The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy

Kelton opens with an account of her arrival at the US Senate Budget Committee in 2015, where she alone saw the government’s role as a currency issuer rather than a currency user. Her colleagues divided into two camps: deficit hawks (primarily Republicans) who demanded balanced budgets, and deficit doves (mainly Democrats) who worried less about immediate deficit reduction but still saw long-term debt as problematic.

To illustrate the contradictory thinking about government debt, Kelton describes an exercise she conducted with committee members. When asked if they would use a magic wand to eliminate the national debt, they enthusiastically agreed. However, when asked if they would eliminate US Treasury securities, they declined, not realizing these were the same thing. This contradiction revealed a fundamental misunderstanding: People viewed government securities positively as financial assets but negatively as government obligations.

The author systematically dismantles several common fears about government debt. First, she addresses concerns about borrowing from China, explaining that when China holds US Treasury securities, this simply represents a conversion of dollar reserves into interest-bearing assets. The process involves nothing more than accounting entries at the Federal Reserve.

Kelton then tackles comparisons between the United States and Greece, explaining why such analogies fail.