The Congressional Budget Office (CBO), Social Security Administration, and other economic projections show Social Security and Medicare programs drawing down the balances in the “trust funds” and eventually creating an assumed need for either higher taxes or deficit spending to support these programs. This is the basis for the claim that entitlement spending is driving the deficit and the national debt, or at least will be the most important factor in the coming years.

The projections are also the very questionable rationale of the policy proposals aimed at reducing entitlement spending, raising taxes, or both in the coming years. But these projections won’t become reality if the Federal Government uses its capacity to create reserves in the Treasury’s spending accounts to cover any deficit.

Since the term “deficit” is usually defined as the gap between spending and tax revenue, “the deficit” would still exist in that scenario, but it would no longer be driving “the debt” because reserves created by the Government without issuing interest-bearing debt instruments don’t add to the debt subject to the limit.

So, what’s really driving “the debt” isn’t entitlement spending, or any other kind of Government spending. It is, instead, the Government’s decision to associate its deficit spending with its issuing interest-bearing debt instruments in dollar-for-dollar correspondence with that spending. In other words, we have a large Government debt, because the Treasury decided to perform deficit spending along with issuing debt. It is that simple; and there is another choice for the Government; just say no to issuing debt.

If we stop issuing debt and perform deficit spending using overt money creation, such as through Treasury using coin seigniorage to force the Federal Reserve to credit Treasury’s accounts, or through Congress giving Treasury the authority to mark up its reserve accounts at the Federal Reserve when it needs to deficit spend, then we will, eventually, eliminate “the debt” without either cutting spending or increasing taxes.

At this point, someone will surely worry about inflation occurring if spending and debt repayment is financed by just creating reserves as part of the spending process. The answer is that the kind of government deficit spending that causes inflation is deficit spending past the point of full employment. But, the method of deficit financing used along with the deficit spending matters not at all for inflation.

In historical cases (the Confederacy, the Weimar Republic, Zimbabwe, etc.) where money creation through “printing” was associated with hyper-inflation, a confluence of conditions such as the inability to pay foreign debts in one’s own currency, the consequent loss of monetary sovereignty, the failure to establish the value of one’s currency through appreciable levels of taxation, and radical loss of productive capacity, were the factors triggering hyper-inflation. Money printing in itself was not the causal mechanism involved.