The Associated Press ran a story reporting: “Congressional Republicans are planning a massive overhaul of the nation’s tax system, a heavy political lift that could ultimately affect families at every income level and businesses of every size.” The interesting aspect is that the headline reads:
GOP: Cut taxes, change brackets; but what about deficits
There is zero discussion about constantly borrowing year after year. The presumption here is that governments can borrow all the time and someone will buy, even if negative, and the world will keep on going. They assume that this is OK and that deficits are all right as long as we fund them.
Absent from all of this basic assumption is the reality of history — whenever a government borrows, they ALWAYS default.
Most people are living in the past. Prior to 1971, the US government borrowed money but it did not create new money, as it could not be used for collateral to borrow against. In the 1960s, if you bought an E-bond, you could not go to the bank to borrow against it. You had to cash it out. Post-1971, you could buy T-Bills and use them as collateral to fund your trading. Debt has become money that pays interest.
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