The government always prints money. That’s why there’s a printing press in Washington DC. That’s how you get the currency you carry in your wallet.
But If the government can print money, why does it have to borrow money using Treasury securities?
I mean, if you had a printing press in your basement, would you need a credit card? No. You would just pay cash. And it would be glorious.
So when the government issues Treasury securities, it doesn’t actually borrow money. Remember, the US Federal Government doesn’t need to issue securities to raise money. It can just print the money.
The only reason the government issues Treasury securities is to pay interest on our country’s savings. If you have excess cash, the government is nice enough to pay you some interest on that money. By issuing treasury securities, the government basically creates a savings account that earns interest for people with extra money.
In fact, the US government doesn’t have to do this. Japan, for instance, currently pays less than 0% on its debt. Notice that even though the interest rate in Japan is UNDER 0%, the currency still has value.
So if Treasury securities are just a way for the government to pay interest on money, that also means our “national debt” isn’t actually a debt. It should really be called our “national savings.”
All the Treasury securities outstanding are really just the savings the private sector has accumulated on which the federal government pays interest.
Warren Buffett explained this nicely in his latest Annual Report for Berkshire Hathaway. Notice how he equates our national debt in the first paragraph with savings in the last paragraph.
Warren Buffett understands that the national debt is just treasury securities on which the government pays interest. And if Warren Buffett has updated his thinking about budget deficits, shouldn’t you?
And shouldn’t we finally take this stupid clock down that hangs over our collective heads like the Sword of Damoclates.