Bill Gross: America’s debt is not its biggest problem

'Deficits dont matter' is a huge strawman. No where in the article does it imply this, it suggests that the government can mobilise resources and increase demand. In other words, it can organise people to produce more instead of sitting around, and use the surplus of that production to pay off who they owe. Having people sit around is bad, and adding to those people is worse. The government can get them to do something and that adds to the economy.

Also, you used the example of Greece or Italy. I assume you put Spain in the same category, so its interesting to note that Spain was running a surplus in the years leading up to the crisis.

Budget deficits are not the be all-end all of government finance. Deficits matter, but relative to other metrics.

Your questions are neatly answered by Modern Monetary Theory, see e.g. the overview here: http://pragcap.com/resources/understanding-modern-monetary-s...

If deficits don't matter, then why isn't the government borrowing money and just paying for everything that its citizens desire? Why tax at all? Why not send >us< money?

The government is definitely capable of doing that, but think about the consequences. If the government were to spend without any limits at all, it would push aggregate demand to the point where the economy cannot grow quickly enough to satisfy the demand. The result will be inflation.

So taxation is necessary to take spending power away from private citizens and enterprises, to open up supply capacities that the government can then buy with its own spending, to fulfill whatever mandates are given to it, hopefully via a democratic process.

This is the obvious part. The more interesting question is: How much taxation is needed?

The answer to that is more subtle, but the key observation is that when private citizens and enterprises voluntarily refrain from using all their spending power, e.g. by paying down debt, saving, or simply hoarding cash (all of these things are happening these days), then obviously the amount of money removed from the private sector via taxation should be less than the amount of money that the government gives to the private sector via spending.

In fact, MMT economists argue that in the current situation, the budget deficit actually needs to become larger if the unemployment problem is to be resolved.

Finally, MMT tells you that the cases of the Italian and Greek governments are fundamentally different from the case of the US federal government.

It is clear that the US federal government will always be capable of paying back its debt, because it is the currency issuer of the US$, and its debts are only denominated in US$ (so the fact that almost a third of the debts are held by foreign owners is irrelevant). The only possibility is that the government might become unwilling to pay back its debt, but since congress is full of rich people who own a lot of government bonds, that scenario is quite unlikely.

This is very different from Italy and Greece, both of which do not have their own currency. Their governments are currency users like you and me, and they can become incapable of paying back their debt.

based on the downvotes, I guess my logic must be highly faulty..

To a certain extent debt is the problem. If the US and other Governments didn't have so much debt when the shit hit the fan in 2008 then they would have had more means to deal with the growth issues. US public debt is 100% debt to GDP, so there isn't a whole lot of room to move.