National Debt or is it?

For these purposes im mostly using the USA and the USD for example, The USA is an Autonomous Currency Issuer in a floating exchange rate system as is the UK, Canada in fact every currency sovereign country it is the same apart from and this is important the Eurozone does NOT apply.


Im sure any internet user that has any interest in economics or politics has been subjected to this
sooner rather than later.

http://www.usdebtclock.org

Certainly is a big scary number and spinning upwards making you dizzy.

Lets look a bit closer at that big number and actually what constitutes it.

National debt is actually the outstanding amount of Government bonds, its the difference
between its outgoings and its incomings so a deficit adds to this year on year which is the national debt.

Compar it to your household and the famous quote by the Charles Dickens character in
David Copperfield Mr Micawber comes straight to mind
"My other piece of advice, Copperfield, said Mr. Micawber,
you know. Annual income twenty pounds, annual expenditure nineteen nineteen six,
result happiness. Annual income twenty pounds, annual expenditure twenty pounds
ought and six, result misery"

Its all straight forward you spend more than you earn year after year you are going to be
bankrupt sooner rather than later so its sensible advice by Micawber.

Only there is a problem here with the analogy when it comes to the USA, in all its history
it has only once payed off its national debt and that was back in 1835*. I cant think of a household
that could continually run up a debt up over 235 years.

Whats occuring here with this seeming contradiction?  a person cant run up a debt for long but a
government always can.

Simply the government owns a printing press you and I do not. This matters and why they do not
have any solvency constraint, they can always pay any bill of any size thats denomonated in its own currency.

Even so its a debt we all have to pay?  well no actually, you may very well find you own a lot
of it yourself through a pension or even just invest in bonds its not unusual at all. So think of
that in that you own the debt and then pay it off?  that makes no sense you want to be credited for
owning it.You would own a bond for only 1 reason and thats to save and get some interest back on your investment.

If everyone is doing the same thing in the non government sector then its just people and institutions wanting to save (any foreign investors become part of our currency area by doing this, dont be confused by national boundries at this point)

Lets go back to the debt clock and just change its name to usassetclock (an owner of a debt would show the debt as an asset)and see how much the non government sector has saved...  thats a lot of savings. I wonder whos sitting on all that cash?   Not quite so scary when you put it that way is it?

http://www.telegraph.co.uk/finance/budget/9150406/Budget-2012-UK-companies-are-sitting-on-billions-of-pounds-so-why-arent-they-spending-it.html
(ok thats UK same story in the US though)

What we really find from this is that National Debt isnt a debt instrument at all its quite the
opposite and is a credit instrument ultimately based on the governments power to tax...   a tax credit.

A quote from Chris Cook a senior research fellow at the Institute for Security and Resilience Studies at University College London.
"This was always the case for some 500 years until the Bank of England came along and privatised sovereign credit, since when the reality of public credit issuance has been airbrushed from economic history as an Inconvenient Truth"

*note that year 1835 and paying off national debt, coincidence that the US went into depression less than 2 years later?. One for the future.


Next time
Spend and tax or Tax and Spend? A chicken and egg question but with an answer.