"Isn’t it true that in actuality, the US doesn’t, in fact “borrow’? It spends or trades? And if that is the case, doesn’t that just blow the deficit hawks out of the water?
Technically, the US borrows because it issues “debt instruments,” which are bought at auctions in return for already issued US Dollars. It issues debt instruments, not because it “needs” money in an objective sense; but because Congress requires that the Treasury issue debt instruments whenever the Government deficit spends. Since that national debt is just the value of the outstanding debt instruments. It’s clear that the operative cause of our national debt is this Congressional requirement, which is a hangover from gold standard days.
Those who bother to try to justify debt issuance (most just accept it as the way things are), do so by saying that if we didn’t issue debt in order to withdraw USD from circulation, the result would be inflation, because the new money created by debt-free Government spending would then flood the economy creating inflation according to the dictates of the Quantity Theory of Money. However, Keynes showed in the 30s that the Quantity Theory of Money doesn’t apply to situations where 1) there is less than full employment and 2) the velocity of money is varying through time — both conditions which apply right now.
--http://my.firedoglake.com/letsgetitdone/2011/03/27/is-the-debt-held-by-the-public-really-debt/
I'm not even going to bother commenting on this right now, it makes the head hurt.
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