The way our Federal Reserve buys Treasuries, bails out too-big-to-fail or bankrupt corporations, sends checks to John Q citizen in the pandemic depression, pays for Medicare, finances the military — all this increasingly reveals the modern fiat essence of money. Money earned, borrowed or stolen is necessary for all of us who do not print money, including states and cities. The later must pay their bills with taxes or federal grants. But Federal money spent does not really have to come from anybody’s taxes. Or even to be borrowed. The monetarization of debt is part of an elaborate political and historically evolved “illusion.” After all, even big governments need to have people work, trade managed, capital accumulated, bills paid and wars fought.
If you go down to the IRS to pay your taxes in cash, at the end of the day they just mark your taxes paid and actually throw your money away. Shred it. Burn it. Not even cash is real money to the federal government. In actual fact the whole monetarizing game could be theoretically replaced and the government could just issue checks out of thin air (which is technically / procedurally what it does). The Fed buying Treasuries is essentially a game to cover the fact that “debt” and “money” are about as real to the Federal government as the points given out at a football or bowling game. The federal government and its central bank can not go “bankrupt” in this system. Just as the bowling alley does not have a limited number of points to give out each day, it need not collect them at closing to give out more the next day!
Today with low interest, low inflation, the national debt is not a problem. As a percentage of GDP, debt repayments are low. The stock market is doing great. Economists all over the developed Western world are aware that the old “balance the budget” shibboleths have become outdated in this era of digital currencies. Politicians are another matter. In power they are spenders. Out of power they may sometimes argue for more balanced budgets or even paying down the national debt. Taxes are not really necessary for balancing any federal budget. They are primarily for redistribution of wealth and for enforcing the use of state fiat currency. Weaker third world governments have less freedom, of course. They must pay in U.S. dollars, just like you and me.
en.wikipedia.org
