The National Debt does exist

Mike Norman over at The Street recently shat out an article called “The National Debt: Why fret over something that doesn’t exist?” And how does he say the national debt doesn’t exist?

The debt is dollars. The government spent $20 trillion more than it took away in taxes over the last 240 years, and those dollars, held by the non-government, comprise a big portion of the non-government’s wealth.

He’s only partly right. The big problem here is that there is not 20 Trillion USD in circulation. Not anywhere close. While true that the United States Dollar — more accurately called the Federal Reserve Dollar — is born out of debt, again we don’t have 20 Trillion USD in circulation.

About 4.5 Trillion is intra-governmental liabilities, not debt held by the public. And the rest of the publicly-held debt was actually accumulated since 1835, the only time in the history of the United States that the national debt was paid down completely.

But the rest of how he tries to get around this idea is just mind-numbing. Let’s see if I can pick it apart. Seriously what he says is such utter bullshit I’m not even sure where to begin.

Second, there is nothing to pay back. The money was paid, ended up in someone’s bank account and now it’s being held in the form of Treasuries.

Mr Norman, you obviously have no idea how liabilities work. The public debt is a liability on the government. It is money they owe. Now when the notes and bonds come due, the government has the option to “roll over” that debt. That is instead of cashing out the bonds and notes, they can issue new bonds and new notes in exchange for the matured ones. They can take the proceeds from newly-issued bonds to pay the matured ones.

In personal finances, this would be similar to a credit card balance transfer or a debt consolidation loan in that you are using new debt to pay off old debt.

It’s pretty easy to see how that works. But it is also what allows the public debt to keep growing with virtually no end in sight, and with the government not really having to pay back the principal on the bonds.

But that doesn’t mean nothing is owed. Absolutely there are trillions of dollars in bonds that are liabilities on the United States Treasury. There is no implicit obligation under the law that the government actually cash out the bonds. But when a bond matures, the Treasury must do something with it, and the only two options are to reissue the security, or cash it out.

Which do you think happens more? I’ll answer that question in a moment.

But first, I’ll raise another: if there’s nothing to pay back, why does the Treasury operate the Bureau of the Fiscal Service, to which you can send money directly to the Treasury exclusively for the purpose of paying down the public debt? Check it out at

A Treasury is a dollar, the only difference being it’s a dollar with a term (duration) and a coupon (interest payment).


“Treasury” is a United States Treasury security. It includes T-bills, T-notes, T-bonds, and Treasury Inflation-Protected Securities (TIPS). All of these are liabilities on the United States government.

What you’re saying is like saying “a mortgage is a dollar”. No, a mortgage is a note. Just as a Treasury is a note. The only difference is that a Treasury Note is unsecured debt — nothing is backing it except the “full faith and credit of the United States”. Whereas most notes are backed by some kind of collateral that can be seized (repossession or foreclosure) should the note no longer be honored by the debtor.

Why would people hold dollars in the form of Treasuries? To earn some interest, that’s all. It’s like saying, why would you put your money in a savings account as opposed to a checking account? Same reason, to earn interest. If you want it back in your checking account, you tell your bank and it switches it back from your savings account to your checking account.

Sadly, this is likely the only accurate statement you make in the entirety of your article. It’s also incomplete.

The one thing that you’re forgetting, Mr Norman, is that your checking or saving account — i.e. your demand deposit accounts — are liabilities on the bank holding the account. Your checking account is part of your bank’s total debt.

That’s how it works with the government, too. It “pays back” holders of Treasuries all the time.

Not exactly. It “pays back” the note holders by giving them new notes. But again the holder is free to sell them to someone else if they want the principal of the note. Then the privilege to collect interest on that note passes to the buyer.

That’s called a redemption and when Treasuries are redeemed the government simply instructs its bank, the Fed, to take back the securities and credit the individual’s (or firm’s or foreign government’s or whomever’s) bank account and, voila, it happens. Paid back.

Not quite.

First, the Federal Reserve is not the government’s “bank”. The Federal Reserve isn’t a bank in the traditional sense. While the Treasury does have an account at the Federal Reserve, this is simply because the Federal Reserve is the central bank of the United States. And the Treasury is, simply, a bank. It is the bank for the Federal government, and so a member of the Federal Reserve to have access to the Federal Reserve System.

But the Federal Reserve doesn’t pay the principal on the notes and bonds either. Not in the sense you’re implying. When a Treasury matures, you have one of three options: buying a new note (“reinvesting”), directing the value be deposited into your Certificate of Indebtedness account (basically an escrow account held by the Treasury), or have it deposited into a designated bank account.

But the Federal Reserve isn’t paying that. Instead the Treasury directs that payment be made to you in the same way your employer directs your paycheck to you, whether by direct deposit or a physical financial instrument.

If you go to the last statement of the fiscal year, Sept. 30, and you scroll down to that table I just gave you, Table III-A, you will see the government redeemed (paid back) $94.2 trillion in one year! I put a screenshot below.

Please note: All figures on the daily Treasury statement are in millions, so don’t come back to me and say it was only $94.2 million. It’s $94.2 million million. That’s $94.2 trillion. See the image below.

The bulk of the value to which he’s referring is the “Government Account Series”, or GAS treasuries. These are used for intragovernmental debts. For the statement linked in the quote, the Treasury reported issuing approximately $87.2 Trillion in Government Account Series liabilities, while redeeming about $86.6 Trillion, leaving an overall outstanding net liability of about $600 Billion.

I’ll let the Congressional Budget Office explain how they work:

Ordinarily, when a trust fund receives cash that is not needed immediately to pay benefits or cover other expenses, the Treasury issues GAS securities in that amount to the fund and then uses the extra income to reduce the amount of new federal borrowing that is necessary to finance the governmentwide deficit. In other words, in the absence of changes to other tax and spending policies, the government borrows less from the public than it would without that extra net income. The reverse happens when revenues for a trust fund program fall short of expenses.

But over $90 Trillion? Surely that can’t be correct?!? Except it is. Here’s a way to show how this can work. You have $10. You go to the store and spend that $10. The store the pays one of it’s cashiers. The cashier then turns around and buys gas. The gas station pays its clerk. Who then shops at the grocery store.

That’s only $10 in cash that has created $50 in economic activity. So the $90 Trillion figure likely falls under this same pattern.

And it gives us an idea of how large the Federal government has truly become that they are generating over $90 Trillion in economic activity just within itself.

Ninety-four point two trillion! In a single year. And nobody knew about this. Furthermore, the world didn’t fall apart, the dollar didn’t collapse, interest rates didn’t spike, we had no inflation and everything was fine.

The reason everything is fine is that $94.2 Trillion isn’t outstanding liabilities. Mostly. If it was, and the total outstanding public debt of the United States exceeded $90 Trillion, which it theoretically can reach, eventually, we’d be in trouble.

There is the proof, right in front of our noses, that the debt is meaningless. It’s just a bunch of bookkeeping entries. Keystrokes. It’s time we stop fretting over this. People need to educate themselves about what this debt is and how they are being manipulated and propagandized about it.

No the debt is far from meaningless. Indeed the magnitude of the number shows that we have a large Federal government that really, really needs to be reigned in. By not understanding how all of this works, Norman, you can’t see that you’ve basically contradicted your own point.

The debt isn’t just bookkeeping entries or keystrokes either. It is much, much more than that. Because that debt represents the borrowing activity of the United States government that pays salaries, fulfills payments on contracts, and the like.

The debt is not a bad thing, it is an asset of the non-government

Like all other forms of debt, it is a tool. Exercised properly it can really help you financially. Taken to extreme limits, you can get in over your head and find yourself in financial hot water.

There is no debt!

Yes there is. You’re just trying to contrive your way around the concept that liabilities are debts. Securities are debts. Plain and simple.