Our real concern is deflation.

The idea that our total national debt is at a critical stage seems to me to be something that a politician(s) pulled out of his a$$.

But that doesn't change the fact that we want to increase demand - with 9% nominal umemployment, the functional number being close to double that, we are in no danger of shortages, or inflation.

Once demand has increased, jobs are being created in the private sector, and private-sector spending has also taken off, the government can and should dial back its spending, thus avoiding inflation.

I've posted links from time to time about Modern Monetary theory, and there are plenty of economists who understand the need for the government to spend precisely to increase demand.

As long as the debt instruments being issued by the government are being honored - and they are actually required to be - this is a manufactured crisis.

From Corrente:

What's really behind this angst is, ostensibly, the mistaken idea that the Government can run out of money and so go broke, and that it is doing so. But this fear, if it is real, is due to a misunderstanding, a throwback to the days before 1971, when the currency had to be backed by some finite amount of a commodity such as gold.

We live in a different time. All the money issued by the Government today is backed by nothing except the full faith and credit of the United States of America, and that means that our Government can always use its constitutional authority to create money to pay its previous debts at any point in time, as long as it chooses to spend to meet its obligations. There's no solvency issue and no solvency risk. America can't go broke. The Government doesn't finance its expenditures, either through taxing or borrowing. So even if it has a temporary inability to tax or to borrow it can't go broke, unless its political authorities (including Congress) fail to honor its obligations in violation of the provisions of Section 4 of the 14th Amendment to the US Constitution.

take a look at this passage from the transcript of the presentation of Professor Stephanie Kelton given at the Fiscal Sustainability teach-In Counter-Conference (held at George Washington University on April 28th 2010).

Here's an interesting passage from that link:

" . . . the government is the issuer of its currency. It is not like a household. It doesn't have to raise money by borrowing or collecting taxes in order to spend. Those of us in the private sector have to earn or borrow dollars before we can spend. The government must spend first. And we say this, and sometimes people have a hard time understanding that. How can the government spend first? How can it not spend first? How could the government collect taxes, in dollars, first? It first had to have spent those dollars into existence. The spending has to come before the payment or the collection of taxes. The government must spend first. Government spending is not (we use this term a lot) operationally constrained by revenues. It doesn't need tax payments and bond sales in order to fund itself. It is not operationally constrained. The only relevant constraints are self-imposed constraints. We talked a little bit about this earlier, things like debt ceilings. That's a self-imposed constraint. Rules that prevent the Treasury from running an overdraft in its account at the Fed. That's a self-imposed constraint. It is a constraint that is imposed by Congress. Rules that prevent the Fed from buying Treasury bonds directly from the Treasury, so-called monetizing the debt, is a self-imposed constraint. [00:14.36]

And from the Corrente post:

There are a number important self-constraints, imposed by Congress, that are hamstringing this scorekeeper beyond the constitutionally envisioned constraint of the Executive Branch spending only what Congress authorizes and appropriates. 1) The Congress prevents the Treasury from running a negative balance in its Federal Reserve accounts as a result of its spending. 2) The Congress also mandates that the Treasury issue debt to prevent such negative balances. 3) It also imposes a debt limit on the amount of debt that can be issued at any time.

None of these self-constraints are necessary. Potentially, they can interfere with the ability of the Government to pay its legitimate obligations including repaying its debts, and since section 4 of the 14th Amendment clearly says that the validity of the debts of the United States cannot be questioned, this raises of the question of the constitutionality of these constraints. A very important question currently, since many Republicans in the House are looking forward to refusing to raise the debt limit when the issue comes up in March -- a voluntary act on the part of the US Government that calls our debt repayments into question.

Why doesn't President Obama appear to know these facts about the impossibility of the US running out of US Dollars to pay its debts and buy things with? Well, perhaps he does know about it. Certainly, Alan Greenspan knows that "A government cannot become insolvent with respect to obligations in its own currency." And Ben Bernanke knows that the US hasn't used tax money to bail out the banks. So, it's reasonable to assume that the President must know that we can never run out of money. So, why, pray tell, does he tell us that we've already run out of it?

And then I think you have to ask, why, if we have the ability to spend, and our debt obligations are not in danger of being defaulted on, are Democrats and Republicans manufacturing this crisis?

Fairy Tales:

If you think about it further, the Government's creation of US Dollars is logically prior to either taxing or borrowing, since to either borrow US Dollars or get dollars through taxation, those dollars have to have been created by the Government at some time in the past. So, the notion that the Government can get money by either taxing or borrowing, and only in these ways, is a pretty obvious untruth, told by people who either don't understand where money comes from, or who want other people to believe that money for spending can only come from these two sources.

The truth is that the Federal Government doesn't need to, and also doesn't, raise its spending money from taxing and borrowing. The Federal Government doesn't even "fund" its expenditures as the users of its currency have to "fund" theirs. Most often these days, the Government spends money by marking up accounts in the private sector . The Government also spends by marking up State Government accounts, and by issuing checks to some people, and even by printing a relatively small amount of currency, and coining an even smaller amount of money. But, again, the Government, mostly uses its spending authority to mark up accounts, and it doesn't use the money it collects in taxes, or the money it has raised from borrowing, in its spending process.

There's only one main reason why the Government borrows money when it wants to deficit spend, and that's because Congress requires that it do that, not because the Government either needs or uses the money borrowed in order to spend. The rule that it must issue debt in these circumstances is a hangover from gold standard days.

Congresspeople probably believe that issuing debt when the Government deficit spends prevents or moderates inflation because borrowing removes cash from the economy that Government spending injects into it. It's true that it removes cash from the economy, but whether or not debt is issued to match Government spending, that spending still adds net financial assets to the private sector economy , and the fact that the net addition is a bond and not cash is no less, and may be more inflationary because bonds can be leveraged to a greater degree than cash deposits, and also command interest income . Government deficit spending still adds net financial assets (savings) to the private economy dollar for dollar, and that spending has nothing operationally to do with whether or not money is borrowed to correspond with the spending.

The requirement mandating such a correspondence has nothing to with the function of spending. Though it has everything to do with causing interest to be paid to foreign Governments and wealthy individuals -- "welfare" that the US need not pay them if it doesn't continue to practice debt issuance.

Government doesn't use money raised through taxation to spend, either. In fact, taxing actually destroys both private sector money and Government money . This becomes quite clear when you know what the Government does when it receives payment of taxes in cash. After the tax payer leaves the tax office, the cash paid is shredded by the government official.

So, if the Government doesn't spend the taxes it collects, but destroys the money, then why must it tax. In my view taxes have three functions. First, if the Government did not tax and also require citizens to pay their taxes with Government currency, then that currency would have no value. So Government taxes to establish and validate the value of its fiat money.

Second, Government also may tax to drain aggregate demand from the economy. When the economy is overheated, the best way to avoid inflation is to increase taxes.

And third, Government also needs to tax to re-distribute wealth in a democratic society. Mal-distribution of wealth is a great danger to democracy, as we are seeing in the United States today. One of the chief means of restoring a greater measure of economic inequality to the United States would be a reformed and much more progressive taxation system.

Lastly, not only is it true that the Federal Government raises money through means other than taxing or borrowing all the time, because it creates that money in the act of spending. It's also true that the money it spends is not the money it collects through taxing or borrowing. So, the idea that we must raise money by taxing or borrowing in order to fund our spending is a fairy tale.

On the other hand there is a kernel of truth to the tale, in the sense that Congress mandates that deficit spending cannot occur unless the Government issues debt. But this doesn't mean that the Government has the capability to spend only by raising money through taxing or borrowing. Instead, it means that Congress, itself has mandated a need for borrowing to accompany deficit spending. Therefore in place of the fairy tale, the Administration will tell, we see the real truth - namely that it is the fault of Congress that the Executive must borrow and incur new debt in order to deficit spend, and, consequently, also that it is the fault of Congress that we have a national debt today at all.