Money and Debt: Many Simply Don't Understand Them

March 11th, 2012
in Op Ed

Written by Rodger Mitchell

You may have seen your bank; you may have seen your safe deposit box.  But have you ever seen your checking account?

dollar-fed-res-NOTE-smallNo, you haven’t.  Your checking account is not a physical reality. It is an accounting notation. You could travel to your bank, and walk into the lobby, and you would not be one inch closer to your checking account than if you had stayed home.

When you receive a printed checking account statement, you receive evidence you own the dollars in your checking account.  But, you never will see those dollars.  They too, are not physical realities, but rather, accounting notations.  In fact, you never will see a dollar, anywhere.  No one on earth ever has seen a dollar.

Follow up:

A dollar bill is not a dollar

A dollar bill is a piece of paper telling the world the bearer owns a dollar.  It can be compared to a title.  When you own a car or a house, you have a document telling the world you own that car or house.  The document is called a “title.”  The title is not the car or house.  You can’t drive a title; you can’t live in a title.  It’s just evidence of ownership.  Your dollar bill is evidence you own that invisible dollar.

A dollar has no physical existence. You can’t hold a dollar. A dollar has no more substance than does a number. You can’t hold the number “one.” You can’t carry the number “ten.” When you write a check from your invisible checking account, that check is a set of instructions telling your bank to debit your checking account and to credit the payee’s checking account.

One account is debited and another account is credited. No dollars move. They can’t. They aren’t physical. The peso, the euro, the mark, the pound, the yuan, – none of the world’s currencies are physical. They all are accounting notations.

The U.S. federal government has been “Monetarily Sovereign” since we went off the gold standard in 1971. Money creation no longer was limited by the availability of physical gold. Our Monetarily Sovereign government could pay any bill of any size at any time, merely by telling banks to credit checking accounts.

The world’s financial structure is based on instructions to banks. When the federal government pays you $1,000, it instructs your bank to mark up your account. The bank does as instructed, and your account balance is increased by $1,000. The federal government can send such instructions endlessly.  It needs neither to borrow or to collect taxes.  It merely sends instructions.

The federal government never “prints” dollars.  Printing implies a physical creation.  But dollars are not physical.  Economist Warren Mosler, uses the analogy of a football scoreboard.  The government creates dollars by crediting bank accounts; the scoreboard creates points by posting them. The government never can run short of dollars just as the scoreboard never can run short of points.

Is paying a debt a burden to the federal government? Is posting a score a burden to the scoreboard? Does the federal government need to tax or borrow dollars? Does the scoreboard need to tax or borrow points? Can the government run short of dollars? Can the scoreboard run short of points. Would the posting of points be “unsustainable” as some claim the federal debt is?

The federal government pays all its bills by typing numbers into a computer – just like a scoreboard.

All U.S. Money is Debt

The dollar bill is an IOU.  On its face is printed, “Federal Reserve Note.”  The words “bill” and “note” describe debt instruments (as in “T-bill”and “T-note”).  These instruments are held by creditors to demonstrate debt.


When you hold a dollar, who owes you what?  The federal government owes you full faith and credit, which may not sound like much, but actually is powerful. It means:

– The government will accept U.S. currency in payment of taxes
– It will pay it’s debts (T-bills et al) and its bills with U.S. currency
– It will force all your domestic creditors to accept U.S. currency, if you offer it, to satisfy your debt.
– It will not require domestic creditors to accept any other money
– It will maintain a market for U.S. currency
– It will continue to use U.S. currency and will not change to another currency.
– All forms of U.S. currency will be reciprocal, that is five $1 bills always will equal one $5 bill and vice versa.

Every form of U.S. money is a form of debt. The word “debt” is threatening for you and me and the states, counties and cities, and Greece and Ireland, all of which are monetarily non-sovereign. But for our Monetarily Sovereign government, which can credit bank accounts endlessly, “debt” merely is the amount of money created.  Try to think of any form of U.S. money that is not owed by something to someone.  You can’t.  There isn’t any.

Federal debt is not functionally the total of federal deficits. By law, the Treasury must issue T-securities (aka “debt”) in an amount equal to federal deficits.  But that law is obsolete and could be eliminated immediately.  Were it eliminated, there still could be deficits, but all federal debt would disappear.

Briefly, a dollar has no physical reality.  Neither does a checking account nor any other bank account, debt, deficit, inflation, recession, depression, stagflation or money.  All these terms are descriptive of accounting notations.  The federal government can change any of these simply by typing into a computer.

Dollars do not physically move, because they don’t physically exist. When the government pays a debt, you may imagine dollars moving out of some government storage place into a creditor’s bank.  But, there is no storage place; there is no movement.  The government sends instructions to the creditor’s bank.  That’s it.  A Monetarily Sovereign government never can run out of instructions.

Given all of the above, how is there a debt crisis? How can the federal debt be a “burden” or “unsustainable” or a “ticking time bomb.” as the media love to claim?

What about inflation?

Debt-hawks typically confuse two questions:

1. How many dollars can the federal government create?
2. How many dollars should the federal government create?

When a debt-hawk is presented with the unassailable proof that the federal government cannot run short of dollars, and easily can pay any bill of any size, the rejoinder often is, “But that would cause inflation,” or “Why don’t we just give everyone a trillion dollars?” These responses indicate an admission the government can pay any bill, without taxes, and a switch to question #2.

The answer to #1 is “infinite,” and that is why the federal debt is an obsolete, useless, meaningless, indeed harmful, concept.

The answer to #2 is, in the forty years since the U.S. became Monetarily Sovereign, and despite significant increases in federal debt, there has been zero connection between debt and inflation. This counter-intuitive fact is demonstrated in an on-line article titled, “Federal deficit spending doesn't cause inflation; oil does.”


The U.S. government, being Monetarily Sovereign, does not pay bills with tax money.  Taxes and borrowing are relics of the gold standard days.  Unlike you, me, the states, counties and cities, the U.S. government needs no source of income or savings.  It pays bills – without causing inflation --by sending instructions to banks.

Don’t you wish you could?

Editor's note: This article is a derived from a previously posted article: “Why a dollar bill is not a dollar, and other economic craziness” posted at Monetary Sovereignty.  This article increases the focus on the role of debt in money creation.

Related Articles

Articles and blogs about Taxes

Articles and blogs about Money

About the Author

Rodger Mitchell, MBA is a "turnaround specialist", who saves troubled companies. He is the author of the book, "Free Money, Plan for Prosperity" and founder of his own blog, Rodger M

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

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  1. Greg Nolen says :

    So with your theory, we can borrow and spend our way to prosperity without any negative consequences or inflation since we (the U.S.) are a monetary-sovereign. However, it seems that our currency, tangible or intangible, would diminish in value against other currencies much like the Euro has recently with there central bank piling on a couple extra trillion Euros with the expansion of their balance sheet. These tactics are almost identical to our QE1 & QE2. Our Treasury, through "governmental" fiscal debts, has mirrored deficit spending, but, those debts, has not mirrored the Feds increase in monetary base and expansion of intangible money. Your a smart man I'm sure, but I'm sure that reckless deficits and monetary expansion, through our independent fed, does have real consequences on the "value" of our currency and the world's perception of its value compared to theirs. So, I would need more proof that your claims are correct, sir!

  2. Lawmanfive Email says :

    I can see why Mr.Mitchell is a "turn around" specialist that saves troubled companies;
    All he has to do is "enter numbers into a computer like the Federal Government and BAMM, the company is solvent again."

    Hell, I think I need a career change.I want to save troubled companies to.

  3. ECB-Watch says :

    Shouldn't MMT have a colored belt system, as in Karate, so we know who is (or has been forever) a trainee and who's a master?

  4. Jill Korenaga Email says :

    I discovered mmt mid 2008 yet it occurred to me just 6 months ago that the term 'sovereign debt crisis' is an oxymoron. I suppose it's all together too simplistic tosuggest they merely examine the meaning of the words they speak?



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