I was thinking of making a thread on Modern Monetary Theory(MMT), which is what led to me to abandon the Stephen Zarlenga school of thought about debt-free money. The reason MMT is so counterintuitive is because the way most people still think about money is based on the gold standard. Under a gold standard, you really were limited in the amount of borrowing or printing you could do in a way that you aren't under a fiat system. So MMT can really be thought of as a theory that explains the difference between gold and fiat money.
Basically, when people think of money, they tend to assume that the government has to get money from the people or from other countries, through taxing or borrowing respectively. The fact is, however, that they have it in reverse. The government issues the money and taxes take the money out of circulation. Thus, taxes are not a revenue-generating device. They are a tool for managing demand, so as to control inflation(among other things, such as wealth distribution). As for "borrowing," a lot of people have this false picture of China as our banker, issuing us loans at interest. This is simply not true. Rather, China's trade surplus with us means that they sell us goods which we buy in US dollars, and rather than keep the dollars, they exchange them for US Treasury Bonds. So, how do we pay off the debt? The same way we always do, by shifting the numbers in China's account from the debit column to the credit column.
Those who wish to compare the US to Greece fail to notice that Greece does not issue its own currency, and so is more comparable to a US state. It is possible for Texas to default on its debts, but the US government can only do so through political failure, as seems to be the trend right now. There is no reason why the sovereign issuer of currency should ever have to default.
Now, we don't necessarily have to borrow money. We can "print" the money, as it is so misleadingly called. That simply means that we issue the money without creating a debt obligation for ourselves, and just as with money, take money back out of circulation through taxation. This is similar to what reformers like Steve Zarlenga and Ellen Brown advocate, and on balance I prefer it to the "borrowing" strategy, though there is probably a case to be made that the sale of treasuries helps prop up the US dollar against other currencies.
MMT is based on the insight that money is
endogenous. Banks are not reserve-constrained, as is commonly believed. Rather, they issue the loan first, creating deposits in the process, and then seek the reserves later. Thus, the money multiplier simply does not apply. The money multiplier is yet another example of something that was true under a gold standard, but is not true today. This is the main thing that led me to reject Zarlenga's views. It turns out that banks will still have the ability to create as much money as the market demands regardless of whether the reserve ratio is 100% or 0%. I am still uncertain as to whether the reserve ratio would still have some effect on interest rates, and hope to someday talk to an MMT theorist about it.
So anyway, I would agree with Bill Mitchell that our national debt is certainly not the problem that it's made out to be, but I still think we should explore non-debt forms of financing as an alternative. I had heard about high debt-to-GDP as a destabilizing economic force, but then I realized that that's mainly true for private debt. The one worry about a high public debt is the signal it would send to investors. If selling treasuries props up the dollar, but high deficits cause investors to flee from treasuries, then that's a bit of a counterproductive strategy. So perhaps we ought to mix it up a bit more, and not issue quite so many treasuries.