"Mr. President, Bert Lance is here to see you."
"Send him in. Hello, Bert, how's it going?"
"Well, I wanted to report to you on the budget. We may have a $60 billion deficit next year."
"Hmmm, that's serious. What do you think I ought to do?"
"First, I don't think we should call it a deficit. People get uptight about the word. Why don't we say it's a $60 billion 'overdraft.' We'll announce we just wrote out more checks than we had money in the bank."
"That's good thinking, Bert. Even I have had an overdraft at one time or another. What else should we do?"
"We ought to get a loan from a bank to tide us over."
"How do we do that?"
"Well, what we'll do is deposit a large sum of money from the Treasury in a bank. Then we'll ask the bank to make a personal loan to the country in exchange for getting our business."
"Will a bank do it?"
"They do it all the time. When I was head of the National Bank of Georgia I opened an account in Manufacturers-Hanover and the First National Bank of Chicago in, the name of my bank, and they immediately made a personal loan to me of millions of dollars."
"Because the banks wanted the National Bank of Georgia's account. That's the way banks do things. You scratch their backs and they'll scratch yours."
"That makes sense, Bert. So we borrow $60 billion from a bank and pay off the deficit. Then what happens?"
"We have to pay the interest on the loan."
"How do we do that?"
"By borrowing money from another bank."
"How do we get the money from the second bank?"
"By opening an account with them. We deposit Treasury funds in their bank and then we get a personal loan from them because as a client they now trust us. If we didn't have an account we obviously couldn't get the loan."
"All right, Bert, I'm still following you. We now have accounts in two banks and we borrow money from the first to pay the deficit, and we borrow money from the second bank to pay the interest on the loan from the first bank. Where do we get the money to pay the interest on the loan from the second bank?"
"By opening an account with a third bank and then making a personal loan from them."
"How long do we keep doing this, Bert?"
"I don't know. It depends on how many banks there are in the United States. As long as we can open up new accounts with them, we can borrow money from them."
"But suppose we eventually run out of banks."
"Then we go to overdrafts."
"Won't the banks get mad if we write overdrafts?"
"What choice do they have? If they complain about the overdrafts we can always threaten to close our account with them."
"Of course, why didn't I think of that?"
"You were never a banker, Mr. President."
"That's true, Bert. Let me ask a question. Suppose the banks ask collateral for their loans."
"I should hope they would never insult the President of the United States by asking for collateral. After all, you have an impeccable reputation and your signature should be enough for any loan."
"But just in case a bank does raise the question of collateral, what do we do then?"
"It's simple. We put up the U.S. Postal Service to secure the loan."
"Bert, I don't know what I'd do without you."
Shucks, Mr. President. Any banker from Georgia could do the same thing."