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

Thanks for the debate akphidelt. If my opponent is correct that national debt = total amount of money created, then the total money supply should exactly equal the national debt. It doesn't. The money supply in the US is measured by combining M1 (cash) with M2 (checking, savings, etc). M1 is $1.973 trillion and M2 is $9.168 trillion, meaning there is a total of $11.141 trillion total in the US money supply. [1] The current national debt is $14.586 trillion. [2] 11.141 does not equal 14.586. Done – negated. ==Rebuttal== R1) My opponent says that every Fed liability is backed up by US government debt, as an asset, and this supposedly proves that all our money is created using government debt. This is not true, for a number of reasons. First, let's ask why the Fed even has so many Treasuries in its holdings at the moment, since this is actually fairly atypical. The reason is because of Ben Bernanke's Quantitative Easing 2 plan to pump liquidity back into the market in order to get people spending again. As Bloomberg reports, QE2 resulted in the purchase of approximately $900 billion of Treasuries during a one-year period. [3] This accounts for 56% of the Fed's holdings of Treasuries, according to my opponent's source. [4] Although Fed purchases of Treasuries DOES create money, the Fed is not the sole purchaser of Treasuries. Approximately 30% of Treasuries are held by foreign governments and 70% are held domestically. So the Fed only holds around $2 trillion of the $10 trillion in US Treasuries held domestically. My opponent later asserts that domestic banks buy all of these additional Treasuries. However, he asserts this without evidence and in the bid process he is describing, he himself says that the bank TEMPORARILY buys the Treasury, until it is sold at auction to the highest bidder. Most US debt is actually held by private citizens seeking a safe place for their cash. [5] The second problem with my opponent's first point is that US Treasuries are not the only asset the Fed has. Their other assets include gold holdings, reserve funds from all the 12 regional central banks, and private sector mortgage backed securities that it bought during Quantitative Easing 1, back in 2008. In fact, the typical way that the Fed issues money is by using reserve accounts as an asset, NOT US government debt. [6] R2) My opponent says that all loans and bank assets are accounted for on balance sheets somewhere. I agree with this point, although it doesn't prove the resolution true. Also, check my opponent's source to see that private assets are always greater than liabilities, meaning the two numbers don't always match perfectly, as he asserted earlier. R3) My opponent talks about how $3.8 trillion in national debt matured but the government didn't suddenly have to spend $3.8 trillion to pay back these Treasury bonds that had become due. There is an obvious explanation for this – the government issues new Treasury bonds to pay for the ones that become due. In this way, the national debt remains unchanged in spite of some Treasuries having to be paid back. My opponent next talks about the gold standard, and how debt has never decreased. Not only is this empirically false, since Clinton ran budget surpluses, so it IS possible for debt to decrease, but it is also a point for my side because there WAS a point in US history when the debt was zero yet we were somehow able to still have a money supply. R4) My opponent argues that you can't pay back debt because the dollars have to be someone's liability. This seems pretty silly since obviously the government can pay back debt whenever it wants to using government surpluses or by printing money if it had to (causing inflation). In fact, it has to start doing so unless it wants to face further S&P downgrades that will destroy the value of the dollar and permanently damage US stock markets. Also, there would still be a corresponding liability (the dollar) on the Fed's balance sheet and a corresponding asset (Federal reserve funds from the local central bank). My opponent next cites the perfect analogy, saying, "For the perfect analogy, the National Debt is basically the amount of gold we would have in the Gold Standard." Firstly, I already disproved this by showing that the national debt doesn't match the total money supply. Second, this makes no sense since the Gold Standard itself proves that you can have money being issued against an asset other than US government debt. If US government debt is not the only asset the Fed can use, then the entire resolution fails. And third, there is a limit to how many Treasuries the Fed can buy without causing massive inflation, since this DOES actually increase the money supply and create new money, so we can't have the Fed buying all of our debt, meaning the resolution also fails in this regard as well. In addition, my opponent says we can't have a "floating" currency, but the entire point of leaving the Gold Standard was to have a floating currency, meaning we wouldn't need to have an asset to back-up the full faith and credit of every dollar issued. The value of the dollar would be based on the reputation of the US government instead of based on the value of an asset. 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. If we owe China $10,000 for a T-bond, we did NOT just create ten thousand additional dollars. If we did, then there would be massive hyper-inflation, and China would not buy our debt because we could just pay them back with the ten thousand dollars we had just created, which wouldn't be worth as much as the dollar was worth when China bought the Treasury bond. If you don't believe that 11.141 equals 14.586, please vote Con. [1] (M1) http://www.forecasts.org...; (M2) http://www.forecasts.org... [2] http://www.usdebtclock.org... [3] http://www.bloomberg.com... [4] (Reproduced here) http://www.federalreserve.gov... [5] http://www.wealthson.com... [6] http://www.federalreserve.gov...