National debt versus personal debt (in reality)

Congress could create a law called gravity and then repeal it. This would have no effect on, or relationship to, the scientific law of gravity. The idea that the national debt has any relationship to the debt we bear when taking out a bank loan, is the same kind of misunderstanding.

Just because it’s called the same thing doesn’t mean it’s same thing – or even remotely similar. The idea they are in anyway comparable is only meaningful to those who wish to deceive. This post describes why.

It ends by briefly addressing the false idea that “printing money” inherently causes inflation, and clarifying that the national context of different countries, such as Turkey and the United States, can be dramatically different.


These resources were created by Activist #MMT, the podcast (Twitter, Facebook, web, please consider becoming a monthly patron). This post was last updated December 6, 2021.

Disclaimer: I have studied MMT since February of 2018. I’m not an economist or academic and I don’t speak for the MMT project. The information in this post is my best understanding but I don’t assert it to be perfectly accurate. In order to ensure accuracy, you should rely on the expert sources linked throughout. If you have feedback to improve this post, please get in touch.

From a recent interaction on Facebook:

Debt is debt. Doesn’t matter if it’s a bank or a country. You owe money, you will pay it back, or your assets will be seized…. Print money. Keep printing as much as you need. The value will go down. Turkish Lira.

“Debt is debt. Doesn’t matter if it’s a bank or a country.”

The idea that terms like “debt“ and “borrowing” have the same meaning in the national context as they do in our individual and personal lives, is wrong.

Personal debt:

When I take it out a bank loan, I’m immediately in debt to that bank for 100% of the principal plus interest. The bank has the legal authority to issue loans. They also have the ability to make my life miserable if I don’t pay it back. There are two critical elements to this person-bank relationship:

1. a higher authority (the government) and
2. a massive power imbalance between the lender and borrower (the bank has way more power than I do).

National debt:

When the United States “borrows” from or “is in debt to” China, it’s a completely different animal. There is no such thing as the United States “borrowing its own money” in the same sense as in a person-bank loan. China can’t create the dollar (or US treasuries), only the US can.

The only reason China has $2 trillion (or whatever amount) in US Treasuries is because they sold $2 trillion in dollar-store tchotchkes to US citizens. China was originally paid in cash (reserves). Since they’re not stupid, they exchanged that cash (that doesn’t earn interest) for treasuries (that do earn interest). In other words, in this context, the treasuries can be considered as just another form of payment.

In this US-China relationship, those two critical elements don’t exist: there is no higher authority, and both parties are, roughly speaking, equally powerful.

In addition, all bank loans always, inherently, and immediately put the borrower in debt – the money must be paid back, in full, plus interest. They remain in debt until it is. Since banks are only authorized to create money for the purpose of loans, it means all bank-created money is debt.

In the national context, however, debt is by definition the total value of all bonds held by citizens, institutions, and other countries. Bonds are created in addition to and along side government-created money.

Most government-created money is accompanied by bond sales. An example is when a bill is passed into law. Some government-created money, however, is not accompanied by bond sales. An example is coins, including ones that happen to be made of platinum. Since creating a coin is not accompanied by bond sales, it means it does not create debt, and therefore does not add to the national debt.

In other words, debt in the national context is a choice. Debt in the personal context is an inherent and inseparable characteristic.

In conclusion, unless you wish to deceive, it’s meaningless to compare US-China (national) debt to person-bank (personal) debt.

“You owe money, you will pay it back, or your assets will be seized.”

Right. A bank can easily do that with their individual borrowers because the bank has access to the powers of the state. The borrower has no chance.

China, on the other hand, would be met by the US military.

Net financial assets

Finally, it should also be noted that every dollar created by the government, is (after taxes) a dollar of wealth in the non-government sector. Wealth is money that is not accompanied by a debt – in other words, you get to keep it, no strings attached. (MMT calls wealth net financial assets.) Critically, there is no way for citizens to have any wealth at all unless the government – not banks – creates some money. (Remember this when you hear the argument that government money isn’t important because 97% of our money is created by banks.)

“Print money. Keep printing as much as you need. The value will go down. Turkish Lira.”

The idea that creating more money inherently and always causes inflation is also wrong. First, what is that money spent on? Giving everyone a $100,000 check? Or fossil fuel subsidies? The former could be disastrous. The latter is immoral but would likely not cause dramatic inflation.

Second, it assumes the world stops spinning. It assumes that none of that money is saved or invested, or spent overseas – in other words, not spent in the US. It also assumes it impossible to ramp up production, and that nothing is taxed back.

“Print money. Keep printing as much as you need. The value will go down. Turkish Lira.”

Regarding Turkey:

Turkey borrowed US dollars from the IMF, likely substantially due to coercion and deception by stronger nations. This puts them in debt to the US, in a currency they don’t control or create. It hard-links the lira to the dollar, and greatly restricts their ability to create and delete their own currency.

The US is way more powerful than Turkey. The US also doesn’t borrow another country’s currency (in any substantial amount). The Turkey-US relationship is therefore closer to a person-bank relationship than it is to US-China, and comparing the two is pointless.

For more on the economic differences between various countries, see: The MMT view of developing nations.