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

Thank you contender for the challenge. However, I do not agree that you have successfully rebutted my claim. I will go through each of your statements and sort of use the format you used since it is effective. 1) You say that the money supply = $11.141 trillion. And since the national debt is $14.58 trillion the national debt is not e amount of money that is created. ------------------------------------------------------ Response: There is more money in the world that exists outside of the amount of money that we the public have access to. The m1+m2 money supply that you quoted does not include the following... - Deposits of the Treasury (including deposits at the Federal Reserve and Deposits at depository institutions) - Depository of Depository Institutions - Deposits of Foreign Bank and Official Institutions (this is a large number) - Vault Cash at Depository Institutions Only cash and deposits held by the nonbank public are counted in the money supply. Source: Modern Money Mechanics (Federal Reserve Bank of Chicago) - http://www.rayservers.com... --------------------------------------------------- 2) You state that the "Fed purchases of Treasuries DOES create money" --------------------------------------------------- Response: The Fed's QE1 and QE2 policies and purchases of Treasuries DOES NOT create money. They create reserves in the banking system. This allows banks to lend more money which can increase the money supply, but unless banks lend money this does not lead to an increase in nonbank public money. In fact bank lending has not increased significantly since QE1 and QE2. Source: http://research.stlouisfed.org... The reserves from QE1 and QE2 are sitting in the Federal Reserve bank as excess reserves. The reasons the money multiplier is not going in to effect is because the Federal Reserve is paying interest on excess reserves for the first time ever. This gives the banks an opportunity to hold on to reserves with out losing value (inflation). As you an see excess reserves just 2 years ago were $0. Now they are at $1.6 trillion (hence QE1 + QE2), which means the money has not entered the nonbank public Source: http://research.stlouisfed.org... Here is an article from the Federal Reserve Bank of New York that shows the balance sheet transactions of the Fed's QE policies. Notice how the Fed does not call these operations quantitative easing as that is not really what they are. As Bernanke calls it... it is "credit easing". The Fed's refer to it as monetary policy action and as you can see from this paper this is specifically a banking operation that leads to increased reserves in the banking system to allow them to lend more money to the nonbank public. None of the Fed's purchases go to the nonbank public. Source: http://www.newyorkfed.org... -------------------------------------------------------------- 3) You say "most us debt is actually held by private citizens seeking safe place for their cash". And you claim I did not provide evidence of proof that banks purchase majority of treasuries auctioned off. -------------------------------------------------------------- This is a very important distinction that causes a lot of people problems with the system. When we purchase treasuries we are purchasing them from the secondary market. The key is to figure out what money is used to purchase the securities directly from the Govt. Here is details from the Fed itself detailing who purchases treasury's. "The bidder category data show that primary dealers alone account for 70.9 percent of Treasury securities sold to the public, on average (Table 1).8 Direct bidders other than primary dealers buy 2.4 percent, and indirect bidders buy 21.6 percent. The average purchase share of noncompetitive bidders is 5.1 percent. The large share of securities bought by primary dealers is notable given that there are only twenty-two of these institutions, whereas more than 800 financial institutions are set up to bid directly in Treasury auctions." Source: http://www.newyorkfed.org... Indirect bidders consist of investment banks and foreign accounts with the Fed. None of which comes from the private sector seeking to invest in wealth. So the key distinction here is who is purchasing directly from the Govt not who is purchasing from the secondary market. Because as showed above, the Govt spending is already in the system as the banks purchase these Treasury's with bank money (aka loans). -------------------------------------------------------- 4) My opponent says that the explanation for maturing debt is explained by issuing new securities. While this is obviously true, my point consists of the fact that money still has to be "borrowed" in order to pay off maturing securities just like money has to be "borrowed" to pay off deficit spending. My question is what is the difference between borrowing to pay off maturing debt, then borrowing to pay off new debt? I stand by my theory that we borrow for deficit spending because that money does not exist in our system. ---------------------------------------------------------- 5) My opponent says "Lastly, my opponent talks about how a bank would be a temporary purchaser of US government debt, but the bank ultimately auctions this debt off to a private citizen or foreign government.". ----------------------------------------------------------- This is true but think about what you are saying. If the Bank purchases the debt with bank money and the Govt credits the nonbank public's account. Then we, the nonbank public, now have an increase in money available in which to invest in treasury's in the secondary market. This essentially means that the money purchases treasury's in the secondary market is the actual debt itself. Which reasserts my position that the national debt is the money we have to pay our taxes and to purchase treasury's on the secondary market. ----------------------------------------------------------- My opponent first started off with a faulty premise that the money supply does not equal the national debt therefore my theory is false. I went on to prove that the money supply of the nonbank public does not include all existing money. He also states that Clinton ran a surplus. This is true in the sense that he taxed more than he spent, but it is false that this caused a reduction in the national debt. In fact here are the official numbers of US Public Debt outstanding during Clinton's surplus years. 1998- 6761.75 1999- 6974.78 2000- 7080.52 2001- 7323.90 2002- 7879.78 Source: http://www.usgovernmentdebt.us... This reasserts my position that tax dollars can not be used to pay off the national debt, as even when the country runs a surplus the national debt does not decrease. This is a very complex system and there are plenty of factors that can affect the money supply and who or what owns money. My opponents claim that the money supply does not equal national debt should not be considered as prof that the National Debt is the amount of money the United States has created. The fact of the matter is the United States has to spend money in to existence. They do this through debt, and the intermediary, the banks, allow the money to enter the system before money has to be taken out.