(Week 5 - Monday Aug. 25)
There is, in my view, a very direct and completely effective way to address the problem of the "national debt," which is, by my definition, any monetary "indebtedness" that is taken on by the society or nation as a whole, and not in particular by any of its members or sectors. We can list four forms by which the "national debt" manifests at present. These are:
(1) – The "Federal deficit" – This is the amount of money borrowed by the Federal government in a given year from the nation's semi-private (some say quasi-public) central bank (Federal Reserve) to make up for the deficiency in tax revenues collected, which causes it to come up short in meeting its budgetary obligations.
(2) - The "Federal debt" - This is the ongoing sum of yearly "Federal deficits," which constitutes the total amount of money borrowed by the Federal government from the Federal Reserve.
(3) – The "balance of payments deficit" - This is a net monetary imbalance caused by this country buying more goods from foreign nations than we sell. When we sell goods to foreign countries we receive a net inflow of money, or stream of "national income." When we buy goods from foreign countries we spend part of that income. If we buy more than we sell, then there is a net outflow of money from the U.S. to foreign lands, which is referred to in the current economic discourse as a "balance of payments deficit."
(4) – The "money supply" - This is the amount of money that the participants in the social order or nation as a whole, including both public and private sectors, "owe" to the private banking system for the system's having made available the supply or pool of money which society requires to conduct its commerce.
The first three of these forms of the "national debt," and the arguments about them, no doubt look like familiar features of the national debate over money, and the descriptions that I have provided above are essentially the conventional ones. I would assert, however, that they are not what they commonly appear to be. In my experience, the terms "Federal deficit," "Federal debt" and "balance of payments deficit" are misnomers. That is, the phenomenon that each ostensibly refers to is not what the words themselves would seem to indicate. They are all abstract figures of speech that effectively serve to cover up the real nature of what is happening in the financial affairs of the nation, though, I dare say, very few people realize it. Typically, these expressions pass for what a literal interpretation of their words would tend to indicate, and that, in turn, is the cause of untold dysfunction and misery in the economic life.
Item #4, the "money supply," is one I have never heard identified as being an aspect of the "national debt," but previous columns in this series may give the reader some basis for understanding what I mean by identifying it as such.
In the next few installments I will offer very specific thoughts about how, in principle and practice, these aspects of the "national debt" were formed, and how they can be eliminated (to be clear, I am not proposing eliminating the money supply, but rather eliminating it as "debt"). In the end, we will discover that the very expression "national debt," when used in a monetary sense, is a contradiction in terms.
The complete set of columns from this series is posted at the following websites.