Neoliberalism
uses a deceptive narrative to declare that money the government spends into the economy in excesses of the taxes it collects creates a ‘government debt’.
In fact, the money the government spends into the economy in excess of the
taxes is an income, a benefit for the private sector. When the government
issues bonds, the money the private sector uses to buy them via banks comes
from a residual cushion of dollars that the government already spent into the
economy but has not yet taxed back. If
this were not the case, if the government had taxed back all the money it spent
into the economy, then the economy could not function. There would be no
dollars in the economy, since the government is the sole supplier of U.S.
dollars! In the doted rectangle in the graph you can see that the dollars paid to
the government for bonds sits in a dollar asset account. When the government issues
bonds it simply provides the public and institutions with a desirable money
substitute that pays interest i.e. Treasury bonds. It is a swap of one kind of financial
asset for another. To register
this swap the government debits the dollar asset account and credits the bond
account. When the time comes to redeem
(take back) the bonds, all the government does is revers the swap, and that’s
all! When you look at the total amount of finacial assets in the private sector, these remain constant at $ 25 BN after the payment of $ 5 BN taxes. This implies that no lending of financial assets of the private sector to the government has taken place during the swap operation. The money was always there. The debt mountain is an illusion!
