minutes of data input. Go out on the street and ask anyone you meet if they care what price gold is much less what the US Treasury does with it. In fact ask them if they even know what the price of gold is and then ask if they know what a gallon of gas costs! I would bet they know right off what a gallon of gas costs or the price of a latte at Starbucks before they guessed what price gold is! Who cares about legal tender … we won WW2 so we’re the reserve currency! That’s all that counts … why else would we need such a huge military budget!

        • Sunflowerbio

          Bingo, kaimu! You have revealed the little secret that MMTers have been trying to get the public to understand for years. The sovereign government is constrained in its spending neither by the revenue it collects nor by the value of the assets it owns. As the issuer of a free floating fiat currency, the US government can create money to spend in any amount it desires, subject only to the restraints of the real goods and services available to purchase in its currency and any inflation that results form too much spending. Inflating the value of assets by a key stroke is operationally the same as key stroking money into the Treasury General Account. The difference is that inflated assets do not directly translate into dollars in the TGA. The government could borrow against the assets, but it doesn’t have any trouble borrowing at low rates without pledging assets today, and no one would loan the inflated amount claimed on the books. Platinum Coin Seigniorage, on the other hand, gives the President the option of filling the public purse without having to get Congress to change the operational relationship between the Federal Reserve and the Treasury. That relationship is not going to be changed by the current Congress, but the President has the option to over ride it if he would only choose to exercise High Value Platinum Coin Seigniorage (HVPCS).

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  11. “Seriously if trillions of debt can be “coined” away with platinum then why would anyone care about the gold price?”

    Trillions of debt can be “coined away” not only with platinum but also with paper and, even more simply, with the adjustment of numbers in a computer. In fact, the Fed has been buying up the annual deficit with freshly coined “reserves” for a few years now.

    “The process by which banks create money is so simple that the mind is repelled,” John Kenneth Galbraith.

  12. Pingback: The Five Worst Reasons Why the National Debt Should Matter To You: Part Three, The Other Four Worst Reasons | New Economic Perspectives

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