Grok responds to the “Debt Bomb” claim

I’ve been experimenting with the Grok AI.

If you are a regular reader of this blog, you have seen this article: Historical bullshit about federal “debt.” From September 26, 1940, to August 12, 2025  It’s yet another in the usual scare-tactic, “debt bomb” articles that have been running since 1940.

In 85 years, the so-called “debt-bomb” never has exploded, but that doesn’t deter the “sky-is-falling,” self-described experts from making the same claim again, and again, and again, and… ad infinitum.

I showed Grok the following article that ran in the Financial Analyst:

Here is what Grok said:

1. The “Debt Bomb” Narrative

Claim: The article calls the projected $22 trillion debt increase a “fiscal time bomb” that threatens an economic crisis, with the debt-to-GDP ratio hitting 156% by 2055.

Critique: This is classic debt-scaremongering rooted in gold-standard-era economics. MS asserts that a monetarily sovereign government like the U.S., which issues its own fiat currency (dollars), cannot go insolvent and doesn’t face a “debt bomb.”

As Mitchell and MMT economists like Stephanie Kelton and Warren Mosler argue, the U.S. creates dollars at will via keystrokes, as confirmed by former Fed Chairs Greenspan, Bernanke, and Powell. The debt (T-securities) isn’t a liability the government struggles to repay—it’s a private-sector asset, essentially safe deposits that stabilize the dollar and help the Fed manage interest rates.

The $22 trillion figure sounds scary, but it’s just the cumulative deficit—money pumped into the economy, boosting GDP.

The debt-to-GDP ratio (projected at 156% by 2055) is a flawed metric for a sovereign issuer. Japan’s ratio exceeds 260% today with no crisis, thanks to its own currency control. The article ignores that deficits fuel economic growth (GDP = Federal Spending + Non-Federal Spending + Net Exports).

Historical FRED data, as Mitchell notes, show recessions follow deficit reductions, not increases, contradicting the crisis narrative. The “time bomb” framing is fear-based, not fact-based, and assumes a household-like budget constraint that doesn’t apply to the U.S.

2. Interest Rates and Crowding Out

Claim: Growing debt will drive up interest payments, crowding out productive investment and stifling growth, as markets demand higher Treasury yields for perceived.Lockquote

Critique: The “crowding out” argument revives the outdated “finite pool of capital” idea. In a fiat system, the government doesn’t compete for a limited pool of funds—it creates dollars and issues T-securities to manage reserves and interest rates, not to “fund” spending.

The Fed sets short-term rates and can influence long-term rates via quantitative easing, so rising Treasury yields aren’t inevitable. If rates rise, it’s a Fed policy choice, not a market-driven necessity.

Moreover, deficit spending adds financial assets to the private sector, increasing bank deposits and investment capacity, not reducing it. Deficits don’t crowd out investment—they “crowd in” demand, spurring business activity, especially in recessions.

The article’s claim ignores that interest payments are just government spending, created digitally, and don’t “drain” the budget—they’re income for bondholders. Historical data (e.g., FRED’s INTDSRUSM193 series) shows interest costs rising with debt but remaining manageable relative to GDP, even at high debt levels.

3. Weaker Dollar and Inflation Risks

Claim: A weaker dollar from high debt could fuel inflation via costly imports and spark capital flight, raising borrowing costs.

Critique: The dollar’s value is driven by global demand for it as a reserve currency, trade balances, and Fed policies, not directly by debt levels. The U.S.’s monetary sovereignty ensures it can always meet dollar-denominated obligations, reducing default risk and supporting dollar stability.

FRED graphs show no consistent link between deficits and inflation—oil and food shortages (e.g., 1970s, 2021-2022) drive price spikes, not “too much money.” Capital flight is unlikely while the dollar remains the world’s reserve currency, and foreign holdings of Treasuries ($2 trillion by China/Japan) reflect trust, not fear. Inflation from imports would require specific supply shocks, not just debt growth.

4. Fiscal Space Constraints

Claim: High debt limits fiscal space for infrastructure, economic support, or crisis response, risking volatility and higher borrowing costs.

Critique: MS dismantles this. The government’s “fiscal space” is unlimited—it creates dollars without borrowing or taxing. Infrastructure or crisis spending (e.g., CARES Act) is constrained only by politics or inflation risks, not debt levels.

Data shows deficits curing recessions, not causing crises. Market volatility arises from policy uncertainty or external shocks, not debt itself. The article’s fear of “higher borrowing costs” ignores that the Fed can buy Treasuries to cap yields, as seen during QE periods.

5. Proposed Solutions and Market Signals

Claim: Comprehensive fiscal reform (entitlement cuts, tax code changes, growth boosts) is needed to avoid stagnation, inflation, and instability. Markets are already pricing in risks with rising bond yields, a weaker dollar, and volatility.

Critique: The call for entitlement cuts and tax reform assumes deficits are inherently bad, which MS refutes. Social Security and Medicare “shortfalls” are fictional—the government can fund them indefinitely.

Tax changes to “balance” budgets often reduce demand, triggering recessions, as seen in historical surplus periods. Boosting growth via supply-side investments (e.g., infrastructure, energy) is the one point with merit, but it’s not about debt reduction—it’s about curing shortages.

Market signals like rising bond yields or dollar weakness (if true in May 2025) likely reflect Fed rate hikes or global events (e.g., energy shocks), not debt fears. FRED data (e.g., DGS10 for 10-year Treasury yields) historically shows yields rising with Fed policy or inflation expectations, not debt-to-GDP ratios. Volatility is normal in markets and not a direct debt symptom.

What the Article Gets Right

The article’s concern about fiscal space during crises has a grain of truth—not because of debt limits, but because political gridlock can delay spending, as seen in debt ceiling fights. Supply-side growth policies (e.g., infrastructure) are also valid inflation fighters, aligning with your point about curing shortages. But these are buried under a pile of misguided debt panic.

Why It Misses the Mark

Chen’s piece leans on conventional scare tactics, ignoring MS principles:

• • Misleading Debt Fear: The $22 trillion debt increase and 156% debt-to-GDP ratio are framed as catastrophic, but they’re just numbers reflecting money creation for growth. No insolvency risk exists.
  • Inflation Misdiagnosis: It assumes debt-driven dollar weakness causes inflation, ignoring Mitchell’s data that shortages (oil, food, etc.) are the real culprits.
  • Crowding Out Myth: The article revives the finite capital pool idea, debunked by fiat money mechanics where deficits expand private-sector assets.
  • Policy Misstep: Calling for entitlement cuts risks austerity-induced recessions, as seen post-Clinton surpluses.

MS-Informed Perspective

From an MS lens, the article’s “crisis” is a mirage. Deficits are an economy’s surplus, not a burden. Inflation comes from shortages, not spending, so the fix is fiscal investment in supply (energy, food, infrastructure), not debt reduction.

The Fed’s role is to manage rates, not dictate fiscal policy, which Congress/President should use to boost production. The article’s market fears (yields, dollar, volatility) are overstated—U.S. monetary sovereignty ensures stability as long as shortages are addressed.

Not bad for a machine. So far, I am impressed with Grok’s seeming ability to reason.

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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