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

Thanks for the solid debate... This is a very confusing subject and my wording may not always be perfect, but my opponent is taking this conversation to a place that I did not want it to go. The money supply, whatever you want to call it, Monetary Base, M1, M2, M3, should not be used in this debate. We are talking about Government created money, M2 uses all deposits in banks including loans. Loans are not created from Government spending, loans are created by banks. So anyone reading this debate should disregard any attempts by the opponent to correlate M2 money supply with the National Debt. ==Should we exclude intragovernmental debt from debt measurements?== My opponent is misinterpreting the accounting involved that represents our nations debt. Intragovernmental debt is simply a number that records how much surplus the Govt has taken from it's Govt programs + interest paid on the pieces of paper they give themselves. If one understands accounting they can see where I am coming from in saying that intragovernmental does not add to net spending, it adds to net debt by way of accounting. Here is a simple example of what is going on with intragovernmental debt. The Govt taxes $1000 for Social Security The Govt pays $800 for Social Security The Govt now has a surplus of $200. In accounting terms the Govt has debited $200 from the nonbank publics accounts. The Govt then invests that $200 in themselves. In return they give themselves a piece of paper that says we owe this $200 + interest back. Now those of you who can think outside the box, what is really going on here? The Govt is giving themselves the $200 to spend and replacing it with a piece of paper. There is no "new" money created in this process... only debt. Clinton used this process (which is mandated by law) to reduce the public portion of the debt. But all he did was replace public debt with intragovernmental debt, which is why the overall debt did not decrease. So the money is still backed by debt, just a new form of debt. And when the intragovernmental debt get's "paid off" it will simply be converted back to public debt. So I therefore maintain my assertion that the Government still creates money through deficit spending and that your tax dollars can not be used to pay off the National Debt. My opponent is using a situation in which debt was used to replace debt, but he is focusing on just one side of the equation. Let me go through some points my opponent made and go through my refutation. 1) My opponent says "Say what you want about the money supply, but if you believe that all cash is created by debt, you CANNOT believe that there would ever be more money in circulation than debt." ---------------------------------------------- My opponent is simply missing a HUGE piece of the puzzle. Bank loans are created by banks. And banks can create a lot more loans then there is money created by the Govt. In accounting terms bank loans are a wash and they are not even relevant to this discussion on Govt debt. So if you understand fractional reserve banking, you can understand how there can be more money in the money supply then there is debt (which the reserves are included in). What I like to say is that banks leverage Government money... but the Govt has to spend more money in order for the banks to be able to leverage more. ---------------------------------------------- 2) This is very important for those reading this debate to make sure you understand. My opponent erroneously says "First, how does $11 billion of gold at current value (what the Fed lists on their website) turn into $473 billion in value. I think my opponent changed $11 billion in gold to 11 billion ounces of gold, which is not what the source says. When a bank owns an asset (whether gold or a house), it lists the value of the assets under assets." ---------------------------------------------- The Federal Reserve does not count gold at it's current value, it counts it's value that it last represented which is $42.22 an ounce. I simply did simple math and said ($11 billion/$42.22 * $1600) just for an estimate on today's value. Here is the Fed's explanation for this number "Gold stock is valued at $42.22 per fine troy ounce. " Source: http://www.federalreserve.gov... ----------------------------------------------- 3) My opponent continues to focus on individuals like you and I, which is the most common mistake when trying to think about what is going on behind the scenes. My opponent says "Remember, the resolution says that when the government issues debt, it creates money. My opponent's own source said that QE2 bought Treasuries but failed to increase liquidity, meaning banks did not lend out any more money, so this failed to "create" money." ----------------------------------------------- The resolution did not say that the National Debt is the amount of money the nonbank public has, I said it creates money. In the case of the Fed's QE2 policy, they purchased treasury's that were already purchased. The money in this instance is actually called a "reserve". Banks can not lend these reserves but they can exchange them like they are money, with each other or for more securities. However they can leverage these reserves to create new loans. But in order for the Fed to do QE or Open Market Operations the Government first must deficit spend and create the debt/money before these operations can take place. Everything stems from Government deficit spending. ---------- 4) My opponent continues to fail to grasp the concept of a bank being the intermediary between Government borrowing and Government spending. He says "How does the government credit $1 trillion to the public" ---------- Think about it. When the Treasury auctions off debt and a bank (Primary Dealer) purchases it with bank money. The Treasury gets this money in their account at the Fed, in return the Primary Dealer gets a treasury as an assets and has a TTL Note Account as a liability. The Treasury then uses this money to credit bank accounts. If they need to pay for the Iraq war, they go and borrow money from the banks, and then credit nonbank public military bank accounts. My opponent, like many in this subject is still caught up in the fact that the majority of money purchasing Govt debt does not exist just like when you go to get a mortgage from a house. That is a loan. Then, we the nonbank public, go out to Wal Mart or whatever, buy their products, they ship that money overseas to China and what do you know, China purchases $1 trillion in US debt. The fact is that the money has to be spent in to existence first (on a macro basis) before there can be money that exists to purchase the debt. -------------- I have given my opponent numerous articles detailing how Primary Dealers finance their security purchasing and how this creates money in the nonbank public before any debits have occurred from the nonbank public. Sources: http://neweconomicperspectives.blogspot.com... http://research.stlouisfed.org... http://69.175.2.130/~finman/Orlando/Papers/Treasury_dealers_manage_positions.pdf My opponent is simply using the lack of knowledge on the subject and accusing me of red-herrings with out being able to explain factually what I am wrong about. What money do you think the banks are using Contender? My opponent continues to talk about Clinton surpluses. I have shown mathematically how this did not reduce the national debt. It replaced public debt with intragovernmental debt. Mathematically and account-wise you can not pay off intragovernmental debt with out incurring public debt. I do not have enough space to show the accounting, but I will in the next response. Readers, please be aware that my opponent is not using any accounting or math in his rebuttal on my claim.