The federal debt myth

You may have thought that the federal debt is too high and should be reduced. Right? Who could blame you after the Republican Party struggled mightily — and as usual, failed — to reduce the debt with its “Big Beautiful Bill.”

Why the struggle? Why the failure. Because it was a BIG LIE.

In 1940, the federal debt was approximately $40 billion, and the debt-to-GDP ratio was around 40%. Self-proclaimed experts called it a “ticking time bomb.”

Today, the federal debt is about #36.2 trillion, (that’s trillion, with a “t”) and the ratio is triple what it was then, and the economy is bigger and stronger than ever in our history.

So what happened to the “ticking time bomb”? Right, it was a BIG LIE.

But even now, you encounter articles like this one:

How Much Debt Does the US Have?

About $36.2 trillion as of May 2025.

OMG! The government owes $36.2 trillion. How will it ever pay it back. We’re all doomed.

Except for two details the scare article conveniently skips:

1. Unlike you and me, and unlike state and local governments, our federal government is Monetarily Sovereign. It has the infinite ability to pay for anything in dollars. Even if it doesn’t collect a single penny in taxes, it could continue spending forever — even double or triple its spending — and pay all its bill on time.
2. Federal “debt” is another word for “dollars.” Really. 

The misnamed federal “debt” is the total of Treasury bills, notes, and bonds outstanding. Those words — bills, notes, and bonds — usually signify debt in the private sector (you and me).

However, in the federal sector, they have quite a different meaning.

Look at that dollar BILL in your pocket. See what it is? It’s a FEDERAL RESERVE NOTE. It’s money.

When you buy a Treasury BILL, NOTE, or BOND, not only do you increase the federal “debt,” but you buy money. You literally exchange your federal money for other federal money.

You give the government some money, and the government gives you some money, along with a promise to pay you some interest — in money. It’s an even exchange that is complicated only by the misuse of the word “debt.”

That dollar bill is backed by the full faith and credit of the United States government. It’s even signed by the Treasurer and the Secretary of the United States Treasury.

The T-bill you bought with that dollar bill also is backed by the full faith and credit of the United States government, just like a dollar. 

With regard to safety, obligations, and every other factor you can name, there are only three differences between a U.S. dollar and a T-bill.

1. The T-bill pays interest; the dollar doesn’t.
2. The T-bill matures, meaning it stops paying interest at a certain point in time. The dollar never matures since it does not pay interest.
3. The dollar is more liquid, meaning it’s easier to use when making payments.

So when debt worriers warn about the size of the federal debt, they are actually saying that the U.S. economy is too rich. It has too much money. 

Despite all the inferences, this misnamed “debt” is not a burden on the government, nor is it a burden on you. The greater the “debt” the more dollars the economy has. A growing economy requires a growing amount of money (debt). Here is the proof:

Gross Domestic Product = Net Federal Spending + Net Non-federal Spending + Net Exports.

The federal government borrows money when its spending and investments cannot be funded by federal revenue alone; this debt enables the government to pay for programs and services when funds aren’t immediately available.

Consider how absurd the above statement is. Federal debt is identical to federal dollars. A Monetarily Sovereign government, which can immediately create Treasury bills, can also immediately create dollars. They are the same. 

When the federal government spends more money than it brings in through taxes and other revenue sources, a budget deficit occurs.

To cover the deficit, it borrows money by selling bonds and other securities.

If the government borrows dollars to cover the deficit, where do the lenders get the dollars? Answer: The government can create dollars as easily as it can create “debt.” Treasury notes and Federal Reserve notes are functionally the same. They both are financial obligations of the federal government.

Generally, the federal debt is an accumulation of budget deficits over time. The federal debt in the most recent month of data, May 2025, was $36.2 trillion. This is 2% higher than in May 2024 and up 31% from 2019, before the COVID-19 pandemic.

Translation: There were 2% more dollars in May 2025 than in May 2024. Is this supposed to be worrisome?

Dividing the total debt by the population of the US reveals the per-person debt, or the average amount of debt for each person. This makes it easier to compare debt levels between different countries or time periods, since it accounts for changes in population size.

It also leads to the false perception that somehow you, or other taxpayers, “owe” the debt. You don’t. Nobody does. The more federal debt there is, the more money there is.

Per-person debt has increased at an average rate of 5% per year since 2001. As of 2024 — the last year for which there is population data — the federal debt was equivalent to $106K per-person, for a total of $36.2 trillion.

Translation: There are 106K dollars per person in America. So???

Another way to understand a country’s debt is to compare it with its gross domestic product (GDP). GDP, broadly speaking, is a measure of the value of an economy.

Analyzing the debt in context of GDP makes it easier to track the debt alongside changes in economy and inflation, allowing for comparisons of the debt over time; it can also indicate a country’s ability to repay its debt.

Now we get to the absolute lie, also known as THE BIG LIE. There is zero — ZERO — relationship between GDP and a country’s ability to pay its debts. 

The U.S. federal government has never defaulted on its debt due to a lack of financial capacity. As the sovereign issuer of the U.S. dollar, it cannot run out of money in the same way a household or business can. 

The problem is that people with ill intent like to confuse the use of the word “debt.” 

Federal debt is the total of deficits, the difference between taxes and spending. The government “owes” money on that kind of debt as much as it “owes” money on the dollars in circulation i.e., nothing.

The other kind of debt occurs when a buyer doesn’t immediately pay for goods and services but instead owes payment. The federal government always has and will continue to pay for everything in a timely manner. It never is late and never fails to pay.

By mixing the variations on the word “debt,” ignorant or malevolent writers cause unnecessary concern, which leads to bad policy.

An example of poor policy is the notorious “debt ceiling,” a law that, if followed, would require the federal government to default on its obligations and not pay for what it has already contracted to pay for.

The true purpose of this law is to enrich the wealthy by making benefits to the poor appear to be unaffordable.

When debt reaches 100% of a nation’s GDP, it indicates that the country owes about as much as its economy generates annually.

“The country” does not owe the federal debt. No one does. It is not debt. It is dollars. The bigger the “debt,” the wealthier the country, because that debt is just another word for “dollars.”

The nation’s debt as a percentage of GDP first surpassed 100% in Q4 of 2012. It remained relatively stable until Q2 of 2020, when it decreased while spending increased. It reached 133% of GDP by the end of Q3. As of Q1 2025, the debt as a percentage of GDP was 121%.

In short, the total amount of dollars is greater than the total value of production. So???

The government has to pay interest on its debts, the same way individuals pay interest on credit card bills, mortgages, and car payments. Interest payments aren’t fixed, and change based on the size of the debt and current interest rates.

Finally, we get to the BIG LIE  regarding interest. When the federal government pays interest, it injects growth dollars into the economy. The more interest it pays, the more growth dollars.

That interest costs you nothing. Taxpayers do not pay for federal interest. The government creates interest dollars the same way it pays for everything else: It passes laws.

As long as the U.S. federal government does not run out of laws, it will not run out of dollars. Tell that to the next person who complains about the size of the so-called, misnamed federal debt.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

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MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;

https://www.academia.edu/

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A Government’s Sole Purpose is to Improve and Protect The People’s Lives.

MONETARY SOVEREIGNTY

Source: https://mythfighter.com/2025/07/06/the-federal-debt-myth/