Freedom from National Debt

This short book explains what "national debt" really means in the modern U.S. financial system, based on ideas developed during the author's years as Deputy Secretary of the U.S. Treasury and as CEO of banks in the U.S. and China. It examines money and Treasuries in the U.S. financial system from new perspectives, and presents logic that can free America from unfounded fear.


These thoughts build on his prior book, Six Myths That Hold Back America, to ask, Why does America fear "national debt"?  How do Treasury securities supposedly bring harm to the nation? Can the debt problems of eurozone nations, with very different financial systems, apply to the U.S.?  Analyzing the concerns leads to new understanding: Treasury securities have a unique role in the modern U.S. financial system, and there is no need to fear them.


Inside, the reader will find explanations of:


How deficit reduction could be focused on future years of hoped-for strong economies, 10 and 20 years from now, without worry about national debt in the meantime.


Ways to take steps now, in this long, painful period of high unemployment, to create jobs, repair infrastructure, and lower taxes meaningfully - programs that are now severely limited by fear of national debt. 


How the expression "national debt" in the U.S. carries outdated implications for Treasury securities, which are unique financial instruments with a special role in the modern financial system, and represent large amounts of savings in the safest form for millions of investors.


That "money" is really "bank money," created largely by banks, subject to bank risk, and thus not as safe as Treasuries, which are fully backed by the U.S. government.


That Treasury auctions allocate a limited supply of new securities to investors and the winners in the auctions get the highest safety and extraordinary liquidity of Treasuries.


Why Treasuries do not represent a great burden to future generations: why taxes are never required to "pay them off" in aggregate. 

Why U.S. Treasuries cannot face the problems of securities issued by eurozone nations.


Why Treasury issuance of securities does not increase or decrease the money supply, and does not consume or "crowd out" funds available for investment.

How loan growth, money, Treasuries, and quantitative easing do and do not relate to inflation.


Why interest rates on Treasuries do not rise just because there are more Treasuries outstanding, and how interest paid on Treasuries does not consume economic resources.


Why foreign ownership of Treasuries does not create indebtedness to other nations.


Why deficits are needed in times of high unemployment, and deficit reduction needed when the economy is too hot; why government should spend wisely regardless of the national debt.


Why Washington's focus on reducing the cumulative deficit over ten years, and trying to "pay for" near-term deficits over future years, is misplaced and damaging to the economy.  


Why debates over the "debt ceiling" risk major disruptions to the entire financial system.

 

America does not need to fear national debt, and has great opportunities at this time. We can repair and modernize the roads, bridges, dams, airports, schools, and military equipment of America. We can create millions of new jobs. And taxes can be reduced at the same time.