Are you aware of this in regards to the National Debt?

[Warren T]

Right now because of QE the interest rate on the National Debt held by the public is 2.4%. But the normal interest rate is 5.7%. If we were paying that interest rate on the National Debt held by the public, approximately 85-90 percent of the individual income taxes collected would go to pay that the interest.

[945]

If the queen had those things, she could be king.

Q1: For the taxpayers, is our “national debt” really a burden that must be repaid?
A1: No. For the taxpayers, it lacks those two qualities of a real debt. It’s a “Debt In Name Only”, a “DINO”.

1. THE DINO IS NOT NOW AND NEVER WILL BE A TAXPAYER BURDEN.

The DINO is the total value of all maturing treasuries. By calling the DINO “unsustainable”, Wall Street con artists, plotting to privatize Social Security and make a fortune in commissions, have panicked the public, politicians, and journalists. But actually, it is not the taxpayers but the buyers of newly-issued treasuries who, in a virtual bond rollover, pay for redemption of the mature treasuries. In every auction, more bonds are demanded than are available. Auction winners get the safest, most liquid US dollar instruments; the losers are stuck with bank risk. If it were ever necessary, the Fed, with cost-free keystrokes, could create a demand for treasuries by buying large quantities in the open market. The taxpayer is NEVER burdened but almost all US voters are swallowing whole the Wall Street hoax!

Our Treasury is like a bank accepting money offered for certificates of deposit. While a bank with too many bad loans can certainly have too many maturing CDs, our non-lending Treasury cannot have too many maturing bonds unless its deficit spending is causing harmful inflation. And that happens ONLY in a war or emergency requiring rationing. It NEVER happens during a recession. During prosperity, banks are ALWAYS the main cause of inflation, creating over $6 of credit for every $1 of deficit spending. To curb inflation, regulate banks before cutting infrastructure projects.

2. THE DINO WILL NEVER BE REPAID AND SHOULD NEVER BE REPAID.

Only a budget surplus can reduce the DINO. Since Truman, no President has reduced the DINO and no annual budget surplus is now in sight. Indeed, to supply enough treasuries, the ONLY risk-free instruments used for trade collateral, insurance, pensions, bank reserves, etc., THE DINO MUST GROW WITH OUR ECONOMY. In fact, deflation and then depression will hit us hard unless large budget deficits replace the cash that we are now exporting.

Q2: Could savers make a “run” on US Treasury bonds?
A2: Only when savers can get risk-free returns from the Wall Street casino or from GM bonds, Illinois bonds, or Detroit bonds. Safety is not everything. Safety is the ONLY thing! That’s why the whole world relies on US bonds.

Q3. Could savers stop buying US Treasury bonds?
A3. Only when nobody needs risk-free interest for trade collateral, insurance, pensions, bank reserves, etc., etc.

Q4: Could savers prefer foreign sovereign bonds?
A4: Yes, indeed! Now, almost two thirds of the world’s reserve currencies are in US dollars and about half of all US Treasury bonds are held by foreigners. But if China’s infrastructure and productivity become better than ours, its sovereign bonds could become safer than ours. And that could happen only if US voters let their DINO concerns stop the renewal of falling bridges, failing schools, leaking sewers, creaking railroads, aging power grids, etc., etc.

Q5: Won’t we need higher tax rates to pay for infrastructure?
A5: The federal government does not need taxes for spending. Just as you would destroy your redeemed IOUs, the IRS destroys all of its receipts, shredding bills and melting coins for scrap. Since Congress cannot touch a cent of tax revenue, it creates new money out of thin air (just like your bank creates loans), deposits it in the Treasury, and spends it with checks. The Treasury auctions bonds to finance deficits that are limited ONLY by the will of Congress.

The ONLY rational reason to restrict deficit spending is the onset of harmful inflation. Until then, Congress can finance both the DINO’s annual debt interest and our much-needed infrastructure. Every day, you fill your kitchen sink with water AND you prevent it from overflowing. Why can’t Congress fill our economy with money building infrastructure AND prevent harmful inflation? China builds 24/7 without harmful inflation. Why can’t we do that?

Q6: How can increasing the DINO be good for the economy?
A6: Every federal dollar spent and not taxed is saved by the private sector. Yes! DEFICITS = SAVINGS! The bad “Debt Clock” is also the good “Assets Clock”. Since we are exporting cash, deficit spending is our economy’s SOLE source of savings! Well, our (DINO + total bank deposits) / GDP ratio is less than half of China’s comparable figure and our M2 (money supply) / GDP ratio is half of Switzerland’s ratio and one fourth of Hong Kong’s ratio. To become and stay prosperous, we need to DOUBLE the DINO / GDP ratio to return it to the World War II level that was followed by 35 years of prosperity without harmful inflation. Ask Grandma how it was in the good old days!

Q7: Won’t the annual debt interest expense explode the budget?
A8: Bond-holders return 20% of their interest income as taxes. New bond issues finance the rest. As no physical resources are consumed and there is no change in the money supply, there is no inflationary effect. The DINO increases by 80% of the interest, which is good. For all those reasons, CBO budget economists deal only with the “primary” budget, which excludes the annual debt interest expense.