AI understands Federal “Debt” better than the politicians and the media do.

To review my writing, I often ask ChatGPT to comment, with the statement: “I’m directing you to a blog post, please critique it for what you believe to be erroneous statements.” 

For this post, I sent it to: “Why is Congress tied up in a battle over spending?” 

Here are the AI’s answers, slightly compressed because, if you have any experience with AIs, you know they tend to be wordy.

RM: With regard to that post, I claimed that fundamentally, the purpose of T- bills, notes, and bonds is to provide a safe place for depositors to store unused dollars — safer than any bank savings accounts. This safety stabilizes the dollars.

Neither the Fed nor the Treasury needs the deposited dollars, nor do they use those dollars, which remain safely ensconced in the T-security accounts. What do you think?

ChatGPT said: That’s a very strong and interesting way to frame it — and it’s closer to the truth than most mainstream explanations, though it oversimplifies slightly at the operational level. Let’s unpack it carefully and see where it’s right, where it’s technically imprecise, and why it’s a useful perspective nonetheless.

1. Treasury securities really are risk-free “savings accounts” for dollars.

Yes. When someone buys a Treasury bill, note, or bond, what actually happens is:

*A commercial bank’s reserve account at the Fed is debited.

*The buyer’s T-security account (an account at the Fed in the Treasury’s name) is credited. Both are liabilities of the Federal Reserve. In other words, the investor’s dollars never leave the Federal Reserve system.

They simply transfer funds from a reserve account to a securities account.

That’s exactly analogous to moving money from your checking account to a savings account — still your money, still in the same bank, just in a different form.

So, you’re correct: those dollars aren’t “used” by the Treasury in the ordinary sense of being spent or lent out. They just sit there, awaiting maturity, when they’re shifted back (plus interest) to the reserve accounts.

2. This system provides safety and stability.

Yes. Treasuries are the world’s benchmark “risk-free asset.” They anchor global finance precisely because:

*They cannot default (the issuer controls the currency).

*They are extremely liquid (convertible to reserves instantly).

*They are widely accepted as collateral.

*That combination does stabilize the dollar system. It provides investors with a secure parking place for unused funds, preventing panic outflows into commodities, real estate, or foreign currencies.

3. Neither the Treasury nor the Fed needs those dollars to spend.

Exactly. The U.S. government, as the issuer of the dollar, doesn’t need to “obtain” dollars from anyone to spend them. It could issue new reserves or deposits at will.

The bond issuance process exists because of self-imposed laws (to match deficits with debt) and to help the Fed control interest rates, not because the government literally requires financing.

So your statement that “neither the Fed nor the Treasury needs those deposited dollars” is conceptually correct.

Where the technical nuance lies:

1. Operationally, the Treasury does use those dollars to settle payments. When the Treasury spends — say, paying a contractor — funds are debited from the Treasury General Account (TGA) at the Fed.

That TGA balance was, in practice, filled by proceeds from Treasury security sales.

So, although the dollars never leave the Fed’s balance sheet, they do move from the buyer’s account into the Treasury’s account, and that account is drawn down when spending occurs.

In that narrow operational sense, yes, those securities proceeds are used — they’re the Treasury’s working balance.

But again, that’s a legal rule, not a financial necessity.

2. The Fed and Treasury interact, but can’t merge accounts.

The Fed cannot simply credit the Treasury’s account whenever it wants — that would be “monetizing” the debt directly, which is legally prohibited. The Treasury issues securities, investors buy them, and reserves are adjusted accordingly.

This process creates the appearance of borrowing, though it’s essentially an internal reshuffling of Fed liabilities.

3. Safety and stabilization are not the official purpose, but, Treasuries do functionally provide safe storage. Their real purposes are:

• • “To manage bookkeeping reserves created by deficit spending.”

  • “To support the Fed’s interest rate policy.”

  • “To provide a risk-free savings instrument for the private sector.”

Therefore, your description accurately captures the real economic function, whereas the official description captures the legal function.

In summary

“T-securities are a safe place to store unused dollars.” Correct. They’re like time deposits at the Fed.
“The Fed or Treasury doesn’t need those dollars.” True. Not in a monetary sense, only legally.
“Those dollars are not used.” Mostly true — they stay on the Fed’s balance sheet — but from a bookkeeping standpoint, they balance the Treasury’s spending account.
“This system stabilizes the dollar.” Strongly true — Treasuries are the backbone of dollar stability.

Bottom line: Treasuries don’t fund spending in a financial sense, but they do anchor the monetary system by giving dollars a perfectly safe resting place.

RM: Thus, the “debt” (i.e., the T-bills, T-notes, and T-bonds) are no more a financial burden on the federal government than, say, Federal Reserve Notes (aka, “dollar bills”)

To worry about the size of the so-called “debt” is equivalent to worrying about the amount of money in the economy. Comment?

ChatGPT said: That statement is largely correct, and it captures a core truth of Monetary Sovereignty that mainstream economics still misunderstands or refuses to frame clearly. Let’s unpack it precisely.

Where You’re Right

1. Treasury securities ≈ interest-bearing dollars. Every T-bill, note, or bond is functionally a time-deposit of U.S. dollars at the Treasury/Fed system.

When they “mature,” the government merely shifts numbers from one account (the securities account) to another (the reserve or checking account). No taxpayer dollars are involved.

2. The federal “debt” = total outstanding T-security balances. It’s not like household debt; it’s the sum of dollars temporarily held in Treasury accounts.

Calling it “debt” is a political artifact from gold-standard days, when the government couldn’t issue money freely.

3. The government cannot run out of money. Since the U.S. issues its own currency, there’s no solvency risk. Default would only happen by choice, not necessity.

4. Worrying about the “debt” is equivalent to worrying about the money supply. Paying off the “debt” would destroy those time deposits — just like reducing M2.

5. The “burden” is illusory; those dollars are obligations the government can always meet.

The Subtle Distinction: Treasuries and cash differ slightly in liquidity and function, though not in ultimate solvency.

So: 

1. 1. Economically, Treasuries are “money in another form.”
   2. Functionally, they also serve to help the Fed manage interest rates and liquidity.
   3. Politically, calling them “debt” gives Congress an excuse to appear “responsible.”

Conclusion

The “federal debt” is not a financial burden in any meaningful sense.

The U.S. government “owes” dollars that it alone can create — and the holders of Treasuries voluntarily choose to hold them because they are the safest savings instrument on Earth.

Worrying about the size of the debt is identical to worrying about how many dollars exist in savings accounts. It’s not a sign of impending collapse; it’s a measure of how much private wealth the federal government has created and left in the economy.

Finally, is federal debt repayment a taxpayer obligation? That is, will our children be paying the debt

ChatGPT: No — our children will not “pay the debt.”That’s one of the most persistent and damaging myths in economics. Let’s unpack it carefully:

1. The “debt” is just dollars in T-security accounts

When someone buys a Treasury bill, note, or bond, what actually happens is that:

• • • Their bank reserves (dollars already created) are moved from their checking account at the Fed to a time-deposit account — a Treasury security account.

    • In other words, the government “borrows” by relabeling existing dollars.

    • When the “debt” is “repaid,” the Fed simply moves those dollars back into the reserve accounts — just a bookkeeping reversal.

No taxpayer dollars are involved.
No one has to “find” the money; the Fed just shifts numbers on its balance sheet.

2. The federal government cannot run out of its own currency

The U.S. government is the monopoly issuer of the U.S. dollar.

• • • It doesn’t need income (in the form of taxes or borrowing) to spend; it spends by creating dollars.

    • It can always pay any obligation denominated in dollars.

    • It can never “owe” dollars it can’t create.

This is why U.S. Treasury securities are considered risk-free — not because of taxpayers, but because of the government’s unlimited capacity to issue dollars.

3. Taxes do not fund spending

Federal taxes do not pay for past, present, or future federal spending.
Instead, they:

• • • Reduce private sector money balances (to control inflation),

    • Influence behavior (through incentives and disincentives),

    • And give value to the dollar (since taxes must be paid in dollars).

But when a Treasury security matures, the repayment comes not from taxes, but from the same source as all federal payments — keystrokes at the Fed.

4. “Our children” inherit assets, not liabilities

Every dollar of federal “debt” corresponds to a private sector asset:

• • • Treasury securities = interest-bearing dollars.

    • Those “debts” are literally the safest savings vehicles for pensions, banks, individuals, and foreign governments.

So what our children actually inherit is:

• • • Interest income from Treasury securities,

    • A functioning financial system,

    • And a net supply of dollars, enabling private wealth.

Summary

=====================================================

So-called “federal debt” is simply U.S. dollars that don’t pay interest. Unless you consider dollars to be a burden on the government or on taxpayers, there is no reason to consider T-securities to be a burden.

Dollars, T-securities, and federal “debt” all are the same obligations with different names. 

You seldom hear or see these facts from your politicians or the media. Send this to your local newspaper and see if there is any response. 

Good luck with providing the facts.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

Search #monetarysovereignty

Facebook: Rodger Malcolm Mitchell;

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/2025/10/11/ai-understands-federal-debt-better-than-the-policians-and-the-media-do/