It’s unfortunate to see this continued level of misunderstanding at the highest level of leadership. John Boehner still thinks we’re becoming the next Greece. A Huffington Post article says:
House Speaker John Boehner (R-Ohio) sees the debt ceiling as an “action-forcing event” where he will insist on cuts greater than the increase, setting up a legislative fight similar to the one that paralyzed Congress last summer.
Boehner calls the statutory debt limit as the “only avenue” to solve “our structural fiscal imbalance,” according to prepared remarks to be delivered at the Peter G. Peterson Fiscal Summit and released to the Washington Post. A Boehner aide told the Post that tax increases are still off the table.
“We shouldn’t dread the debt limit,” Boehner says. “We should welcome it. It’s an action-forcing event in a town that has become infamous for inaction.”
An “action forcing event”? He might as well just say he’s willing to use the US Economy as his vehicle with which to play political chicken. Now, I don’t know what “action” he’s trying to avoid here because the USA is the issuer of the currency in which its debt is denominated….Boehner said:
“This commitment to meet the obligations of the nation, this commitment to protect the creditworthiness of the country, is a fundamental commitment that you can never call into question or violate,”
The USA will have no problem meeting its obligations which are denominated in a currency it can print. There is simply no such thing as not being able to meet these obligations unless the Fed and Treasury forget how to operate their computer systems. The true creditworthiness of the nation is not in whether it can meet its obligations, but in whether it can continue to generate a standard of living that is the envy of the world. And as the currency issuer, it is the responsibility of the government to find that balance where they have supplied the currency users with enough currency to actually be able to do what the American private sector does best – innovate, create and produce. That’s a dramatically different thing than the USA’s mythical Greek insolvency moment (as a USER of the Euro the Greeks have a very real solvency constraint)….And political ignorance like that exposed in Boehner’s comments are in fact contributing to the stagnant living standards we have experienced over the last decade…..
Is it operationally accurate to say that the budget deficit is how much money the U.S.Gov is spending into existence in a given year (beyond what it is taxing out of existence)?
Approximately. Some agency spending and lending is off-budget.
Is the U.S. National Debt them equivalent to the sum of the yearly deficits?
How to private bank-money creation factor in? It seems like the national debt should increase even more so during credit-expansion. As banks are making more loans (loans create deposits), does this add reserves to the banking system? (which then often get soaked up through open market operations?)
… Do bank loans “add” to the national debt?
sorry for the spelling mistakes in that comment. I think you’ll understand what I’m asking.
Bank loans do not add reserves, at least to my knowledge. They do temporarily add to the money supply until the loan is paid back. When the federal government spends it does so by directing the Fed to create new reserves and then forward them to the recipients’ banks where deposits are made into their accounts.
Government spending creates reserves and taxation drains them. When government spends more than it taxes excess reserves accumulate in the banking system, which the consolidated government drains by issuing bonds and exchanging them for the excess reserves.
All roads lead to the trillion dollar deus ex machina (“a plot device whereby a seemingly unsolvable problem is suddenly and abruptly solved with the contrived and unexpected intervention of some new event, character, ability, or object”).
http://en.wikipedia.org/wiki/Deus_ex_machina
Ironically, Boehner refusing to raise the debt ceiling could theoretically turn us into a Greek like situation if the market stops believing the U.S. will use its currency printing powers. It substitutes “Japan” to “Greece” in Mosler’s adage.