The United States national debt is over $28 trillion that is massive and larger than the country's economy
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Indeed, it's the world's largest debt, but the U.S. government continues to spend more than it brings in.
This huge and rising debt level has been described as a threat to national security by the former Secretary of State Hilary Clinton. The US federal budget deficit stood at almost one trillion in the 2019 fiscal year.
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Government spending has soared as a result of the COVID-19 pandemic, even as demand for more government services grows. But who will be responsible for all of this?
Not all economists believe we should be concerned about the national debt. Stephanie Kelton, an economics and public policy professor at Stony Brook University in New York, is one of them. She is also the author of the New York Times bestseller 'The Deficit Myth,' as well as the former chief economist of the United States Senate Budget Committee for the Democratic Staff.
The book contains a number of thought-provoking ideas about government debt. To begin, there is a significant difference between you taking out a loan and the government borrowing money.
If you can't get money to cover your debts, your credentials can seize your savings, trapping you for the rest of your life. However, the US government is not you.
Since the federal government is the issuer of the currency, the US government does not have to worry about where it can find the money to pay its debt. As a result, it will never face the same financial difficulties that we may face when it comes to repaying our debts, because the government repays its debt with currency that it issues itself.
In other words, when the federal government gets to manufacture the money, it doesn't have to think about collecting dollars to repay its creditors.
This is the key point that the US government can make more money whenever it needs to, in order to pay for whatever it wants, including debts. That means the US government will never go bankrupt and will never need to borrow money from someone else.
But why is there a national debt if the government does not need to borrow?
To find an answer, we must first comprehend what a deficit is.
Consider a scenario in which the government invests $100 in the economy but only returns $90 in taxes. This is referred to as a budget deficit by economists. However, we must keep in mind that if they put $100 in and only take out $90, they are actually depositing $10 into some aspect of our economy.
So those $10 are really circulating in the economy which is a negative in the government's books but positive for the rest of us.
In reality, any deficit benefits someone in the economy. The elephant in the room, though, is who gets those dollars, where do they go, and what is the deficit being used for in our economy.
Is the money going to people who would spend it on items they couldn't afford otherwise, thereby further simulating the economy? Or is it going to the very top, where it will almost certainly be saved?
It's terrifying to see our own money in the red. When we look at the government's finances, it's understandable to have a similar reaction. And that's most likely what US Senator Mitt Romney was getting at when he said, "I believe it's frankly not moral for my generation to continue spending exponentially more than we take in, knowing that those pressures will be passed on to the next generation."
However, we know that the next generation will not be paying for this spending out of their own pockets because the federal government issues US dollars and therefore cannot go bankrupt, meaning it can still pay its debts and does not need to borrow money. Furthermore, deficit spending results in money being left in the non-government sector of the economy.
You're right if you think there has to be a catch, that the government can't just keep printing money to fill our bucket.
There will come a time when there are so many dollars chasing too few items, causing prices to rise.
Americans have so many dollars and are so willing to spend them on goods and services that their economy can't keep up. They don't have that much productive potential, and all of that spending tends to overheat the economy, causing the bucket to overflow. In economics, this is referred to as inflation.
The real cap on how much the government can spend is inflation. Instead of thinking about the debt, we should be concerned about inflation.
To combat inflation, the government will now try to reduce demand by increasing the cost of borrowing capital. It may also tax some of the surplus funds to recoup some of the funds. But what if we increased the size of our bucket to accommodate more money?
If the government spends on items like infrastructure, schooling, R&D, and research and development, productivity will rise and the economy's potential production will rise, resulting in a larger bucket over time.
So now we know that a deficit isn't always a bad thing and that the United States government will always make money. Now it's time to respond to the previous question:
Why is there a national debt?
There isn't any, to be honest.
According to Professor Kelton, the national debt is simply the cumulative account of all the money the government has expended over time minus(-) all the money the government has taxed back. And if the government spends more than it collects, it is not required to make up the difference.
But what if somebody says something like, "The United States owes China!"
Bonds issued by the US Treasury are purchased by investors, including foreign governments. Since the United States will still make money to pay, the return on these investments is almost assured. As a result, there's no danger of a foreign army occupying the White House.
Understanding that the United States government will never run out of money and will continue to spend deficits as long as inflation is held under control ensures that big policy initiatives like universal health care, a Green New Deal, or student debt repayment will pay for themselves by keeping more money in consumers' hands, hiring more people, and improving the country's infrastructure.
That's what happened after WWII, when massive government spending resulted in the growth of the middle class. People have been telling a different tale for decades.
Britain now uses its own national currency, much like the United States. So Margaret Thacher was completely wrong about everything. She said, " If the state wishes to spend more, the state can do so only by borrowing your savings or by taxing you more. And there's no good thinking that someone else will pay, that ' someone else' is you. There is no such thing as public money. There is only taxpayers' money. "
When the government needs to invest money, it creates it immediately. It doesn't wait for taxes to be paid. That was demonstrated recently when the US Congress passed major COVID relief bills without raising taxes, resulting in the creation of trillions of dollars.
As a result, the obvious question is:
Why do we pay taxes in the first place?
We pay local taxes because local governments need revenue because they are unable to generate revenue in the same way that the federal government can, and we have already addressed how the federal government can use taxes to regulate inflation.
Taxes can change wealth distribution by either spending wealth around the population or, as the 2017 Trump tax cuts did, by further concentrating wealth within a small group of people.
Finally, by ensuring that we transact in the same currency, the government ensures that we continue to need the dollar as a currency.
Finally, we should state that a deficit does not imply that a nation is bankrupt.
Author MD.MAHMUD HASAN is a student at Department Of Criminology, University Of Dhaka.