The U.S. Has No (And Never Could Have A) Debt Crisis

By Dr. Marty Rowland and Dr. Walter E. Perry

There is total confusion on both sides of the aisle (or perhaps willful obscuration) about the reality of public credit and public debt, and the absence of a need to borrow any money for a supposed budget shortfall, as evidenced by an article published earlier this year in the New York Times (Baker and Tankersley 2023). The compromise to extend the Congressional bipartisan budget and debt talks until 2025 has not changed anything.

Democrats and Republicans are equally confused about the nature of sovereign debt, the essence of the current debate. Choices for what we spend money on matters. Public credit and public debt are two entirely separate things which de jure (and soon perhaps de facto) they have been (before and through Bretton Woods) (Perry 2023a) – the Federal Reserve may extend credit to the US economy in any manner and in any amount it chooses (Macquarie 2023); and when public credit is used to expand spending on public goods (infrastructure), land rents increase by at least the cost of the investment (Stiglitz 1977). This is the Henry George theorem justifying the capture of those rents for social betterment.

On March 4, 1789, the U.S. officially began as a nation. Through the Funding Act of 1790 and then the Bank Bill of 1791, public credit was issued by the Treasury Department (Miller 1960) so that important things could be built – coastal defense (important for War of 1812, and Civil War), internal improvements and subsidies for our infant industries (Clay 1832). With this authority, the Secretary of the Treasury issued Treasury bonds (public debt) against the public credit of the United States; the bonds were sold mostly to merchant bankers of Glasgow (Perry 2023b) for gold and gold-backed equivalents (banknotes). That gold became the reserve of the United States Treasury and the basis of the coinage issued pursuant to Article I, Section 8, Clause 5 of the Constitution (as limited by the “gold and silver Coin” restriction of Article I, Section 10, Clause 1) (U.S. Constitution 1789). So, public debt was issued against public credit, but nothing ties the amount of public debt to a limit of public credit except for market forces that might increase the cost of further borrowing, and ultimately make it infeasible, as the amount of debt approached the market’s consensus of the maximum with which a borrower could be entrusted. The fact that the bulk of the credit the Federal Reserve has extended in the past 50 years has been to fund the public debt by purchasing Treasury bonds does not (and never did) oblige it to continue to do so. The Federal Reserve, and the creditworthiness of the dollars it issues, is graded by the market in the price inflation of dollar-denominated goods, services, and financial assets, as the market’s way of devaluing the dollar in line with the expansion of the money supply relative to the growth of the economy. But the specific ‘crisis’ that we are constantly hearing about is entirely illusory: if Congress and the President do nothing at all there does not have to be a default on the public debt, nor does the Treasury have to stop paying all of the nation’s bills. Instead of filling the Treasury’s coffers with the proceeds of new borrowing, the Fed can simply deposit newly created dollars to the Treasury’s General Account, whatever is required each day to pay the bills due that day. The President of the United States and its Executive Branch cannot simply refuse to pay the country’s lawful bills. If Congress refuses to authorize more borrowing, as is its right to do, the expenditures lawfully approved by Congress must nonetheless be paid. The President must instruct the Federal Reserve to deposit the necessary funds in the Treasury’s General Account so that all obligations are paid. Should–unthinkably–the Fed refuse to do that, well then, the Fed is the creature of an Act of Congress, and Congress can pass legislation instructing the Fed to do its bidding, reworking or repealing the Federal Reserve Act of 1913 (U.S. Congress 1913) as Congress sees fit to do.

So, in the end, public debt to fund wars’ destruction, nature’s sterilization, and future, long-term land value capitalizations (i.e., real estate) is self-induced harm. Each passing day could be the start of a new era of increased public credit, general happiness, and lower price inflationary effects when we choose otherwise.


Baker, Peter and Jim Tankersley. 2023. Live Updates: Biden Hosts McCarthy for Debt Limit Talks, New York Times (found at May 9.

Clay, Henry. 1832. In Defense of the American System; Classic Senate Speeches. United States Senate, found at, February 2, 3, and 6.

Macquarie, Rob. 2023. Modern Monetary Theory and Positive Money, Part II: Money and Debt. Positive Money, found at, July 11.

Miller, John C. 1960. The Federalist Era: 1789-1801. Harper & Row, New York, p. 37.

Perry. Walter E. 2023a. Personal communication. May 15.

Perry. Walter E. 2023b. Personal communication. May 30.

Stiglitz, Joseph. 1977. The Theory of Local Public Goods, in Feldstein, M.S., Inman, R.P. (eds) The Economics of Public Services, Palgrave Macmillan, London, pp. 274-333)

U.S. Constitution. 1789. Article I, Section 8, found at, July 11, 2023.

U.S. Congress. 1913. Federal Reserve Act of 1913, 63-43 Pub. L., Ch. 6, 38 Stat. 251, found at, July 11, 2023.

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