Why we need the national debt 6.28.2006

Because without the national debt we would slip into socialism--that is, we would slip into government ownership of private business: How the Fed creates money without creating socialism
The most common way the Fed creates money is by purchasing some of the public’s T-bonds on the open market. In other words, the Fed grabs a handful of that infinite potential supply of money, then trades that handful to the public in exchange for some of the public’s supply of T-bonds.
That is, when the Fed prints a dollar bill, that dollar bill is not printed out of thin air, but is printed in exchange for a dollar's worth of equity purchased on the open market. The Fed, in other words, backs printed money with value on the open market.

Now because the debt is sufficiently large enough, the Fed is able to purchase Treasury Bills off the open market. That is, the Federal Reserve purchases government debt to back the value of the money it prints--money which is, in essence, a form of zero-percent interest bond.

Now what happens if there isn't enough Treasury Bills in circulation on the open market for the Federal Reserve to purchase them using zero-percent interest bonds--that is, with printed dollar bills?

In the words of Alan Greenspan:
Continuing to run surpluses... brings to center stage the critical longer-term fiscal policy issue of whether the federal government should accumulate large quantities of private assets.
That is, in a nutshell, socialism: in order for the Fed to have something of value in order to back dollar bills, the Fed would have to start purchasing private debt: stocks, corporate-issued bonds, and other intruments--that is, the government would start having to purchase public corporations in order to keep money in circulation.

And government ownership of private corporations is the very definition of socialism. Worse, when governments get involved in direct ownership of corporations (unlike the indirect ownership done through quasi-public investments of retirement funds in the stock market), government will have an interest in exercising it's stockholders rights on corporate behavior. And while retirement funds generally leave corporations alone--changing their investment strategies based solely upon profit maximization--direct public ownership of corporations would create incentives for governments to start fiddling around with corporations for reasons other than profit maximization.

And that is the very definition of socialism.

posted by William Woody at 10:20 AM

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