Thayer’s essay fundamentally misunderstands the way our monetary system works | Opinion

“A government that issues its own currency can always pay its bills. It doesn’t need to collect taxes or borrow to spend.” Warren Mosler

The only accurate parts of former state Sen. Damon Thayer’s 12/11 Herald-Leader op-ed about the impending bankruptcy of the US are a survey of the recent history of US national debt hysteria since 1975 and the failed attempts to pass a balanced budget amendment to the U.S. Constitution.

The rest of the piece relies on variations of the common fallacy of comparing the U.S. monetary system to that of a household. What is hidden in Thayer’s warning is Margaret Thatcher’s claim contained in her speech to the Conservative Party Conference in 1983 that “There is no such thing as public money; there is only taxpayers’ money.”

Sen. Thayer neglects to define the national “debt,” to whom we might owe it, or why it is a problem, other than that we “owe” it.

The U.S. “debt” is not a problem. Far from a debt in the usually understood sense, it is simply the amount of US government bonds outstanding, at any one time, sitting in savings accounts at the Federal Reserve. Those accounts are mostly domestically owned by private individuals, institutions, and the Fed. Think pension funds. The US “borrows” not from a lack of dollars, but because of a surplus of dollars; dollars that have already been spent.

The above-mentioned investors have the savings to buy the bonds. When a US government bond is bought, the government “borrows;” takes it out of circulation for a specified term. The bondholder is paid interest (a part of deficit spending) and the principle is returned when the term is up.

The existence of the bond confirms Thayer’s misunderstanding of the national debt. It is not dollars the government needs so that it can spend, but it is dollars the government has already spent; typically mirroring the year’s deficit. The government does not need your money, the government needs you to need its money: to pay taxes and to buy bonds.

Just as US “debt” is not a problem, neither are deficits. Deficits are an important and positive feature of U.S. fiscal policy as there is a strong correlation between government deficits and corporate profits which rely, in part, on household spending.

A balanced budget amendment would be disastrous for the U.S. economy, as it would deprive the private sector of net financial assets and encourage a reliance on private debt. Another way to put it is that public sector deficits create private sector surpluses.

What animates Thayer’s warning is a desire for austerity and its cousin, privatization. Thatcher’s claim from above is an assertion that there is no public purpose or that there really is not such a thing as the public itself, and that the “taxpayers,” who provide for the government, should own it.

Damon Thayer, I’m sure, sees himself as a champion of free enterprise and ever shrinking government. The original meaning of “free enterprise” was freedom from monopolists, landlords, and rentiers (sic). Or, as Adam Smith put it, free enterprise prevented people from “reaping where they do not sow.” Debt scolds envision a country where public welfare —an educated, well-fed, and well housed populace — is shunted aside for the profits of banks, insurance companies, and private equity.

Thatcher’s lie gave cover for the neo-feudalism gripping the United States today. We are her Eden, where there is no alternative to the concentration of wealth into fewer and fewer hands defended by the myths that a currency issuing government can go bankrupt.

Todd Kelly is a nurseryman and gardener from Lexington.