An alternative to popular faith
Ms. Patricia Widder is on the editorial board of the Chicago Tribune. For 15 years I have been trying to educate the Tribune about the realities of federal financing. To date, I have failed. Here is my latest attempt.
Dear Ms. Widder
Your 5/12/10 editorial, “Greece and us” makes a false comparison. The U.S. is a monetarily sovereign nation; Greece is not.
All nations borrow in their own currency and pay back in their own currency. Monetarily sovereign nations (Canada, Australia, China et al) have the unlimited ability to create their currency, to pay their debts. Greece and the other EU nations do not have this ability. That lack of ability to create money, not the amount of their debts, is the cause of their financial problems.
Every nation that lends to the U.S. has two accounts with the Federal Reserve Bank: a checking account and a savings account. To begin the lending process, the nation first must put U.S. dollars (not any other currency) into their checking account. Then, they use those dollars to buy T-securities, which are kept in their savings account. That is when the Fed debits their checking account and credits their savings account.
When the T-securities mature, the Federal Reserve merely debits the nation’s savings account and credits its checking account, plus some extra for interest. The Fed can do this endlessly.
Greece, not being a monetarily sovereign nation, resembles not the U.S., but Illinois and California, which also are not monetarily sovereign. To make a comparison between U.S. and Greece is as misleading as comparing the U.S. with Illinois and California. The states can go bankrupt; the U.S. cannot.
Your call for less federal spending and higher taxes, under the euphemisms, “[…]scale down what they demand from the government and accept the need to pay for what they get” repeatedly has led to recessions and depressions.
You are confusing U.S. federal financing with personal financing. We, the people, also are not monetarily sovereign.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity