National debt doesn’t matter?


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By Michael Maharey

the national debt stands at $30.3 trillion, and the U.S. government continues to running massive deficits. But does it really matter?

Some people say it’s not because “we just have to debt to ourselves.

The real question, as formulated by economist Murray Rothbard, is who are “us” and “ourselves”.

The historian and libertarian commentator Tom Woods recently replied to an email making this argument.

The emailer said the government is “ultimate superior”. Therefore, the debt is only “on paper”.

So we borrow? How can you borrow from yourself in other words? “Debt” as I see it is only on paper and therefore should be fictional, mentioned only to make people look important.

But that’s just not true.

Stop and think about how the government funds debt. She sells treasury bonds. And he sells them to real people and institutions around the world.

If you hold Treasury bonds in your investment portfolio or 401(k) – and you probably do – the US government owes you money. If the government defaulted, you would lose everything you invested. Your loss would be real – certainly not “fictitious”.

It would be no different than lending your neighbor $300 and never being paid back.

And it’s not just Americans who buy Treasuries. Foreign investors hold about 25% of US debt. Again, these are real people and institutions that loaned the US government money. They expect to be reimbursed. And they would be financially harmed if they weren’t.

It is true that the government owes part of the debt to itself. For example, the Social Security Administration holds approximately $3 trillion in US debt. Other government agencies also hold treasury bills. But the biggest debt holders are US citizens and private institutions. US investors hold about $10 trillion in US debt. These people did not lend each other money.

I think people get confused when they confuse the American government with the American people. They are two separate entities. You are not the government. And the government is not you.

So the national debt is not some kind of fiction.

And even if there is no risk of default, the debt has real economic consequences. This weighs heavily on the US economy. Studies have shown that a debt-to-GDP ratio above 90% retards economic growth by about 30%.

Some people will say that the United States has been running massive deficits for decades. Nothing bad happened, so it shouldn’t be serious. It seems plausible. But you have to remember that when you throw the box on the road, you end up running out of road. At some point, there is a tipping point where the debt will become so large that it will be unsustainable.

It’s going to be a problem. And not a fictional one.

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.


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