The United States National Debt is the Amount of Money the United States has Created not Borrowed

Thanks for the clean rebuttal... However, my opponent is taking this argument to a description of the money supply. This debate is for the broad scope of how money is created in a fiat economy such as ours. The money supply is very complicated since there are numerous types of money supply that consider money in a different scope then I am describing. And since I didn't want to get in to this part of the argument, I left it alone in the beginning. But since my opponent is using this as his main basis for his argument I will have to reply. First off my opponent is not even using the correct money supply that would be represented by the money the Govt has spent. M1+M2 is broad money which includes bank loans. Bank loans of course add to the money supply and would not be represented by Govt spending. The other key point to note in my opponents misunderstanding of money supply/national debt is a very important part of the National Debt, Intragovernmental Debt. Intragovernmental Debt is money the Govt lends to itself, which accounting-wise means money is double spent. Let me clarify... When the Govt receives a surplus on it's programs such a Social Security (SS). They take this money, lend it to themselves, replace it with a special non-marketable interest-bearing debt, then go out and spend that money. It's basically a bench mark for how much the Govt can spend on it's Govt programs. Later on you will see how this creates the effect that the public debt is being paid off. Source: http://www.ssa.gov... So if you want to establish a basis for where Govt money actually is, the first thing you have to do is eliminate $4.5 trillion of intragovernmental debt. So you are left with approximately, $9.9 trillion. Now by no means is this an absolute mathematical certainty, but what I deem as Govt money would consist of the following. (Values in trillions) $1.1 Currency in Circulation [1] $1.6 Reserve Balances at Federal Reserve Banks [1] $1.1 Foreign Holdings of USD [2] $2.4 Bank Deposits (9.1) - Loans (6.7) [2] $1.5 Bank Net Equity [2] $1.9 Cash in bank vaults [2] ------ $9.6 trilion Now with the money supply situation let me address my opponents comments with the remaining space available. 1) My opponent states "In addition, my opponent never responds to my argument that there was a money supply before there was a public debt." ---------------------------------------- The money supply before public debt is still accounted for on the Federal Reserves balance sheet. The $11 billion of gold still priced at $42 per ounce [3], which is equivalent to $473 billion ($1600 ounce) in present value. There is no original pool of money that is currently circling the system that is not recognized on an entities balance sheet. ---------------------------------------- 2) My opponents states "To disprove my point, however, my opponent cites evidence for my side. He cites evidence that in spite of the purchase of nearly $1 trillion in Treasuries by the Fed, the money supply did not increase very much" --------------------------------------- The Federal Reserve purchases securities on the secondary market from Primary Dealers who purchase treasury's with bank money. The money supply did not increase because the reserves (base money) was shifted on the the Federal Reserves balance sheet. They now have $2.7 trillion. And once again there is no "money supply". You have to clarify what you mean by the Fed's purchase did not increase the money supply. Because it definitely increased the base money supply. Source: http://research.stlouisfed.org... --------------------------------------- 3) My opponent makes a very important statement but doesn't realize what the impact of the statement he made is... "Ultimately, who cares? It doesn't affect the overall argument. If the bank puts the Treasury on its balance sheet, then sells the Treasury to a third party, this has not resulted in the creation of money, since the bank then wipes the Treasury's asset/liability off its balance sheet. Real money has been used to purchase said Treasury." ------------------------------------------------ This is the most influential part of the money creation process. If the Govt issues $1 trillion in debt and the banks purchase it with bank money, then the Govt credits the nonbank public $1 trillion... then the nonbank public now has $1 trillion more to invest in treasuries. This is crucial because the money is spent in to the nonbank public before the debit occurs. This is exactly how money gets created. And it's important to realize that your money is not required in this process. This is the very basis to my argument on how the national debt is actually what we use to pay taxes and to invest in treasuries. ------------------------------------------------ 4) My opponent continues to drill on the very fallacy that most people make. My point is that the Govt borrows by necessity. It is required by law for the Govt to finance it's spending. But what my opponent fails to recognize is my repeated attempts to prove to him that when a bank purchases a treasury it does not take money away from the nonbank public. We do not need your tax dollars or China's money to fund our spending. It is funded behind the scenes with collaboration between the Fed's, Primary Dealers, and the Treasury. There is no private sector involvement in the money creation process. It is very important to understand my point is that the Govt creates money through debt, but the money has to be spent in to existence first before the debt (accounting-wise) can be purchased. -------------------------------------------------- 5) My opponent continue to drive in the fallacy that banks are using deposits to fund their financing of Govt expenditures. "The bank purchases a $10,000 Treasury bond with bank money (which is actual money, like deposits). It then sells the bond to someone for $10,000, replacing the actual money it took out of its vault, with more actual money. Nowhere does the government "credit the public account," -------------------------------------------------- It is critical to understand the difference between bank money and nonbank money. Banks DO NOT USE DEPOSITS. Your deposit remains on their balance sheet regardless of what they do. Banks do not lend reserves. Banks purchase Govt debt the same way they lend you money for a house. They have plenty of ways to finance their purchases of securities. Source: http://69.175.2.130/~finman/Orlando/Papers/Treasury_dealers_manage_positions.pdf Source: http://neweconomicperspectives.blogspot.com... ------------------------------------------------- 6) Alright, I mentioned above how intragovernmental debt plays a role in the Clinton debt reduction myth. Clinton did in fact reduce the public portion of the national debt. But he didn't do it with your tax dollars. When Clinton received a surplus in Social Security, he invested that money back in to the Govt (which is basically the Govt giving themselves a piece of paper) and then paid off the public portion of the national debt with that money that they lent to themselves. This is why the gross national debt did not decrease. So essentially he swapped public debt with intragovernmental debt. Source: http://www.craigsteiner.us... I ask that people please understand the difference between the two types of debt and how clinton used surpluses in Social Security, not Income Taxes in order to pay off the public debt. [1] http://www.federalreserve.gov... [2] http://www.federalreserve.gov... [3] http://www.federalreserve.gov...