Critique of Modern Monetary Theory (M.M.T.) in Regard to the National Debt and Other Topics (Incomplete)

Table of Contents

1. First Introduction: Paying Off the Debt vs. M.M.T.

2. Second Introduction: Basics of Modern Monetary Theory

3. My Plan to Pay Off the National Debt

4. My Plan is to Create a Surplus Without Raising Taxes

5. Removing Money from the Economy, and Private Issuance of Currency

6. What Does a "Private Sector Surplus" Really Mean, Anyway?

7. Do Deficits Really Pay for Imports? (Including Thoughts on China)

[more sections to come at a later date]

Content

1. First Introduction: Paying Off the Debt vs. M.M.T.

     I am currently running for the U.S. House of Representatives, on an independent platform which has, as its most important plank, a plan to pay off the U.S. national debt by 2047.

     Between April 20^th and 30^th, 2020, I was involved in an argument on Twitter regarding my plan to pay off the national debt.

     That plan would involve generating a trillion-dollar annual federal budget surplus as soon as possible, paying that trillion dollars directly into the hands of the federal government's creditors, and then doing that again each year until the debt is fully paid off. Since the national debt is currently above $23 trillion, this task will take at least 23 years to implement, so I have estimated that it could be completed as early as some time between 2044 and 2047.

     The argument began when a proponent of Modern Monetary Theory criticized my claim that I have a serious plan to pay off the national debt (saying that there is no such thing as a serious plan to pay off the national debt). That Twitter user, who calls himself “Bill”, later told me that my plan to create a federal government surplus (as opposed to the deficits that we're used to) would create problems which he worries I have not anticipated.

2. Second Introduction: Basics of Modern Monetary Theory

     In order to better understand the argument I had with “Bill” - and in order to understand why someone would want to criticize a plan to pay off the national debt in the first place - it will first be necessary to understand a few basic things about Modern Monetary Theory.

     Modern Monetary Theory (initialized as M.M.T.) is a school of economics which is an offshoot of the Keynesian school (founded by mid-20th-century British economist John Maynard Keynes).

“Bill” urged me to watch a video by M.M.T. economist Rohan Grey, titled “What is Modern Monetary Theory?”. That video was posted to the YouTube channel “Michabo Sustainable Harmony” in July 2019, and can be viewed at the following link: http://youtu.be/gr1PxeW5yWw

     In the video, Grey said the phrase “Modern Monetary Theory” originated in Keynes's explanation that the state has authority to enforce contracts, and also to enforce what sort of things can be used to make payments.

     Keynesianism and M.M.T. both hold that debt, deficit spending, and inflating the money supply in order to make up for shortfalls in the budgets, are essentially not serious problems, and perhaps not even problems at all. Certainly not as important, anyway, as goals such as keeping inflation under control, and preventing too much money from being saved rather than spent. M.M.T. proponents and      Keynesians tend to view paying off the national debt as undesirable and probably also impossible.

Economists who associate with free-market, conservative, and Austrian school strains of thought, on the other hand, reject that view completely. They argue that government debt is a bad thing, that it should be avoided if possible, and that it must be paid back.

     Many such critics of M.M.T. also believe that their goals of keeping inflation under control and preventing too much savings, are not as important as the goals which could be pursued by abandoning monetary policies influenced by Keynesian and M.M.T. thinking. Such goals include ensuring high or even full employment, and achieving a stable currency which has a slowly rising purchasing power because it's backed by balanced budgets. The tendency of M.M.T. proponents has been to criticize, minimize, or even dismiss these concerns.

     I have written the following article in order to explain what objections I have to Modern Monetary Theory, with particular regard to M.M.T. as presented by economist Rohan Grey in the video “What is Modern Monetary Theory?”, and also as presented by the proponent of M.M.T. who criticized my plan to pay off the national debt on Twitter (“Bill”).

3. My Plan to Pay Off the National Debt

     Before continuing, it will be necessary for the reader to understand several things about my proposal to pay off the national debt:

     1) Spending two trillion annually while taking in three trillion annually, would require decreasing both spending and revenue (and that's why it's my preferred solution as to how to generate a trillion-dollar surplus);

     2) I would hope to achieve this by reducing military spending not essential to our national defense; localizing Medicare, Medicaid, and Social Security; and passing reforms which would achieve price relief in health goods and other goods;

     3) Three trillion in revenue and two trillion in spending is not the only way to achieve a trillion-dollar surplus; there are numerous other possibilities which will, though (such as taking in four trillion while spending three trillion, taking in two trillion while spending one trillion, taking in one trillion while spending and doing nothing, etc.); and
     4) It's probably possible to finish paying off the debt earlier than between 2044 and 2047. If legislators begin to see early that the reforms are working, then they will be able to plan future spending and taxation in accordance with the limitations I have outlined.

     I tweeted to “Bill” the following: “Suppose we started taking in $3 trillion a year, and reduced our spending to $2 trillion.” I continued: “Say we did that every year, and paid the leftover trillion directly to our creditors. And we did it for 25 years until the debt got down to zero. Are you saying that would be: A) impossible; B) undesirable; or C) both?”

     “Bill” responded “both”, specifying that he was answering in terms of whether it would benefit the American economy and benefit the status of the U.S. Dollar as the world reserve currency. He added, “Economics is about distribution of real production and resources. Money is the tool we use to do that. Removing money from the economy makes distribution of real stuff more difficult. No reason to do this... ever.” He also said, “A federal surplus is literally a non-federal deficit. This is a reduction in the net money supply.”

     I initially responded by saying that my proposal would not take U.S. Dollars out of the economy. However, “Bill” responded by saying that studying fiscal flows will show that private sector savings and wealth are decreased when the government runs a surplus budget. As “Bill” put it, “a federal surplus means a deficit for everybody else” (i.e., for the private sector and for the foreign economy.

     Basically, “Bill”'s argument was the following: 1) it would be both impossible and undesirable to try to pay off the national debt; and 2) a surplus should not be created, because that would remove money from the economy, and make it harder for people in the private and foreign sectors to spend enough money in a way that distributes resources effectively.

     I suppose that "Bill" was trying to point out that if the federal government wants to create a surplus, then it will have to raise taxes in order to cover the current budget shortfall, and that will require taking more from the private sector and from personal and household wealth, causing unemployment and stagnation.

     “Bill” also explained that there is a private sector surplus whenever the government runs a deficit (which is because the government is not taxing the private sector as much as it would have to in order to balance the budget). “Bill”'s analysis of this concept was that “Basically federal deficits 'pay for' imports and private sector savings.”

4. My Plan is to Create a Surplus Without Raising Taxes

     What “Bill” neglected to notice, is that my proposal does not call for raising taxes. What I mean is that - while it may call for tax rates to be raised on certain activities - the total amount of revenue which the government would take in as federal tax receipts, would not be any higher than it is now; in fact, it would be much lower.

     I want the federal government to spend $2 trillion per year, while it currently spends about $4 trillion per year. This means that I am calling for approximately a two-trillion-dollar reduction in the total amount spent by the federal government annually. I am calling for balancing the budget while reducing total spending; I am not calling for balancing the budget through raising the amount expected to be generated through tax revenues.

     Moreover, I am not only calling for paying off the debt and serious budgetary reform; I am also proposing that governments change the sources of their tax revenue to something more efficient. In 2014, Georgist economist Scott Baker told RussiaToday (RT) that taxing the unimproved value of land (land value taxation) could yield $7 trillion in annual revenue. In 2014, $7 trillion was also roughly the same amount of money spent by all governments in the United States combined (at all levels). That means that replacing all current forms of government revenue with taxes on the unimproved value of land, could pay for all government services.

     I have certainly called for creating a surplus, but creating a surplus does not necessarily require raising taxes. People only think it does, because we have never tried to reduce the debt through requiring balanced budgets, making taxes more efficient, and making spending more efficient too, all at the same time.

     The goal of Georgist taxation is to tax land in order to make taxation on labor and capital unnecessary. Adopting Georgist and geo-libertarian policies on taxes will help achieve that increase in tax efficiency for which we are looking, as well as help simplify taxes while making them avoidable and (to the extent possible) voluntary.

     Once land is the only thing taxed, the need for income taxes, sales taxes, and taxes on home value will disappear. That's because taxing unimproved value would involve taxing the waste and hoarding of land, and land speculation (key causes of high land prices), which will help bring about cheaper prices for capital and labor (because they would be untaxed, and because their prices would be reduced because the land upon which they rest will have declined in price).

     Once Georgist taxation is in place, the price of owning land as private property will be high, but only for the sake of compensating the community for recognizing and protecting that property claim. Also, the price of tending land (and of building and dwelling and producing upon it) will be low. What this all means is that nobody will be discouraged from building, nor from producing, due to the imposition of taxes (in which a large portion of their earnings are confiscated through an act of legalized extortion). Nobody will be discouraged from building upon the land they tend, for fear that increasing their property value will increase their property taxes. Only actual ownership of the land should be taxed; not the rental of a housing unit on the land, nor productivity upon the land.

     Once nobody is too afraid of high tax rates, to build and produce to their full potential – and once they're free to keep all of what they produce – none of the “unemployment and stagnation” which we usually see with tax increases, will be seen as the result of switching to a more efficient system of tax revenue sourcing. Most of the dozen Pittsburgh-area communities which experimented with land value taxation and split-rate taxation saw decreases in not only unemployment, but also rent and average household taxes.

     In short, increasing unemployment and causing economic stagnation are problems which are typically associated with increasing taxes, but my proposal would not increase taxes; I would instead solve the budget deficit and create a surplus by making taxes more efficient (by switching to Land Value Taxation as our primary – maybe even our only – source of tax revenue).

     In the process, I would also like to localize as many government services as possible to states and communities, and repeal any laws which interfere with the natural freedom of locomotion. I believe that these measures will help accomplish three important goals: 1) Stop trusting the federal government with large amounts of money; 2) Stop trusting the federal government with the authority to regulate environmental, health, and land issues; and 3) Leave people free to travel to any community they please, and free to transact with any Community Land Trust they please.

     Goal #2 is important for two reasons: A) because each locality is directly affected by the set of unique health and environmental factors in that region, and B) because those issues were never specifically delegated to the national government in the Enumerated Powers in the first place.

     If we learn to live within our means, do more with the money we're already taking in, and avoid antagonizing production with the taxes we levy going forward, then the national debt will go from “unsolvable, but not a problem” to “a problem, but easily solvable (given enough time)”.

5. Removing Money from the Economy, and Private Issuance of Currency

     I told “Bill” the following: “It's not a problem that money will be removed from the economy, as long as: 1) the money comes from the taxation of the wealthiest who reap the most from government handouts (i.e., land speculators and land hoarders, corporate polluters, etc.); and/or 2) people are sick of the fiat USD (U.S. Dollar) and want real money.”

     By “real money”, I meant that the U.S. Dollar is partially backed by debt, and that this constitutes usury, vacating all responsibility to ensure that transactions do not take place unless all assets are fully possessed (rather than existing due to debt, inflation, deficit spending, leverage, and speculation).

     “Bill” responded “There is no 'real money'”, adding that” You can combine a liability with a material of your choice, but there is no need to conflate financial assets with real assets.” I find it odd that he said that, because I don't think I am conflating “financial assets with real assets”, as much as I am criticizing the conflation of financial assets (i.e., the face value of the dollar) with real assets (i.e., the real savings and real revenue which back-up, and form a basis for, the ability to finance. I'm saying that proponents of the dollar are “conflating financial assets with real assets”, by taking dollars at their face value, and neglecting to consider that they are backed by fiat (that is, government say-so).

     I agree with “Bill” that it is possible to “combine a liability with a material of your choice” in order to try to make a currency or money which is more solvent than the U.S. Dollar. However, there is a difference between saying “you can”, and saying “you can, if you can get away with it”. What “Bill” neglected to mention is that, in the United States, you can be charged with a crime, and put in prison, for issuing your own currency.

     That is what happened to Bernard von NotHaus, who issued .999-purity silver coins (and certificates redeemable for precious metals, and other forms of tender) as “American Liberty Dollars” (ALD). Von NotHaus never claimed his coins to be official United States currency; despite this fact, he was charged with manufacturing coins which bear similarity to American money. Von NotHaus was charged with “making, possessing and selling his own coins”, was ordered to pay the government $7 million, and now faces 15 years in prison.

     “Bill” was correct to point out to me that it's possible and legal to exchange your U.S. Dollars for things like tickets, coupons, and money created by stores (such as Chuck E. Cheese tokens and Disney Dollars). However, it needs to be both possible and legal to create your own currency, not just to exchange your dollars for tokens created by legally operating businesses (which are incorporated, licensed, and regulated by the same government that creates the dollars). Right now it is possible, but not legal, to create your own currency without the permission of the federal government (that is, if you want it to be made of gold or silver).

     We deserve a free economy. A person should not have to worry about being kidnapped by police, cuffed, and put into a cage, just because he pressed some gold or silver into disc shapes (unless he lied about what they're made of and how much).

     Considering the fact that the U.S. Dollar has lost some 98-99% of its purchasing power since 1913, it's safe to say that nearly any currency which is issued by a private citizen, is likely to be more solvent than the dollar is. So why not arrest the people at the Federal Reserve, instead of arresting people like Bernard von NotHaus and marking him a counterfeiter for life?

     After all, von NotHaus never tried to use physical force, nor threats, to get people to use his currency (in the way that the government does). Is the possibility that he committed a form of fraud, really as bad as the sort of violent crimes which are committed overseas in the name of "opening foreign markets to American products and the dollar", that von NotHaus should be treated like a violent criminal and have his "freedom" taken away?

     The fact that private issuers of currencies backed by precious metals have to live in fear of being thrown in prison, and the fact that they cannot confiscate people's property and wealth, means that private issuers of currency are difficult to compare to issuers of currency which have strong ties to the public sector. That's because those private issuers are effectively captive to public currency issuers' interests and control.

     It's not only difficult to compete against a legal monopoly, it's illegal. To say "you can combine a liability with a material of your choice", is to leave out a lot of important information about how, if that material is silver or gold, and you're in "the land of the free", and subject to the laws of the United States of America, your body might be put into a cage.

     To say "you can" do something that's sometimes illegal, is to dare people who want a more just society with fairer laws, to put themselves in cages, supposedly for the sake of proving the point that it's better to work with the government you have than to live in a lawless society (even if that government is tyrannical and flouts the law on a daily basis).

6. What Does a "Private Sector Surplus" Really Mean, Anyway?

     “Bill” said there is a private sector surplus whenever there is a federal government deficit. That is why, according to “Bill”, it would be bad to create a federal government surplus; that is, because it would create deficits in the private sector and the foreign sector.

     When the federal government runs a deficit (that is, when it takes in less than it spends in a given year), the private sector considers this government deficit to be a surplus for itself. That's because the government isn't taking enough in revenues from the private sector as would be necessary to cover the hole in the budget, so the private sector considers the funds which are not taxed away, to be more money for themselves (i.e., a “surplus”).

     However, I have to take issue with “Bill”'s position that “Basically federal deficits 'pay for' imports and private sector savings”. To me, the fact that “Bill” put the phrase “pay for” in quotes, suggests that “Bill” might be twisting logic to fit his own “truth”.

     It's true that when there is a federal deficit, there is more money available to be saved in the private sector, because it has not been taxed. However, the fact that the private sector considers it a surplus that there's more money for itself than it expected there to be, does not necessarily make it so.

     A “surplus” (which I am proposing the federal government create) is when you take in more money than you spend. Having more money left over at the end of the year, because the government didn't tax you as much as you expected it to, is not exactly the same thing as running a surplus. True; each results in having money left over.

     But a federal government surplus and a private sector surplus are fundamentally different things, because the private sector has much less power than the federal government (part of the public sector) to legally confiscate people's wealth. Government does this in several ways: 1) through taxation; 2) through inflation of the currency in a way that devalues the money in people's pockets; and 3) through legal means (such as levying liens against landed properties, homes, and other assets).

     Government has the ability to order people to purchase products. Because it has the military and armed bureaucrats on its side, the government has the ability to enforce the laws which provide for the expenditure of the taxable portions of people's transactions, on particular spending items (such as health insurance and government identification).

     Although the government is very often subject to capture by the interests of private sector entities, the opposite is also true, as private entities abide by government laws even when it goes against their interests. Unless the private-sector entity in question is a military, or a private army, a private sector entity generally cannot simply conquer people's land, nor compel people to do business with it (without the government to help make that happen).

     It is this unique power which sets government apart from the private sector.

     However, the fact that this is a unique power, vested in the government, should not be construed to mean, that government deserves this unique power, nor that it can or should be trusted with it. Nor ought we conclude that the public sector is “special” simply because it has the power to confiscate people's property and wealth at will. This power is neither “unique” nor “special”. What it is, is evil.

     If you think about it, what we are doing by describing “the private sector being taxed an amount lower than was expected” as “a private surplus”, is giving in to the idea that the government can and should confiscate as much property and wealth as it pleases. The mere fact that the federal government has the authority to raise tax rates, should not be construed to mean that it should raise tax rates.

     If a business operates within its means, and the government declines to tax the business (or declines to tax it at a high enough rate, for whatever reason), are we to assume that the “surplus” which would be generated, would be generated through the action of the business, or through the action of the government?

     Whose actual action and productivity caused that surplus? Did the government actually produce something by performing the very passive “act” of declining to tax away the funds in question? Probably not, because the government doesn't produce anything. But did the company produce something, or act in a way that directly caused that surplus? Arguably, yes it did. But what if the company made its money through destruction; like through war profiteering, or through polluting land?

     We must not treat destruction as if it were production, in the way we describe them and tax them. With a taxation system influenced by Georgism, we will tax the destruction and degradation of land, not the labor and capital which are mixed on top of it. This means that businesses will be taxed without regard to how much they produce and how much income they reap; that is, unless they reap that income through polluting, wasting, hoarding, or destroying land. Businesses would be taxed to the extent that they engage in those behaviors.

     Many people are aware that everything the government has was legally extorted from private people and entities; and that just because the government balanced its budgets or created a surplus, it doesn't necessarily mean that the government deserved all of the money it took in through taxes to achieve those goals, nor did the government produce anything in order to acquire those funds.

     But we need to understand that the private sector is capable of acquiring funds without producing, in exactly the same way that the government is. And the government and the private sector both have long track records of destroying and polluting for the sake of producing and acquiring funds.

     The fact that private businesses and the public government appear to be the only entities fighting over these funds which could be taxed, does not necessarily mean that either of them produced that wealth, nor does it mean that either of them deserves it, nor that one or the other knows how to spend it wisely.

     What is being fought over, was created by neither government nor the private sector, and it belongs to neither of them. The government's position is that that wealth should be spent and saved by government. The private sector's position is that that wealth should be spent and saved by private entities. This is a disagreement, but only in part; they each agree that the wealth should be spent and saved by someone. The only disagreements lie in who should do the saving and spending, and how much should be spent vs. how much should be saved.

     The fact that they agree to an extent, suggests that there is wider agreement that that wealth be spent or saved, than there is agreement about who ought to spend or save it. So why not allow that wealth to be spent and saved by the sectors of the economy other than the public government sector and the private business sector?

     The simple answer is that most people have forgotten that other sectors of the economy even exist. But the foreign sector, the non-profit (voluntary / charity) sector, private-public partnerships, cooperatives, the commons, and clubs and club goods, each have distinct characteristics which arguably could merit them being considered sectors of the economy unto themselves (distinct from the public and private spheres).

     With Georgism and Land Value Taxation, each community would have a Community Land Trust, a non-state entity which would not necessarily operate for profit. The more non-state non-profits there are, the easier it will be to survive, for a person who wishes to boycott the coercive state and the unsustainable short-term profits which are enabled by the state's excesses. The more non-state non-profits there are, the larger the “voluntary sector” (also called the “charity sector”, the “non-profit sector”, or the “third sector”) can grow.

     The private sector promises that, if they are allowed to keep their money, they will spend it on their employees, and on creating new businesses and new jobs, and on things that will reduce the costs of needed goods and services, so that people can afford them more easily. The government promises that, if they are allowed to tax more money from the private sector, the government will spend the money on its citizens, and on creating new government job programs and bureaucrat positions, and on legislative measures that will reduce the costs of needed goods, and on a retirement program that will allow them to put money away for later.

     If the government and the private sector are so determined that the money will get spent on (or saved for) the neediest people – to help them save, and afford, and work, etc. - then the neediest people should be the ones who spend the money directly, in order to make sure that happens (as government and business claim to want it to). [Ideally, the neediest people should also be the ones who acquire the funds directly from whomever possesses them (whether that's the government or private owners).]

     The money should be saved or spent by the voluntary sector (and by enterprises operating on voluntary bases, such as Community Land Trusts); not by the private sector nor the public sector.

Why isn't anyone concerned about the non-profit sector's deficit?

7. Do Deficits Really Pay for Imports? (Including Thoughts on China)

     “Bill” stated that “Basically federal deficits 'pay for' imports and private sector savings”.

     I have already explained that “Bill” believes that federal government budget deficits “pay for” savings in/by the private sector, in the following manner: businesses would be left with more money (i.e., what could arguably be called a surplus) – money which they can save - because those businesses would be taxed out of less money than they expected.

     But now we must continue, to the issue of whether deficits, in any sense, “pay for” savings in the private sector.

     Admittedly, I was unfamiliar with the idea that “deficits pay for private sector savings” until “Bill” brought it up. But after thinking about the issue in the context of financial relations with China, it started to make sense.

     What I figure “Bill” is trying to say, is this: When the federal government agrees to generate a deficit, it goes further into debt. Allowing itself to go into debt, allows American consumers to “profit” through America's relationship with its creditor nation China; that is, debt supposedly helps Americans purchase imported goods at prices which are relatively cheap. They are relatively cheap because of the close financial and trade relationship between the two countries, with China loaning to the United States, and the United States investing in Chinese goods in return. But more importantly, these goods are relatively cheap, because while America is buying Chinese products, it's buying them with a U.S. dollar that's partially backed by Chinese loans.

     And don't get me wrong; that sounds like an amazing deal for the United States! That's because it means that China is essentially paying us to buy their products. Several years ago, Senator Rand Paul stated something to the effect of “we are borrowing from China to pay China”. But we should take pause: we should think, “If it sounds too good to be true, then it probably is too good to be true.”

     Think about it: If a seller is so desperate to unload his product that he is willing to pay you to buy his product, then that could mean that: 1) the product is bad; 2) the money is worthless; or 3) both 1 and 2. We ought to ask, “You want to pay me to buy it? It sounds too good to be true. What's wrong with it?”

     Is the appeal of massive savings through importing cheap goods from China, really worth the risks associated with importing large amounts of products, which could be faulty, feature safety hazards, and/or be made from low-cost material that's carcinogenic? We must not use the allure of cheap products from China to justify continuing to enable the U.S. federal government's cycle of addiction to debt to foreign nations.

     I want free markets and a free economy; not captive markets and a rigged economy. To avoid captive markets and the rigging of markets, we must avoid borrowing from countries from which we purchase massive amounts of goods.

     If we buy a lot of goods from one country, then we should look to other countries for loans. If we notice ourselves depending too much upon one country for loans, then we should try to avoid buying too much from that country, and import goods from different countries instead.

     On the other hand, if we don't do that, and instead we buy most of our goods from one country, and borrow from that country more than we borrow from any other country, then that is a recipe for disaster. That's because so much money would be flowing from the United States to that country, from both its public sector and its private sector. If it became necessary to consider consciously decreasing the flow of money from the U.S. to that country, then resorting to legal methods could only solve half of the problem at best, while working outside of government in the private sector could only solve half of the problem just the same.
     It would cause U.S. markets to become subject to rigging of markets in favor of that creditor nation / chief trading partner. It would be a market captive to China. We must not allow ourselves to be lulled into such a "false sense of economic security"; especially not if China's goals are dependence on Chinese products, and seeing the Yuan replace the Dollar as the world reserve currency.

     My point is not that we literally can't borrow from China in order to spend money on imported goods from China. The issue is that the fact that we can, doesn't necessarily mean that we should.
     We must not risk depending too much upon China (nor upon any other country which could potentially become simultaneously our primary creditor nation and our primary trading partner). Depending too much on one country, for both goods and loans, is a recipe for economic ruin for the debtor nation (in this case, the United States).

     To answer the question posed in the title of this section - "Do deficits really pay for imports?" - the answer is no.

     We in the United States might like to think that they do, but that is a flight of fancy and an oversimplification. We suppose, from the mere fact that we are borrowing from China at the same time that we are buying lots of its products, that these loans from China are "paying for" the products we're buying.

     But we are wrong; first, because money is fungible. Money from China can be spent on anything. Although we do "borrow from China to buy from China" in the sense of trade (and also in the sense that some of the money from Chinese loans goes towards repaying our debt to China), some of what the money from Chinese loans is spent on, has absolutely nothing to do with China, and doesn't go to China. They are spent on other federal budget items; domestic, military, etc..

     Second, it's not as if the money from Chinese purchases of U.S. federal government debt are being funneled directly back to the Chinese government, to buy Chinese products. Although the Chinese government provides assistance to the state-owned enterprise Cosco (the shipping company), America's national government is not, in any real or literal way, directly spending China's money on Chinese goods. Especially not, considering that many of the firms "exporting" "Chinese" goods to the United States, are actually American-owned firms.

     Although it, perhaps, seems logical that borrowing money is the only realistic way we're going to get as many products into America as we need, and cheaply, that is not the truth.

     Here is the truth: Deficits and debt are bad. Spending more money than you take in, is bad. You don't buy products with deficits and deficit spending and borrowing; you buy products with money. You don't buy things with negative money; you don't buy things with no money; you buy things with positive money. Money that you have, or can have in your possession, so that you know it actually exists.

     Why should I feel like an idiot for believing that, if we want to buy products from China, we should use money instead of debt? Is the United States trying to pretend like it doesn't want to go into debt, so that it can get away with acting as if it's doing China a favor by allowing China to take a trillion dollars in debt off of the U.S. federal government's hands? That's hardly a way to be grateful to the country that's bailing you out more than any other country is.

     Let us not be mistaken; it is not necessarily a privilege to loan to America.

     If America's best days are ahead of it, then it is certainly a privilege. But certainly not if America is on its way out, like if production will never return. If that is the case, then the fact that the United States will owe China money, will not matter, because the U.S. will have no feasible way to repay that debt.

     We are certainly on track for that to happen now, considering the large number of Keynesian, M.M.T., and other economists who believe that the national debt is not only not a problem, but also that paying it off would be undesirable and probably even impossible. My position is that resolving to pay off the debt, and talking about it as if it were both desirable and possible (because it is), will help reassure our creditors (most importantly China) that we are on track to pay that debt off.

     Don't get me wrong; being a major trading partner of China is not undesirable. We just shouldn't depend on them any more than other countries. And we should stop acting as if debt were an asset, no different from “positive money” and currencies and goods, that you can have in front of you, and see and touch and feel.

     Perhaps that is why we treat China as if it is privileged to buy our debt (i.e., lend to us); as if we were doing China a favor by selling our debt to them (as opposed to some other country, perhaps). Again, lending to the United States is only a privilege if the U.S. eventually pays back its debts.

     I'd like to clarify something. America is borrowing money from China, not the other way around. The investment which the United States makes in China, is not a purchase of their debt; it is not a loan to China. The investment which the U.S. makes in China, is the purchase of its goods (and also, the establishment of U.S.-owned firms in that country). America is importing goods which were exported from China after being manufactured in China.

     We are not loaning money to China. We are borrowing from them, while buying a lot of their products (and employing some of their people). China is loaning America a lot more money than the U.S. is buying from China. So China is, by no means, in the inferior position. Certainly not in its lending position. It is worth noting that the U.S. now trades with China at a surplus, so China's status in trade has declined relative to the U.S. - especially considering that U.S. debt service has been increasing for the last two decades - but China's position relative to the U.S. is still superior overall (for now).

     We must do away with the notion that borrowing from China allows China to invest in the United States. Chinese market actors have always been able to invest in the United States; it's possible for them to do so without the U.S. doing any borrowing from China at all.

     We would be foolish to go on acting as if owing this money to China provides only an opportunity to invest in the U.S. by selling us cheap goods; it also provides an opportunity for China to exploit America's need for Chinese products and Chinese loans.

     Have we allowed ourselves to become so deluded, as to believe that the fact that we're supposed to pay China back, means that China is owed all of this money, and that that's supposed to be as good as having that money?

     Ostensibly, the U.S. is borrowing from China in order to do four things: 1) be able to more cheaply afford imports from China; 2) fix a hole in its budget; and 3) use some Chinese loan funds to fund programs aimed towards increasing jobs and productivity here in the United States. The goal of #3 is to help-along goal #4) to generate taxable revenues from those jobs, to fund government, while (eventually) decreasing dependency upon China for loans.

     And again, that sounds like it makes perfect sense! But once again, all it really means is that we're borrowing from China... in order to avoid borrowing from China.

     When we treat debt as if it were currency or money, and trade it and spend it as such, we risk turning debt, and the temptation of credit and loans, into currencies in their own rights.

     That is to say, we risk monetizing debt as a matter of regular course, and we risk turning debt and I.O.U.s into something which is just as acceptable – and valuable – as a mode of payment, as are real, tangible, physical, hard assets (such as precious metals).

     When there are not strong anti-usury (and anti- fractional reserve) measures in place, we risk setting the value of some good, equal to the value of another object which claims to represent it. If a promise to pay is every bit as acceptable as a payment, then the value of a promise is likely to decrease. People who make promises will be less likely to be believed, because there will be a perverse incentive to borrow and receive without giving back as one has promised.

     The negative consequences of usury are, thus, not only economic and financial, but also social and moral. The fact that the government can aggress against people, and coerce them without consequences, should not be construed to excuse the government from the responsibility to act as any sane, civil individual would: 1) live within your means; 2) don't force anyone to buy from you or sell to you (or use your currency); 3) don't threaten or harm people unless they do the same to you first; and 4) keep your promises.

     After all, the government's authority rests on the will of the governed, and its duties are imposed by the individuals who constitute that government, who have duly delegated their own powers to the government for the purposes of protecting their liberties. The government should have every responsibility to behave as it would expect any of its law-abiding citizens to; because the government is comprised of those citizens.

[the remainder of this article will appear here at a later time]

Written on April 29th and 30th, and May 1st, 2020

Originally Published on May 1st, 2020

Updated on May 4th, 2020