No need to worry about federal debt?

Hey guys, I was reading "Deficit Myth" by Stephanie Kelton, who is an MMT economist. In the book, she claims that we don't need to worry about our federal debt piling up. Her reasoning is that foreign buyers of Treasuries are basically moving USD from their "checking account" at the Fed to their "savings account". If we think about Treasuries as simply a different kind of USD that pays interest, we shouldn't worry about how much there is in the "savings account", because when the time is up someone at the Fed simply reduces the balance in the savings account and increases the balance in the checking account with a stroke of a keyboard. In fact, Kelton disagrees calling the selling of Treasuries "borrowing". 

This obviously directly contradicts with the notion that our country needs to muster real resources in order to pay back foreign lenders. I find both arguments to make sense, but one of them must be wrong. Would really appreciate if anyone can shed some light on this. Thanks!

WSO Elite Modeling Package

  • 6 courses to mastery: Excel, Financial Statement, LBO, M&A, Valuation and DCF
  • Elite instructors from top BB investment banks and private equity megafunds
  • Includes Company DB + Video Library Access (1 year)

Comments (8)

  • Intern in RE - Comm
Jun 14, 2021 - 3:31pm

If the lenders start to get annoying or any country loses confidence in the US, we can start a war. Thereby accomplishing two things. One, wiping out our debt because whatever country we went to war with no longer exists (other nations will forgive debt as well), and two, we will show how powerful we truly are and that trillions of dollars of debt don't actually mean anything, in fact, it doesn't even exist. It's an inconvenience to us. Ez pz.

Jun 14, 2021 - 3:54pm

So are you saying that regardless of how we think about federal debt we don't need to worry about the size of it, because we can always force others to forgive with our military? 

Jun 14, 2021 - 3:47pm

She's also a democratic…so this makes sense coming from her. 

On a more serious note, money doesn't really exist anyway so wth.

Jun 14, 2021 - 3:57pm

Money does represent a claim on a country's real assets tho. Countries pile up on USD by running trade surplus with the US, and they park most of that cash pile in Treasuries. But they can also use that money to buy common stock or real estate, which some of them are doing already. 

Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
Jun 16, 2021 - 8:46am

Architecto voluptatem et facere consequatur unde labore at. Distinctio itaque sunt qui modi. Assumenda eos velit quas eligendi sit modi.

Start Discussion

Total Avg Compensation

October 2021 Investment Banking

  • Director/MD (10) $853
  • Vice President (39) $363
  • Associates (228) $232
  • 2nd Year Analyst (137) $154
  • 3rd+ Year Analyst (30) $147
  • Intern/Summer Associate (103) $143
  • 1st Year Analyst (500) $135
  • Intern/Summer Analyst (386) $83