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What $31 Trillion Looks Like Through the MMT Lens
You may have heard that the US debt just reached its highest level in history. THIRTY ONE TRILLION DOLLARS! “Run for the caves!”, as someone at CBO once joked in a meeting I attended in 2015.
The New York Times marked the occasion with this article yesterday, and CNN ran a full segment talking about what it all (supposedly) means for everyday Americans early this morning. (I’m having trouble finding a link to the latter, but I watched it live.)
In both cases (and in countless other places), we’re told a grim story about how wrecked America’s finances are, and how something must be done to douse the flames of the “fiscal fire” before our “nation’s fiscal woes” get even “worse.”
The Times article opens with this dinger of a passage:
America’s gross national debt exceeded $31 trillion for the first time on Tuesday, a grim financial milestone that arrived just as the nation’s long-term fiscal picture has darkened amid rising interest rates.
Believe it or not, it goes downhill from there.
I have been battling against debt and deficit scaremongering for more than two decades. Here’s what I wrote back in February, when the total supply of US Treasuries—aka “the national debt”— surpassed $30 trillion. Please look at what I wrote then. You can also watch the presidential lecture I delivered at Stony Brook University back in 2018. If you watch that lecture, you’ll see what “government debt” and “fiscal deficits” look like when you view them through the lens of MMT.
But I want to push you to go even further. I want to encourage you to go beyond understanding how government finance works in the context of the monetary system as it exists and operates today. I want you to think about whether the current practices and institutional arrangements are serving us well. Especially since the current setup gives rise to so much misunderstanding and unwarranted fear.
I want you to think about the key role that US Treasuries play (as collateral) in the global financial system. I want you to consider whether it makes sense to force any particular quantity of Treasuries onto the market—matching every fiscal deficit with an equivalent-sized sale of government bonds (as governments currently do). Why, if investors are holding all of the Treasuries (or gilts, or JGBs, etc.) they desire, insist on plying them with more? And if there aren’t enough to meet the needs of the private sector, why not offer to supply more (at desired maturities) on-demand, at some fixed price?
If these questions intrigue you, and you’re up for the challenge, check out this presentation by MMT economist Scott Fullwiler (he begins at the 32:35:00 mark). Scott does an excellent job explaining not only how things work now, but how the system might be improved.
You’ll also hear Scott explain that if the central bank “starts to increase interest rates to slow the economy down, you’re going to get more government spending on debt service and so you could speed up the economy when you want to slow it down.” A topic for another day.