Myth #3: We are passing on debt to our grandchildren.
Reality: Payments on Treasury securities are a matter of data entry, not a financial burden.
Reality: Payments on Treasury securities are a matter of data entry, not a financial burden.
Most people don't realize that government debt -- Treasury securities -- are nothing more than savings accounts at the Federal Reserve Bank in Washington.
There are about 13 trillion dollars in Treasury securities at the Fed. Collectively, these savings accounts are known as the national debt. The national debt represents a portion of the combined savings of US residents, corporations, banks, and foreign governments. And most folks probably don't know that when a person buys them, the Fed simply transfers the dollars from her checking account to a savings account at the Fed called a "Treasury security."
Tens of billions of dollars of these Treasury securities come due every week. When that happens, the Fed pays off that "debt" simply by transferring the dollars, plus interest, out of these savings accounts and back to the holders' checking accounts.
In the future, when our grandkids make payments on Treasury securities, they will simply credit accounts at the Fed-just as we do today, and as our grandparents did before us. It is a simple matter of data entry, and not a financial burden.
If the government spends and taxes wisely today, our grandchildren inherit roads, dams, parks, public buildings, and, most importantly, an educated and healthier workforce. These things are admittedly hard to value precisely-but there can be no doubt that our grandkids will be much better off having been born into a society that has modern infrastructure and services that our government policies can help to provide.
~Randall Wray, Professor of Economics, University of Missouri-Kansas City, Missouri
