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Stephanie Kelton. Photo via Stephanie Kelton

America should run deficits without issuing debt. That's the message from Stephanie Kelton, a member of the Democratic Party's economic task force whose new book, The Deficit Myth, argues that money spent by Congress does not need to be "paid for" with taxes or borrowing.

Why it matters: Monetizing the deficit involves simply printing money and handing it out to individuals, businesses, states, or anybody else, without issuing Treasury bonds or raising new taxes. It has been a fringe idea up until now.

What they're saying: Kelton — who is best known as the face of modern monetary theory, or MMT — spoke to Axios' Felix Salmon for an episode of his Slate Money podcast airing tomorrow, June 20. He asked her whether she would fund the current deficit by issuing Treasury bonds. Here's her reply:

I'm very open to the idea of having the deficits without the debt. We can do that. We can run fiscal deficits without increasing the debt, if we don't issue the Treasuries.
  • Kelton fears a re-run of what happened in 2009-10:
In the moment of the coronavirus, my great fear is that we'll see a repeat of something like what we saw in the early years of the Obama administration, where the run-up in the deficit and the additions to the debt gave people cold feet and led Congress to withhold fiscal support, to withdraw fiscal support too soon and to leave us with an economy that really languished for a long period of time.
We could have had a much more robust recovery, but we got anxious about the deficit and we didn't stick with the fiscal support.
  • Monetizing the debt won't cause inflation, says Kelton.
Selling bonds is almost surely more inflationary than not selling bonds.
If you just run the deficit then you're spending more money into the economy than you're subtracting out. Leave those dollars in the system, where they will earn zero. That's non-interest-bearing currency. If you replace those dollars with Treasuries, you're replacing them with an interest-bearing currency, and that's got to impart a higher inflationary bias than just leaving the non-interest-bearing dollars in the system.

The bottom line, per Kelton:

We would have a much harder time falling into panic mode if the CBO wasn't producing that graph that shows the debt-to-GDP ratio increasing very sharply because of the deficits. You just have a commitment to provide fiscal support to the economy without the national debt rising.

Go Deeper: Inside the Bernie economy

Go deeper

Dion Rabouin, author of Markets
Sep 2, 2020 - Economy & Business

A credit upgrade cycle may be coming

Illustration: Aïda Amer/Axios

U.S. companies have taken on a historic amount of debt this year, with investment grade corporates already issuing a record $1.5 trillion in bonds, more than any full-year total ever. But many have also upped their holdings of cash, making net debt burdens far lower than expected, data from Bank of America Securities shows.

Why it matters: Lower indebtedness means companies will have stronger balance sheets and better ratings. That could mean not only do fewer companies default on debt than expected, but it "ultimately should lead to an upgrade cycle" in credit ratings, BofA analysts say.

Updated 2 hours ago - World

U.S. airstrike kills senior al-Qaeda leader in Syria, DOD says

A displacement camp near the village of Qah in Syria's northwestern Idlib province. Photo: Ahmad Al-Atrash/AFP via Getty Images

A U.S. airstrike in northwest Syria on Friday killed senior al-Qaeda leader Abdul Hamid al-Matar, U.S. Central Command said in a statement.

Why it matters: Syria serves as a "safe haven" for the extremist group to plan external operations, according to U.S. Army Maj. John Rigsbee.

Updated 7 hours ago - Politics & Policy

Giuliani associate Lev Parnas convicted of campaign finance crimes

Lev Parnas, a former associate of then-President Donald Trump’s personal lawyer Rudy Giuliani. Photo: Stefani Reynolds/Bloomberg via Getty Images

Florida businessman Lev Parnas was convicted Friday on charges of conspiracy to make foreign contributions to political campaigns, according to multiple outlets.

Why it matters: Prosecutors said Parnas, then an associate of former President Donald Trump's personal lawyer Rudy Giuliani, funneled over $150,000 from a Russian businessman into U.S. campaigns as part of an effort to land licenses in the U.S.'s legal cannabis industry.