US Debt Ceiling

[uppi]

The Treasury does issue dollars. It creates dollars by spending them. That is the reality as it exists now; the notes might say "Federal Reserve" on them but they are printed by the Treasury and when you pay your taxes by mail you address it to the Treasury, not to the Fed (the Treasury also makes digital payments which of course account for many more dollars than the sum of all the paper notes in existence). The notes are also signed by the US Treasurer and Secretary of the Treasury, not the Chair of the Fed's Board.

The issue with the debt ceiling is that the Fed is required to issue bonds equalling the amount by which spending exceeds tax receipts; this is a legal/political requirement rather than a technical/operational one. The debt ceiling and the requirement for debt issuance equal to the amount of a deficit are both relics of when the money was specie and later when it was backed by gold; both requirements entirely counterproductive now.

The Fed issuing bonds mean that every dollar in the Budget of the government is borrowed from someone. When you mail your taxes to the Treasury, this is counted against the debt balance of the Treasury. This is not a mere technicality, but a pillar of the monetary system. If the spending of the government was not covered by bonds, you would be looking at a very different monetary system. Would it work? Maybe. But it would be an experiment.

Yeah, the value of fiat currency is based on the fact that you must pay taxes to a government or get in big trouble possibly up to and including going to jail. That is where the "scarcity" comes in - it's not scarcity per se but the fact that everyone knows they need some dollars to pay their taxes (I know not everyone is a net federal taxpayer but those people still pay all kinds of taxes).

The value of any currency is that there is demand for it. Taxes is one form of demand, but does not cover the entire demand of the dollar.

 

[Lexicus]

every dollar in the Budget of the government is borrowed from someone.

Every dollar in the budget in excess of tax receipts. And they aren't borrowed, they're spent into existence when they're spent, the bonds are sold after the spending they're supposedly funding has already taken place.

The value of any currency is that there is demand for it. Taxes is one form of demand, but does not cover the entire demand of the dollar.

"The value of any currency is that there is demand for it" is a circular argument. It is another way of saying "people want the dollar because people want it." The question is, why do they want it? The answer is that historically demand for fiat currencies initially came from the fact that you had to use the currency to pay taxes. This can be seen perhaps most clearly in the process European colonizing powers used to monetize Africa in the late 19th century; this is an example that is recent, relatively well-sourced (contra the development of proto-states in places like Mesopotamia, which occurs before writing and so is shrouded in some mystery) and involves fully-developed monetary economies coming into contact with largely non-monetary "human economies."

What happens here is not that the African natives just decide they want the money issued by European colonial authorities just because; the colonial authorities (quite violently) impose tax liabilities denominated in their money, which the natives can "earn" by doing "productive activities" like working in the mines or harvesting cash crops for export. It is only some time after these systems of extraction are imposed that African economies become really "monetized" and people begin using the colonial currencies for doing business with each other rather than just for settling their obligations to the colonial authorities.

And so it is with all fiat systems. People often are quite resistant to having their economic activities "monetized" in this way; in the US we had the Whisky Rebellion after the government imposed a tax on whisky, the main medium of exchange for farmers in the western hinterlands, which had to be paid in dollars.

It is not that the only thing people use dollars for is to pay taxes; it's that all other uses of the dollar are ultimately made possible by the fact that we all need dollars to pay our taxes.

 

[uppi]

Every dollar in the budget in excess of tax receipts. And they aren't borrowed, they're spent into existence when they're spent, the bonds are sold after the spending they're supposedly funding has already taken place.

The order does not really matter. When I am ordering something on an invoice, I am also spending money, I do not necessarily have right now. Doesn't mean I don't have to somehow acquire it in the future. In the end, every deficit dollar will have to be borrowed.

"The value of any currency is that there is demand for it" is a circular argument. It is another way of saying "people want the dollar because people want it." The question is, why do they want it? The answer is that historically demand for fiat currencies initially came from the fact that you had to use the currency to pay taxes. This can be seen perhaps most clearly in the process European colonizing powers used to monetize Africa in the late 19th century; this is an example that is recent, relatively well-sourced (contra the development of proto-states in places like Mesopotamia, which occurs before writing and so is shrouded in some mystery) and involves fully-developed monetary economies coming into contact with largely non-monetary "human economies."

What happens here is not that the African natives just decide they want the money issued by European colonial authorities just because; the colonial authorities (quite violently) impose tax liabilities denominated in their money, which the natives can "earn" by doing "productive activities" like working in the mines or harvesting cash crops for export. It is only some time after these systems of extraction are imposed that African economies become really "monetized" and people begin using the colonial currencies for doing business with each other rather than just for settling their obligations to the colonial authorities.

And so it is with all fiat systems. People often are quite resistant to having their economic activities "monetized" in this way; in the US we had the Whisky Rebellion after the government imposed a tax on whisky, the main medium of exchange for farmers in the western hinterlands, which had to be paid in dollars.

It is not that the only thing people use dollars for is to pay taxes; it's that all other uses of the dollar are ultimately made possible by the fact that we all need dollars to pay our taxes.

The circular argument is exactly the point. Most of the value of any currency is derived from this circular argument. Just look at crypto currencies. They have value, because people expect them to have value in the future. I expect to never have to pay taxes in dollars, yet I would accept payment in dollar, because I trust taht I can find someone else wanting those dollars. Entire economies are dollar-based, but are not paying taxes to the US.

Because the value is based on this circular argument, it can be a fickle thing. Erode the trust that a currency will have value in the future and it will lose its value.

 

[Lexicus]

The order does not really matter. When I am ordering something on an invoice, I am also spending money, I do not necessarily have right now. Doesn't mean I don't have to somehow acquire it in the future. In the end, every deficit dollar will have to be borrowed.

You don't issue your own currency so the analogy between you and any currency-issuing government is presumptively invalid. And I agree that deficit dollars have to be "borrowed", but again that's only because it's the law, not for any actual operational reason.

The circular argument is exactly the point. Most of the value of any currency is derived from this circular argument. Just look at crypto currencies. They have value, because people expect them to have value in the future. I expect to never have to pay taxes in dollars, yet I would accept payment in dollar, because I trust taht I can find someone else wanting those dollars. Entire economies are dollar-based, but are not paying taxes to the US.

Cryptocurrencies are not currencies; that is an understandable confusion I guess because they are branded and talked about as currencies, but they have very little in common with the institutional and social technology of fiat money as it has evolved over scores of centuries.

Setting aside the analogy to crypto, what I'm trying to tell you is that there is more to the value of currency than a circular argument, but you don't want to listen. Maybe it would help to think of any currency as a large balance sheet. The balance sheet consists of all the transactions made in that currency. When you cancel out all the balancing terms on each side of the equation (which includes all transactions made among private citizens) what you'll be left with is payments made by the currency-issuing government, and payments made to the currency-issuing government.

Because the value is based on this circular argument, it can be a fickle thing. Erode the trust that a currency will have value in the future and it will lose its value.

Again, these are circular non-explanations and non-statements. It is like if I say that gravitational attraction occurs because massive bodies are attracted to each other gravitationally.

 

[Kyriakos]

Isn't the value of the US dollar determined solely (in practice) by it being a petro-currency? Id est middle-eastern oil sold in dollars.

 

[uppi]

You don't issue your own currency so the analogy between you and any currency-issuing government is presumptively invalid.

Yet still, my action created an asset that can be sold - money. Money is debt, which means that anyone can create money.

Cryptocurrencies are not currencies; that is an understandable confusion I guess because they are branded and talked about as currencies, but they have very little in common with the institutional and social technology of fiat money as it has evolved over scores of centuries.

Setting aside the analogy to crypto, what I'm trying to tell you is that there is more to the value of currency than a circular argument, but you don't want to listen. Maybe it would help to think of any currency as a large balance sheet. The balance sheet consists of all the transactions made in that currency. When you cancel out all the balancing terms on each side of the equation (which includes all transactions made among private citizens) what you'll be left with is payments made by the currency-issuing government, and payments made to the currency-issuing government.

This is also a circular argument: If I take an actor out of the equation, then of course the difference in the equation is caused by that actor. The same would be true for any other actor in the system. If you make a balance sheet with all transactions made in a currency, including those in the government, but excluding those of Alphabet, you end up with the difference of the payments made by Alphabet and the payments made to Alphabet. The only difference is the scale and that the government could legislate its debt in its own currency away, which does not really change anything as long as the government does not do it.

Again, these are circular non-explanations and non-statements. It is like if I say that gravitational attraction occurs because massive bodies are attracted to each other gravitationally.

Isn't that what the Theory of Gravity boils down to? (Well, "massive bodies warp spacetime, because massive bodies warp space time")

 

[Lexicus]

Money is debt, which means that anyone can create money.

That's right- the trick is getting anyone to accept it. States solve that problem by saying "you can pay taxes to me with the money I issue." And the credibility of a state in getting people to pay taxes indeed has a huge impact on how valuable its currency is.

This is also a circular argument: If I take an actor out of the equation, then of course the difference in the equation is caused by that actor. The same would be true for any other actor in the system. If you make a balance sheet with all transactions made in a currency, including those in the government, but excluding those of Alphabet, you end up with the difference of the payments made by Alphabet and the payments made to Alphabet. The only difference is the scale and that the government could legislate its debt in its own currency away, which does not really change anything as long as the government does not do it.

It's not a circular argument because the government's net payments are the only thing that doesn't cancel out to zero, at least in the long run.

CC @Hygro on this

 

[Arwon]

Could be enough posts here for a standalone United States public debt thread

 

[amadeus]

Isn't the value of the US dollar determined solely (in practice) by it being a petro-currency? Id est middle-eastern oil sold in dollars.

I see it as being kind of cyclical: the U.S. dollar is the world’s major currency, in part backed by its use in pricing oil. Oil is also priced in dollars because the dollar is the world’s major currency.

At the moment, there really isn’t much sense to change the system.

 

[Hygro]

Would it work?

yes

 

[EnglishEdward]

The U.S. debt limit is again stoking fears across the globe.

I don't think so.

As a person in the rest of the world, I see it very much as an internal US budgetary and political issue.

Changes in the US Federal Reserve interest rate are far more impactful for us.

 

[Samson]

​

I don't think so.

As a person in the rest of the world, I see it very much as an internal US budgetary and political issue.

Changes in the US Federal Reserve interest rate are far more impactful for us.

If the US defaults a lot of UK banks are in trouble.

 

[EnglishEdward]

I dare say that if UK banks have been gambling, using what is known as derivatives etc,
on whether the US government exceeds its deficit limit i.e. defaults on that; that may be true.

But so what; such gambling destabilises systems that will therefore crash sooner or later.

 

[Samson]

I dare say that if UK banks have been gambling, using what is known as derivatives etc,
on whether the US government exceeds its deficit limit i.e. defaults on that; that may be true.

But so what; such gambling destabilises systems that will therefore crash sooner or later.

Holding US government debt is kind of the opposite to gambling. The financial system is kind of built on the assumption they will not default.

 

[JollyRoger]

Option 4, spend what we take in?

Take in what we spend?

 

[GoodEnoughForMe]

If Biden capitulates to cuts I will never forgive him, especially when The Coin is like the coolest thing our government will have done in years.

 

[Kaitzilla]

For those who care about the actual numbers, the U.S. national debt is $31.5 trillion in 2023.

The interest payments will be around $900 billion for 2023.
Call it 2.9%; of the debt?
It should slowly trend higher as the 1% bonds mature and get replaced by 3%or 4% bonds.

Federal government current expenditures: Interest payments

Graph and download economic data for Federal government current expenditures: Interest payments (A091RC1Q027SBEA) from Q1 1947 to Q2 2025 about payments, expenditures, federal, government, interest, GDP, and USA.

fred.stlouisfed.org

The Federal Reserve owns about 20% of the federal debt ($6 trillion), so after they pay the private banks (that own this country) billions of dollars to do nothing, the leftovers get sent back to the US Treasury as income.
So shoot $900 billion out the door and $180 billion comes back 5 seconds later.

I'm sure the federal government would love to have the central bank own 100% of the national debt, but then rich people who own government bonds would lose their guaranteed basic income that the poors want but can't get.


In 2022, the deficit was north of a trillion.

Fiscal Data Explains the National Deficit

Check out @FiscalService Fiscal Data’s new national deficit page! #NationalDeficit

fiscaldata.treasury.gov

In FY 2022, the federal government spent $6.27 trillion and collected $4.90 trillion in revenue, resulting in a deficit. The amount by which spending exceeds revenue, $1.38 trillion in 2022, is referred to as deficit spending.

With all the Ukraine spending this year and way higher interest payments, it should be higher than $1.38 trillion I would imagine.

**Edit**
The deficit would shrink by $100 billion per year if they finally restart student loan repayments this fall I think.

 

[TheMeInTeam]

us govt has a spending problem so bad that even an arbitrary limit to it is better than nothing

 

[JollyRoger]

There are plenty of cuts to be had with the defense budget. Maybe place a heavy tax on gun and ammo manufacturers and retailers every time one of their products is used in a crime.

 

[GoodEnoughForMe]

US has income inequality so bad that even an arbitrary limit to millionaires is better than nothing