The Myth of the Problem With a High Public Debt to GDP Ratio
Executive Summary
- Private banking interests are constantly focusing attention on the public debt, which allows them to seize the high ground in public spending.
Introduction
It is common to say that the US federal debt is too high and will be negative for future growth. Normally the person making this claim will use an increased debt to GDP ratio as evidence of the problem.
This is expressed in the following quotation.
“One person who understands this appears to be Joe Biden’s Treasury Secretary pick Janet Yellen. She is reported to have told a Bipartisan Policy Center meeting earlier this year that “The U.S. debt path is completely unsustainable under current tax and spending plans,” and that it is “something that most people don’t understand and I see very little evidence of concern about it.”” – CATO Institute
Source: CATO Institute
https://www.cato.org/blog/yes-national-debt-still-problem-always-was
Yellen is either lying in this quote or does not know how federal debt works. The US government has no debt because it has a private central bank that stops it from issuing its own currency but instead requires that to spend, it must issue a bond. The Fed and US Treasury then perform accounting entries. CATO institute is a constant source of false information about the federal debt, as is covered in the following quotation.
“We know what the Democrats would do about the debt — make it worse. Bernie Sanders has proposed at least $18 trillion in new spending over the next ten years, and even after the trillions in additional taxes he seeks, his plans would add trillions to the debt. In comparison, Hillary looks like a model of fiscal rectitude. She has proposed only $1.1 trillion in new spending, although more proposals to expand government are coming. Both Democrats oppose any reform of entitlement programs like Social Security and Medicare. In fact, Bernie seeks to expand both programs, while Hillary suggests she would consider new benefits. So the Democratic plans are clear: squeeze some more passengers onto the Titanic.” – CATO Institute
Source: CATO Institute
https://www.cato.org/commentary/national-debt-whats
This is again based upon an incorrect understanding of how federal spending works. There is no “Titanic.” The government can spend on social programs as it sees fit. If it eliminated the private central bank, it could issue its own money without debt, saving the government the interest expense from issuing debt. The following quote is typical of those that make false claims about the federal debt.
“Interest on the debt was projected to reach $261 billion this year, and exceed $500 billion by 2020 even before factoring in the recent budget‐busting deals.” – CATO Institute
Again, tax revenues are not used to pay for interest on the debt, and the debt could be eliminated with the simple act of eliminating the private central bank of the US called the Federal Reserve. CATO tries to wrap itself in “concern” for future generations. At the same time, it misexplains how the federal debt works and uses this fake construct to try to get the government to cut programs that benefit the population versus benefitting billionaires.