The Myth of Unfunded Liabilities: Why National Debt Won’t Bring Down the American Government
When people discuss the national debt, one of the common concerns is whether unfunded liabilities could ultimately bring down the American government. By understanding the nature of sovereign debt and the role of the U.S. dollar as a fiat currency, it becomes clear that the national debt, when viewed in the appropriate context, is not a looming threat.
Understanding Sovereign Debt
No debt that’s owed by a sovereign state in a currency it completely controls and can create unlimited amounts of can be destroyed by it. The U.S. is not the first or only nation to navigate the complexities of debt management. Take Greece, for instance: Greece has faced significant issues due to its debt and sovereign crisis, yet other countries, such as Japan with an even higher national debt, continue to thrive.
It's important to understand that U.S. national debt has different qualities from debt for individuals or enterprises. From a macroeconomic perspective, U.S. national debt is not a liability but rather a critical tool for economic management. Unlike personal debt, which can eventually be repaid with effort and sacrifice, the U.S. government can keep accruing debt without causing harm to the economy, as long as it remains within sustainable parameters.
Secure and Necessary Asset
U.S. national debt is the most secure asset of the U.S. and global economies. It serves a critical function because the U.S. dollar is a fiat currency that the Federal government alone can create. This means that the U.S. government can create interest payments out of thin air, and taxpayers do not directly pay this interest. Instead, the government covers these payments in the same way it spends money on Social Security, Medicare, unemployment insurance, and the military. Taxpayers do not pay for any of the Federal government's spending, which is why Federal taxes have remained low for the past four decades despite trillions spent on "forever wars."
What Really Matters
Other factors, such as infrastructure rot, institutional corruption, and the erosion of the middle class, are far more pressing concerns. While debt itself does not directly cause a decline, it can certainly worsen existing economic and social issues. However, the national debt is not the primary driver of potential economic collapse.
For example, the loss of the middle class can lead to economic inequality and reduced consumer spending, which can have significant negative effects on the economy. Similarly, crumbling infrastructure can stifle economic growth and reduce the quality of life for citizens. These factors, combined, can put pressure on the system but do so in a way that debt management cannot fully address.
Conclusion
In summary, the national debt is not a snowball that can destroy the U.S. economy. Rather, it is a tool that can be managed to promote economic stability and growth. The true threats to the American government and economy lie in other areas, such as infrastructure decay, institutional corruption, and the loss of the middle class. Addressing these issues is crucial for long-term economic and social well-being.