MISUNDERSTOOD: The real meaning of federal “debt” and “deficit”

Believe it or not, most economists and economics writers tend to favor higher taxes. How else can you explain an article like this:

Trump’s Tariffs Now A Financial Boon, Shielding US From Global Bond Market Sell-Off, Say Analysts: ‘Forget The Economic Justification…’
Story by Namrata Sen 

Global Government Debt Surges Past $97 Trillion Mark
The tariffs, initially a cause of concern for financial markets, are now being viewed as a crucial element of Washington’s financial stability.

This shift in perspective has helped the U.S. avoid the worst of the recent government bond market sell-off, reported The Washington Post.

As government debt continues to rise in developed economies like the U.K., France, and Japan, investors are seeking higher yields on long-term bonds issued by these countries.

Notice that the article lumps together three nations, two of which are Monetarily Sovereign and one of which (France) is monetarily non-sovereign.

Grouping the finances of those three nations is like serving the same menu to a carnivore and a vegetarian.

France does not have a sovereign currency. It uses the euro, over which it has scant control. France can run short of euros.

The U.K. and Japan have sovereign currencies. They cannot run short of their currencies.

In fact, the article makes no mention of Monetary Sovereignty, though that is the single most important factor to consider when determining appropriate spending.

Global government debt has surged past $97 trillion—double its 2010 level—driven by pandemic-related spending and recovery measures, outpacing corporate and household borrowing, according to the Institute of International Finance.

Despite the U.S. public debt reaching a record $30 trillion, investors have remained relatively optimistic about U.S. treasuries. The yield on the 30-year Treasury bond briefly neared 5% this week but has risen far less than shorter-term government securities.

A key factor is the Congressional Budget Office’s forecast that tariffs will generate about $3.3 trillion over the next decade, helping ease worries about an otherwise fragile fiscal outlook.

Translation: A key factor is the Congressional Budget Office’s forecast that federal taxes will generate about $3.3 trillion, the bulk of this revenue coming from U.S. consumers.

The so-called “financial boon” means that a nation (the U.S.) that has infinite dollars (because it’s Monetarily Sovereign) will receive money (it neither uses nor needs) from its economy (which both needs and uses money).

The article’s author, Namrata Sen, terms taking dollars from the economy (which is what taxes do), as a “financial boon.” Why?

Because when the government sends more dollars into the economy than the economy sends to the government, this wrongly is called a federal “deficit,” and the total of “deficits” is “public debt.” 

We more accurately should call it an economic “boon” or private sector “income.”

Tariffs Seen As Key To Easing US Fiscal Concerns
The tariffs have managed to reassure investors, with the U.S. economy’s robust performance and the potential for a Federal Reserve interest rate cut further bolstering the appeal of U.S. treasuries.

Somehow, increased taxes (aka “tariffs”) have “reassured investors” that . . . what? The United States Government, having the infinite ability to create dollars, will be able to pay its dollar-denominated bills?

Does this make any sense?

Priya Misra, a bond portfolio manager at J.P. Morgan Asset Management, stated, “The U.S. is outperforming because actually our [budget] deficit is marginally better with tariffs. Forget the economic justification of tariffs. It is raising a lot of revenue.”

“Marginally better” seems to describe the federal government sending fewer dollars into the economy than it takes out of the economy. How is that “better”?

Moreover, investors seem assured that the president would invoke alternative legal powers to reinstate any overturned tariffs, ensuring that revenue from import duties continues to flow into government coffers, opined Evan Brown, from UBS Asset Management.

Mr. Brown celebrates tariffs, which are taxes on imports — taxes paid by American buyers — flowing into government “coffers” (which do not exist).

Because the government can create as many dollars as it wants by pressing computer keys, it does not have or need any “coffers.” It pays all its bills by generating new dollars as needed.

Former Federal Reserve Chairman Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”

Fake Trade Deficits

There are so-called “trade deficits” that actually are equivalent exchanges. They work like this:

Foreign nations send us products that require the expenditure of their precious labor and materials. In exchange, we send them dollars that we create by pressing a few computer keys. Who has the better deal?

Consider even private sector purchases, where you are the buyer. Unlike the federal government, you can’t create dollars by pressing computer keys. 

When you “trade” with your local grocer, do you think of it as running a trade deficit? Should you pay a tax to make your groceries more expensive, so that you will be forced to buy less?

The Better Alternative

The claimed purpose of tariffs is to make imports more expensive so that Americans will prefer to purchase locally produced goods.

Is that what you want — to pay higher prices? 

If the goal is to support local businesses, there is a better way. Instead of the government taking money from your pockets by increasing import prices, how about the government supporting local businesses and putting dollars into your pockets?

Here are examples of federal support for American businesses – support that unlike tariffs costs American consumers nothing.

1. Corn, wheat, soybean, cotton, and rice farmers receive direct payments, amd crop insurance subsidies.
2. Dairy and sugar industries also benefit from price guarantees
3. Oil, gas, and coal producers have long received tax breaks (like depletion allowances) and infrastructure support.
4. Solar and wind companies benefit from production tax credits, investment tax credits, and loan guarantees. Tesla and other EV makers get tax credits and grants.
5. Nuclear power has been subsidized through federal research, loan guarantees, and waste management programs.
6. Airlines received large subsidies during COVID (the CARES Act) and occasionally after crises (post-9/11).
7. GM and Chrysler received bailouts during the 2008–2009 financial crisis.
Shipping & railroads: Subsidized through federal infrastructure spending and grants.
8. Big banks received massive bailouts in 2008–2009 (TARP program).
9, Federal Reserve liquidity programs benefit financial institutions during downturns.
10. Defense contractors (Lockheed Martin, Boeing, Raytheon, etc.) receive tens of billions annually in contracts—effectively subsidies.
11. Semiconductor industry—CHIPS and Science Act (2022) provides $52B in subsidies to companies like Intel, TSMC, Samsung.
12. Drug companies receive NIH research funding, purchase guarantees (e.g., COVID vaccines for Pfizer, Moderna, J&J), and Medicare/Medicaid reimbursements that keep sectors afloat.
13. Tax deductions for mortgage interest and real estate depreciation benefit landlords and developers.
14. The fishing industry receives subsidies for boat fuel and fleet modernization.
15. The telecommunication industry receives rural broadband subsidies

In short, nearly every major sector of the economy has federal support at some point. Keep in mind: Federal spending costs taxpayers nothing. The government does not spend tax dollars.

One ot the two purposes of federal taxes is to control the economy by giving tax breaks to what the government wishes to encourage. (The other purpose is to assure demand for the U.S. dollar.)

Supporting American businesses through this approach is much more effective than using tariffs, and it costs nothing.

The Only Way to Prevent/Cure the Coming Recession (or Depression)

As Trump’s inconsistent tariff policy and harsh deportation policy take effect, we will have a recession, but more probably a depression.

To prevent that unnecessary disaster, the federal government should:

1. Teach Americans that federal deficits and debt are necessary and beneficial to the economy, are not paid for by taxpayers, and do not threaten federal solvency.
2. The purpose of federal taxes is not to provide the government with funds for spending, but to regulate the economy and support American businesses. 

Some education is all need.

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