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In celebration of Paul Ryan's nomination, and in consideration of his reputation among Washington, DC villagers as a fiscal guru, I thought it might be fun to do a series of posts, of which this is the first, critiquing examples of Ryan's past wisdom. Here's the first example:

”We face a crushing burden of debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead.”
The debt referred to here by the Congressman is the accounting construct of the national debt subject to the limit, or the face value of the debt instruments the Government has yet to redeem. But just why the “burden of debt” is so crushing, or even a burden at all to you and I really needs to be explained carefully by Ryan and the other deficit hawks to the rest of us.

I don't see any public debt burden on myself or any American people at all either at present or in the future. Why? Because a burdensome debt is one that you and I will personally have to pay back, and we just won't ever have to pay the public debt of the US back from taxes that we are asked to pay to the Government. That is, we won't unless Congress and people who believe the things Mr. Ryan believes, decide to pay the debt by levying taxes, cutting Government spending, and running Government surpluses until it is paid.

That was done once in American history during Andrew Jackson's Administration, when the public debt was paid by raising more taxes than spending. The result was that Martin Van Buren, Jackson's successor became a one-term President, following the panic and very serious depression of 1837. That depression was caused, in great part, by a shrinking of private demand caused by Government austerity, the successful pay back of the debt, and the continuing policy of balancing the budget. In addition, every sustained attempt in American history to run budget surpluses was followed by either a depression or a recession. A summary of the depressing record is here.

Vice-Presidential candidate Ryan either believes himself, or wants you to believe, that the “crushing debt” will have to be paid for out of taxes levied on you and I. But there are a number of different ways to handle the national debt that don't place any burden on us at all.

First, there's the way we've been handling it up to now, namely by rolling over previous debt and paying interest on it as it comes due. We'll always be able to do that because a debt instrument is the functional equivalent of a savings account, and frequently those who hold USD including foreign nations have the effective choice of keeping their USD in a reserve account, or buying a debt instrument that pays higher inerest. They'd rather buy the debt instruments, of course. However, low the rate of interest is, it's better than the rate they'll get on reserves.

Can our national debt increase indefinitely? The short answer is: yes it can. The reason is that a Government like the United States with a fiat non-convertible currency, a floating exchange rate, and no debts in any other nation''s currency, has no solvency risk because it can always create money to pay its obligations. Its debt instruments are therefore nearly risk-free. So, they're a safe harbor for investors who'd rather earn a better return on the USD they hold than interest on reserves or no interest at all.

Second, in lieu of simply rolling over our debt and increasing it, as needed, Congress can decide to get rid of all the public debt, by simply removing its mandate forcing the Treasury to issue new debt when it deficit spends. Congress needs to replace it by granting authority to the Treasury to spend Congressional appropriations by directly marking up private sector bank accounts, or if it continues to spend through its Federal Reserve Accounts, Congress will have to give it authority to mark up its Federal Reserve accounts when it wants to deficit spend Congressional appropriations. If this is done, then Treasury will be able to make all its debt payments when they become due, and most of the public debt will be gone within 10 years, except outstanding longer-term instruments. If Congresspersons like Paul Ryan think the debt problem is so burdensome, then there is nothing preventing them from giving Treasury the above authority and getting rid of the debt. is there?

In fact, the reason why any public debt at all exists right now is because Congress mandates that new debt be issued when the Government deficit spends. So, Congress wants the Treasury to manage the debt through the roll over method, and it is Congress's own fault that the United States has any public debt today, or it would be except for the following.

Third, another way the Treasury can pay back the national debt, if it wants to, and without increasing taxes, is for it to use Proof Platinum Coin Seigniorage (PPCS). Since passing some obscure legislation in 1996, Congress allows the US Mint to produce coins of arbitrary face value using Platinum. A coin with face value $1 Trillion could be minted and deposited in Mint's account at the New York Fed. The coin would be legal tender, so the Fed would have to accept the deposit and mark up the Mint's account. The profit (the face value – the cost of making the coin) can be swept by the Treasury into its own account, and then used to mark up private sector accounts in Government spending, including repayment of debt instruments when they come due. Enough coins can be produced from time-to-time to both eliminate the gap between taxes and spending (the deficit), and also to redeem debt instruments. Or, alternatively, for example, the Mint could produce a single proof platinum coin with a face value high enough to cover complete repayment of the public debt and likely deficit spending for a number of years as in this $60 Trillion plan.

So, there are least three ways to manage the public debt, two of them allowing it to be paid off, which don't involve increasing taxes. That's why the burden of that debt is illusory, and that's why our new Vice-Presidential candidate Paul Ryan is telling us all a fairy tale when he says we face a crushing burden of debt.

What about his remark that the debt will soon eclipse our whole economy? I suppose he means that its size will soon match our annual GDP, which is true, because as of this writing it is near $16 Trillion. But that comparison is a silly one, as is the debt-to-GDP ratio derived from that kind of thinking.

The GDP is an annual statistic. The debt (roughly) is the accumulation of deficits since Andrew Jackson last paid it off in January of 1835. So a fair comparison, if Ryan wanted to make it, would be the national debt compared to the sum of the annual GDP since 1835. I won't calculate that sum, but a back of the napkin calculation indicates that the close to $16 Trillion national debt is about 8% of the cumulative GDP during the past 20 years. Isn't it funny, how the severity of the debt picture can be greatly affected by the denominator one uses in one's debt-to-GDP ratio?

To tell the truth though, neither the size of the national debt, nor the debt-to-GDP ratio, whatever the denominator used, are relevant to the capacity of the Government to spend either in the present, or in the future, because their size has nothing to do with the Constitutional authority of the US Government to issue currency and create money, and also has nothing to do with the solvency of the United States Government, which is guaranteed by the US non-convertible fiat currency, accompanied by a freely floating exchange rate, and external debts denominated in any other currency than the dollars our government has the unlimited constitutional authority to create. So, not only is Ryan's comparison inappropriate, but it's also irrelevant to the real issue being raised which is the continued solvency of the Government.

In my next post, I'll discuss more of Ryan's follies. But before I do that it's only fair to note that the so-called “debt problem” isn't a construct confined to Congressman Ryan, or even he and his boss, Mitt. It's a “problem” that has also been spoken of in similar terms by President Obama, and one of his favorite appointees to his Fiscal Commission, and his reputed favorite to succeed Tim Geithner as the next Treasury Secretary, Erskine Bowles. So, the particular Ryan folly we've considered here is far from his and the Republicans alone, but also is well-represented in the highest reaches of the Democratic ranks. That's why more and more people, contemplating the current political scene in the United States, are concluding that the American people are about to be screwed real good and proper by their political elites, and their utterly counter-productive, utterly stupid, and utterly immoral policy of more tax cuts for the very rich and austerity for the rest of us!

(Cross-posted from Correntewire.com.)

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Comment Preferences

  •  What about inflation? (2+ / 0-)
    Recommended by:
    notrouble, Variance
  •  Over His Last 14 Years In Congress, Paul Ryan.... (4+ / 0-)
    Recommended by:
    mf2hd25, Heimyankel, Owlet, OooSillyMe

    contributed to that debt when he voted for the Bush Tax Cuts of 2001 & 2003, the Iraq War, the Medicare Modernization Act of 2003, & TARP.  He also voted for the auto bailout which he criticized the President for.....after the fact & after his vote.  

    Paul Ryan should have the grace & the decency to stop trying to stiff the middle class for the debt he helped cause.  

    •  He should? (2+ / 0-)
      Recommended by:
      David54, psyched

      But he has no decency and no shame. Neither does Romney. They both think they're entitled!

    •  when ryan became a member of congress, in 1999, (0+ / 0-)

      budget surplus was 124 billion.

      when obama was inaugurated, the budget deficit was 1.5 trillion.

      •  Right, but (2+ / 0-)
        Recommended by:
        Calgacus, Ian S

        deficits are not good bad in themselves. Clinton's surpluses weren't good for the economy. They destroyed private sector net financial assets, and his prosperity had to be carried by the  dot com/real estate debt bubble of that time. Bush inherited a recession from Clinton, which were partly met with deficits from the automatic stabilizers and later from Bushes tax cuts and deficit spending. The economy under him was never great however, because nothing "trickled down." Then came the collapse, which is what caused the big deficit in Bush's last year. That deficit wasn't good because it was a passive one caused by the collapse, the decline in tax revenue and the automatic stabilizers. Obama's first deficit was better because a lot of it was caused by measures designed to stabilize the economy. But it was too small to restore full employment. The deficits we have today are keeping us afloat, but they're too small and undirected to enable full recovery. They're also very much due to Republican refusal to legislate jobs programs.

    •  His prior votes are going to be his downfall. (0+ / 0-)

      They compound Romney's credibility problem.

      You can't make this stuff up.

      by David54 on Sun Aug 12, 2012 at 08:16:46 AM PDT

      [ Parent ]

      •  His prior (0+ / 0-)

        speeches and proposals for the economy too. If you're retired and not very rich you have to be an ignoramus or crazy nincompoop to vote for Romney-Ryan. This would be even more clear if Obama would commit to expanding the safety net as he should. But it will be tough enough to get him to commit to no cuts in entitlements, since he's been one of those behind the whole deficit terrorism thing.

  •  "accounting construct" (1+ / 0-)
    Recommended by:
    Letsgetitdone

    Social security can be called the same thing if you choose but I don't think you would want to cheat anybody that contributed to the SS fund, would you?  They're one in the same thing, both the working people that paid into the SS fund and investors that purchase treasury bonds.  They both expect to be paid back with interest.

    I've heard this a thousand times on DK when bankrupt towns and cities reneg on their pension obligations, "A contract is a contract. Live up to your end of the bargain."    What you're arguing for is convoluted schemes to trick those people into believing they're being paid when they're really not.  Is that how we do business in this country?

    Children have imaginary friends, adults have god.

    by soros on Sat Aug 11, 2012 at 10:16:28 PM PDT

    •  I have no idea what you're (1+ / 0-)
      Recommended by:
      psyched

      talking about? I'm not suggesting we renege on the accounting construct of the national debt, or any other debts of the government. I'm suggesting we pay them off!

      It isn't even constitutional to renege on any debts it's prohibited by the 14th Amendment.

      Nor am I arguing for a convoluted scheme. Our means of deficit spending is not convoluted. It's one great cycle in which the Federal Reserve, an undemocratic organization finally supplies money to everyone else including Treasury.

      Further, I'm not sure you recognize the real nature of the public debt. Offering that debt is like a bank offering savings accounts to customers who have checking accounts.
      A Federal Reserve Account is precisely analogous to a checking account holding dollars. But investors want more than that. They want interest bearing accounts, and that's what our securities really are. But you never hear the national debt clock called the world dollar savings clock do you. Every dollar in a securities account at the Federal reserve banks represents a dollar that some entity in the world is saving. So the $16 T debt subject to the limit is also $16 T in somebody's savings. I would never advocate stiffing people for their savings.

      But I do advocate paying off all the debt in the manner I've specified. The reason is that the damned debt has become an issue that's freezing progressive legislation because all of the myths surrounding it. Better to get rid of it, and with it all the politics surrounding it so we can consider spending bills on their merits rather than based on the impact on the deficit they will have!

      See this for a more detailed discussion!

      •  The most concerning thing in this diary is in the (0+ / 0-)

        last paragraph: "President Obama, and one of his favorite appointees to his Fiscal Commission, and his reputed favorite to succeed Tim Geithner as the next Treasury Secretary, Erskine Bowles"

        If Erskine Bowles gets in, the Republicans will go along with him AND the Democrats in royally screwing the middle and lower classes.  The rich will get the tax cuts and the rest will get the benefits cuts.

    •  Convoluted schemes is what we have now (2+ / 0-)
      Recommended by:
      Letsgetitdone, clonal antibody

      What you're arguing for is convoluted schemes to trick those people into believing they're being paid when they're really not.  Is that how we do business in this country?

      The way things are done now is the crazy convoluted way, that hides the ludicrously simple reality. What we are arguing for is to make everything simpler, or at least to understand the simple reality, and that the kooky way things are done now is not materially different.

      I.e.  Have the government print money into existence & when it taxes, shred it. If you like, think of crediting & debiting bank accounts.  That's how it works now, it is just hidden by silly shell games.

      For SS - just decide that retired people deserve some amount of money - if you want, have it bear some relation to their earned income. Say something like what people get now. If you want, though it is not really a good idea any more, have working people pay taxes to join the SS retiree club in the future. Make sure that increases in retiree benefits does not exceed productivity growth. Make sure that if you have them, that SS taxes are not so onerous (they've been absurdly high for 30 years now) that they damage the economy.

      You're paying people, not pretend-paying them. SS "financing problems" solved.  The End.

       

  •  So why stop with paying off the debt? (0+ / 0-)

    Why not mint a coin large enough to pay off the entire debt and also give every citizen of the U.S. a billion dollars? We'd all be rich.

    Now you may want to call that a preposterous idea and I would agree but what I need explained is why minting  enough to give us all a billion dollars would be silly but not minting enough to pay off the debt.

    I would also want to know how this would be different from the situation in Weimar Germany after WWI when the government minted money to handle the public debt and within a few years a one mark loaf of bread wound up costing one hundred billion marks.

    The world is a den of thieves and night is falling. -Ingmar Bergman

    by Pirogue on Sun Aug 12, 2012 at 12:40:10 AM PDT

    •  You can have a billion dollars (3+ / 0-)
      Recommended by:
      psyched, Letsgetitdone, Calgacus

      If you provide a billion dollars worth of service to the community at large - in other words, sell your services to the government. The Government spends dollars into existence, or it can give them away. Giving them away has obvious problems.

      However, neither social security or medicare are "giving away" money. They are a service that is provided to the community at large. Taking care of elderly and making sure that no elderly starve is a "good thing." The elderly have already served their community - which is why they have "retiired." There is no problem that these programs can "run out of money" as the government cannot run out of money. The problem with both social security and medicare is an accounting artifact, and not a true constraint.

      One could very well argue that the US Healthcare is bloated, and does not provide value for money. But that is not a Medicare problem. The Medicare program runs with an overhead of 5% (compared to 11% to 30% overhead for private health insurance - 11% for large buyers of insurance, e.g large corporations, and 30% for insurance sold to individuals) and serves a segment of society that private health insurance will not even insure at any reasonable insurance premium. This is why a Single Payer Health provided by the government is such a good deal, and why insurance companies fight the concept "tooth and nail"

      •  Right! (0+ / 0-)

        In fact, enhanced Medicare for All will reduce total spending on health care from $2.7 Trillion to about $1.8 Trillion annually, if the US is as efficient as Canada in its implementation. That kind of cut will raise the Government contribution about $850 Billion per year. But it will save the private sector, people paying for insurance, co-pays, and drugs about $900 B per year. I'd say that's a great trade-off for people and a terrific stimulus for the economy.

    •  As regards Weimar and Zimbabwe (3+ / 0-)
      Recommended by:
      psyched, Letsgetitdone, Calgacus

      All you have to do is to raed the excellent treatments of both hyperinflations in the Wikipedia to understand that none of the conditions that led to thos hyperinflation are operative for the US, and cannot and will not, as long as the US Debt is denominated in dollars.

      For those who do not realize it, almost all US foreign entanglements have this at the base. Making sure that dollars (not US export goods - but dollars) are able to buy the goods and commodities, particularly oil, that the US needs.

    •  Some economists are recommending a QEP, or (1+ / 0-)
      Recommended by:
      psyched

      Quantitative Easing for the People - better to give $6000 (the equivalent of what the central banks created for the banks and bond funds) to every person in the US rather than to give it to the banks who just sit on it.  See the link below:
       http://blogs.reuters.com/...

    •  You miss the point (0+ / 0-)

      First, paying off the debt is not inflationary because it doesn't add net financial assets to the economy. Remember, those bonds are financial assets, and even though they are not reserves, they can serve as collateral for loans which create deposits, which are reserves in the banking system.

      Second, I don't stop with paying off the debt. If a $60 T coin were minted then $44 T of it would remain after the debt was paid. This could be used to cover deficit spending appropriated by Congress for at least 15 years or so. But the $44 T can't cause inflation until it's spent into the economy. So, as long as Congress does not use more deficit spending than is needed to create full employment there will not be demand-pull inflation caused by Government spending.

      Third, I know, I know, now you'll tell me that deficit spending without issuing debt is more inflationary than deficit spending accompanied by dollar-for-dollar debt issuance. However, this theory isn't borne out by the facts. That is, all the empirical evidence we have refutes this theory about deficit spending. See Scott Fullwiler's piece.

      Fourth, the answer to your question about why don't we give everyone a billion dollars is that if we did that it would be ruinously inflationary. This answer is implicit in what I just said in my third point. If you want to avoid inflation you can't indiscriminately add net financial assets to the economy. When you have an output gap as we have now, you can give people assets and people without a high propensity to save will use the demand created and the output gap will close. But once it does close, then you can't add any more financial assets until the real capability of the economy to produce real wealth that people want to buy also increases.

      So, fifth remember I pointed out above that paying back the debt doesn't add to net financial assets. But deficit spending by the Government does, so you want to do such spending in such a way that you're pretty sure it will result in adding real wealth and productive capability to the economy. That's why you should want to spend on education, infrastructure, new energy foundations, jobs for people to add value to communities to meet needs not being fulfilled by the private sector. And it's also why you don't want to deficit spend in such a way that it will add to financialization of the economy because that sort of spending increases only nominal wealth and not real wealth.

  •  But Jackson took on the central bank of the day (0+ / 0-)

    and won.   The Second Bank of the United States was the Federal Reserve of its day.  Jackson opposed its rechartering (more for political motives than economic ones) and basically destroyed the bank by withdrawing federal deposits from it.  This didn't cause the recession of 1937:  it was Nicholas Biddle's raising of interest rates that did.

    For years the U.S. had no central bank.  The idea of a Federal Reserve came in 1907, not from any elected body, but from a consortium (one could argue that it could rightly be called a cartel) of New York bankers and brokers.  Six years later the Federal Reserve System was created.

    About half of the US public debt is owed to the Federal Reserve.  Maybe it's time to eliminate the Fed and half of the debt along with it.  

    •  I'm all for (0+ / 0-)

      eliminating the Fed as we know it, by placing it within Treasury, but I disagree about the Second bank of the United States being the cause of the depression. The point here is that paying off the debt based on taxes exceeding spending destroys private sector financial assets. Jackson's pay-off program did that. To get financial assets private sector people then have to increase debt which they were able to do until Biddle raised rates and tightened credit. So, there was a sequence here and Biddle's action was preceded by disappearing net financial assets cause the Government running surpluses for many years culminating in Jackson's payoff.

      Finally your figure on Fed held debt is way, way, out of line. If I recall correctly, intra-governmental debt not including the Fed is at about $4.4 T, Fed held debt is about $2.3 T, that leaves about 9.2 for foreign governments and domestic private sector held debt.

      •  Right you are on the Fed share (0+ / 0-)

        Chalk it up to a sudden attack of irrational exuberance.  I attributed the whole of the blue area in the pretty graph below to the Fed, when it actually includes me, you, Pimco and the Fed - the major difference between other owners of the public debt and the Fed is that we had to come up with some actual money, whereas the Central Bank can just poof it up out of thin air.

        Another question we are frequently asked is how much of the U.S. national debt is owned by the U.S. Federal Reserve. In July 2011, the Fed's report (pdf) on its credit and liquidity programs and its balance sheet indicates that as of May 25, 2011, the combined total of U.S. Treasury securities and Federal Agency debt securities owned by the U.S.' central bank system totaled $1,638 trillion, which represents approximately 11.4% of the total U.S. public debt outstanding.
        Seeking Alpha

        The data here are a year old, but I'm thinking that the percentages have remained pretty much the same.

  •  A more interesting point about "Debt",, (0+ / 0-)

    is, how much of it  was caused by policies, Medicare D, Bush tax cuts favoring the very wealthy, and two wars, all of which congressman ryan voted for.

    ",,, the Political whorehouse that is Fox News." Keith Olbermann

    by irate on Sun Aug 12, 2012 at 08:01:31 AM PDT

  •  Another way to fix the problem is to deficit (1+ / 0-)
    Recommended by:
    Ian S

    spend now, while the cost of borrowing is at a record low, in fact, they'll pay you (the gov) to borrow.

    We need a 21st century infrastructure, renewable energy, (including solar on every building in the country), high speed rail, light mass transit, and a revolution in architecture and energy efficiency, and a revolution in oceaneering and coastal development/engineering to correct the environmental damage already done and to prepare for the effects of climate change.
    We also need new investment in education and in first responders given the new challenges of climate change.
    Ditto agriculture.

    This investment would re-invigorate the middle class economy and restore demand to the capitalist system.
    It would create new entrepeneurs and it would start restoring the revenue stream of the local, state, and federal govs. and would eventually allow for the lowering of the debt.
    It would also take the strain off the social safety net.

    You can't make this stuff up.

    by David54 on Sun Aug 12, 2012 at 08:26:06 AM PDT

    •  Why do that? (0+ / 0-)

      We can spend without borrowing. Why can't people remember that the Government has unlimited constitutional authority to create money. Right now the authority to create unlimited currency and bank reserves lies with the Fed, and the authority to mint unlimited money in the form of the face vale of coins lies with the Executive Branch. That is the legal status quo. We should make use of it and quit grousing about "the debt", "the debt."

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