The National Debt Myth: How Politicians and the Media Peddle Economic Fiction

national debt

The National Debt Bogeyman: Exposing the Great Fiscal Fraud

Politicians love to cry wolf about the dangers of the ballooning national debt. They warn it’s an existential threat to our economy, a burden stealing from future generations. This fiscal fraud is used to justify austerity policies that only exacerbate inequality and human suffering. The truth about the national debt is far different from the debt hysteria peddled to the public.

“There is no debt crisis.” This bold statement from economic expert Professor Richard Murphy rebuts the endless fearmongering about government debt. Politicians and media pundits love to portray the national debt as an impending disaster that will crush future generations. But this is sheer economic fiction.

As Murphy explains, the so-called national debt is simply the accumulated deficits from government spending needed to circulate money in the economy. It is not a burden, but the foundation of our money supply.

Contrary to alarmist rhetoric, deficits and government spending are essential to a functioning economy. When the government spends, it creates and circulates money. When it taxes, money gets taken back out of circulation. If the government balanced its budget by taxing back all spending, there would literally be no money left in the economy.

Running a deficit is not evidence of overspending. It simply means spending more into the economy than withdrawing via taxes, to ensure adequate money supply. The accumulated total deficit becomes the national debt. But this is not debt in any normal sense.

The national debt is predominantly just savings held as bonds or reserves. As Murphy notes, it represents “future taxable income the government has decided not to claim yet.” It is not like household debt at all. The government can always create new money to pay its obligations.

There is no risk of the government being unable to service its bonds. It produces the currency bonds are issued in. The notion that bond markets can constrain government spending is another piece of economic mythology.

And the idea that the national debt will burden future generations is equally false. As Professor Richard Murphy explained, “Our children and grandchildren will inherit whatever we bequeath to them. If we leave behind a nation strengthened by public investment in infrastructure, education, and R&D, they benefit.”

Yet politicians perpetuate panic about deficits and debt to justify austerity. They pretend government must tighten its belt like a household. This legitimizes slashing public spending and services. It is a con trick to facilitate private profiteering.

If the public understood how money actually works, we would see that austerity is an ideologically driven political choice, not an economic necessity. Taxes don’t “fund” spending. The national debt is not a burden but the foundation of our monetary system.

If you have ever wondered what the magic money tree is, I have just explained it. It is quite literally the ability of a bank and their customer to make this new money out of thin air by simply making mutual promises to pay.

magic money tree

The problem with the magic money tree is that creating money is so simple that we find it really hard to understand. We can have as much money as there are good promises to pay to be made. It’s as basic as that. The magic money tree really exists, and thrives on promises.

Professor Richard Murphy

The question is why politicians cling to debt scare stories given the facts. Some may genuinely not grasp monetary operations. But for others, debt alarmism provides cover to funnel money to elites via tax cuts and privatization. Their debt hysteria manufactures consent for policies that intensify inequality.

The national debt has been increasing for centuries alongside economic growth. It is sustainable so long as resources are available. The notion that we “can’t afford” healthcare, education and public services is bogus. It serves those who profit from scarcity, austerity and misery.

We must challenge debt myths parroted to justify dismantling government. There is no fiscal crisis, only a crisis of democracy fomented by economic disinformation. The national debt is not a burden but the public’s savings. Let’s bury this economic fiction once and for all.

We must debunk debt propaganda and demand that public purpose be freed from phantom monetary constraints. I would recommend a visit to Richard Murphy blog for more.

The duty of government is to serve its people, not kneel at the altar of illegitimate debt.

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