The reality of the national “debt” (that isn’t)

This post describes the reality of the national debt. It contains, in order:

  1. A summary of the true nature of the national debt.
  2. Expert sources to learn more
  3. The reality of the national debt: from the experts’ point of view.
  4. But surely the interest on the national debt will kill us all! (No it won’t.)
Related posts:


These resources were created by Activist #MMT, the podcast (Twitter, Facebook, web, please consider becoming a monthly patron). This post was last updated September 20, 2020.

Disclaimer: I am a layperson who has studied MMT since February of 2018. I’m not an economist or academic and I don’t speak for MMT. The information in this post is my best understanding but I don’t assert it to be perfectly accurate. In order to ensure accuracy, you should rely on the expert sources linked throughout. If you have feedback to improve this post, please get in touch.

The reality of the national debt with expert sources to learn more.

First some definitions:

  • In every nation, there are three sectors in the economy: public, private, and foreign. The government alone is the public sector. Everyone and everything else in the domestic economy is the private sector (that’s where we are!). The foreign and private sectors together are called the non-government sector. This is the concept of sectoral balances, which is discussed in this post: The MMT view of sectoral balances.
  • The national debt is the debt of the public (government) sector. This is also called public debt. The colloquial meaning of the term public refers to the private sector. That is not what we’re talking about here. In this context, it means only the public sector, which is the government.
  • Private debt is the debt of the private sector, meaning you and me!
  • The central government is the one and only issuer of the currency. Everyone else (like me and you) is a user of that currency. Currency users must find or get money before we can spend. Users must borrow or pull out a credit card when they don’t have enough. Users can go bankrupt. The issuer spends its money into existence. Without exception, all spending by the issuer is created, all revenue collected by the issuer is destroyed. This implies that taxes and borrowing can’t be collected and used for future spending. The (very) false household analogy assumes the issuer to be in the same financial position as currency users, as if it were a gigantic business – one that must spend big and therefore must tax or borrow big. The first chapter in Stephanie Kelton’s 2020 book The Deficit Myth discusses this concept in depth.


It is unquestionably true that:

  • Everyone’s spending is someone else’s income.
  • Everyone’s debt is someone else’s credit.
  • Everyone’s liability is someone else’s asset.
  • Everyone’s deficit is someone else’s surplus.
  • Everyone’s (financial) cost is someone else’s benefit.
  • Inflation is almost always bad for the buyer and good for the seller.

To fear the national debt is to only look at one side of the transaction (or relationship, or ledger). The national debt is our savings. The federal deficit is our income.

The raw size of public debt, in and of itself, can never be a problem. Its inequality however, is always a problem; that the elite have almost all of it and the rest of us – who are desperate for some of it – have almost none.

In addition, (the raw size of) public debt is never a problem. Private debt, however, is always a problem. That’s the debt held by the private sector, meaning actual human beings, like you and me. We can’t issue the dollar. We can go broke.

The following is from a 2017 blog post by Steve Keen, called Can we avoid another financial crisis?:

Here’s a more precise definition of the national debt: the total number of outstanding US Treasury bonds currently held by the non-government sector. (In the U.K., bonds are called gilts. In Japan, Japan Government Bonds or JGBs.)

Government spending has always (since the beginning of the country!) been accompanied by issuing debt (that is, government selling bonds of the same amount to people in the non-government sector, which is very misleadingly called “government borrowing”). This debt issuance is an arbitrary political choice, not a financial necessity. As stated by Warren Mosler and Mathew Forstater in their 2005 paper, The Natural Rate of Interest Is Zero: “Since the currency issuer does not need to borrow its own money to spend, security [bond] sales, like taxes, must have some other purpose.”

Bond sales that accompany new government spending are done largely because it’s (a) tradition, and (b) a very convenient way to give the appearance that federal taxes and (so-called) borrowing funds federal spending. They don’t. The idea that they do is a really terrible one.

The underlying logic makes it clear that bond sales are not possible until the issuer (central government) first spends that money into existence. Bonds sold by the government today are purchased with money created by that same government in a previous spending cycle.

Expert sources to learn more about the reality of the national debt

The reality of the national debt: from the experts’ point of view.

A sovereign currency issuer selling its own bonds is financially unnecessary. Here is the full conclusion from Steven Hail and David Joy’s 2020 paper, Federal Debt and Modern Money:

Stop issuing monetary sovereign government debt securities. They are unnecessary. There is no compelling reason to issue them. They confuse people. They bias macroeconomic discourse, policy making and outcomes. They are an anachronism. They belong, alongside tally sticks, the gold standard, the London discount houses, and neoclassical macroeconomics, in the history books.

Marriner S. Eccles, Former Chair of the US Federal Reserve, Address Responding to Criticisms Leveled by Orval Adams, 1938 (with thanks to RA):

Isn’t it about time that we learned this simple truth? Is it so hard to understand that when an individual owes money he generally owes it to another individual, but when a nation owes money it owes it to itself? When an individual pays a debt, he pays it to someone else. When a nation pays a debt, it pays It to its own people. Now, this doesn’t mean that a nation can go on and on piling up debt or that any amount of expenditure and taxation is justified. The point is that we get into wholly misleading con­ceptions if we make the old mistake of confusing the matter of In­dividual solvency with the solvency of the nation as a whole. The individual’s solvency depends upon continued income and living within that income. The nation’s solvency depends upon the productiveness of all of its people. The individual cannot create money. The Government can and must as one of its fundamental sovereign functions. Its primary responsibility is to create an adequate supply of fiat money for the purpose of aiding production. The individual cannot increase his income by taxation. The Government can. In fact, it seems superfluous to pursue further the point that there is no com­parability between the case of an individual and the case of a Gov­ernment.

Frank Newman was the United States Deputy Secretary of the Treasury in the Clinton administration (source). The following is from his 2013 book Freedom from National Debt. (With thanks to AlfredRD on Twitter.)

But surely the interest on the national debt will kill us all! (No it won’t.)

From Abba Lerner’s 1943 paper, Functional Finance and the Federal Debt (emphasis added):

This means that the absolute size of the national debt does not matter at all, and that however large the interest payments that have to be made, these do not constitute any burden upon society as a whole. A completely fantastic exaggeration may illustrate the point. Suppose the national debt reaches the stupendous total of ten thousand billion dollars (that is, ten trillion, $10,000,000,000,000), so that the interest on it is 300 billion a year. Suppose the real national income of goods and services which can be produced by the economy when fully employed is 150 billion. The interest alone, therefore, comes to twice the real national income. There is no doubt that a debt of this size would be called “unreasonable.” But even in this fantastic case the payment of the interest constitutes no burden on society. Although the real income is only 150 billion dollars the money income is 450 billion150 billion in income from the production of goods and services and 300 billion in income from ownership of the government bonds which constitute the national debt. Of this money income of 450 billion, 300 billion has to be collected in taxes by the government for interest payments (if 10 trillion is the legal debt limit), but after payment of these taxes there remains 150 billion dollars in the hands of the taxpayers, and this is enough to pay for all the goods and services that the economy can produce. Indeed it would do the public no good to have any more money left after tax payments, because if it spent more than 150 billion dollars it would merely be raising the prices of the goods bought. It would not be able to obtain more goods to consume than the country is able to produce.

From this 2019 article