The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
You may wish to send this letter to your political representatives and your local media. Let me know if you receive a response.
Can you explain why the federal deficit and debt should be reduced?
1. Is it because the federal government may have difficulty servicing its debt? No, as a Monetarily Sovereign nation (since 1971) the federal government now has the unlimited ability to pay debts of any size. Even were the federal debt to be $100 trillion, the federal government could pay off the debt in one day, by pressing a computer key, and without causing inflation. (Paying off federal debt merely is the exchange of one form of money [dollars] for another form of money [T-securities]. It does not increase the money supply.)
2. Is it because large deficits will require high taxes, later? No, there is zero relationship between federal spending and federal taxes. Were all federal taxes to fall to zero, this would not affect the federal government’s ability to spend by even one dollar.
3. Is it because our children and grandchildren will be in debt? No, our children and grandchildren are not the debtors and do not pay for previous federal spending. We are the children and grandchildren of the WWII generation, and we never have, nor ever will, pay for WWII debts. Today’s children and grandchildren are not paying for the Reagan-era debts.
4. Is it because paying the federal deficits and debt will cause inflation? No, contrary to popular wisdom, there is no historic relationship between federal deficits/debt and inflation, which actually has been caused by oil prices.
5. Is it because large federal deficits and debt will force interest rates up? No, interest rates are not set by the marketplace, but rather are set arbitrarily by the Fed, when it sets the Fed Funds rate.
6. Is it because federal deficits and debt hurt GDP growth? No, historically there is a positive relationship between federal deficits/debt and GDP growth.
7. Is it because federal deficits and debt reduce personal savings? No, historically, there is a positive relationship between federal deficits/debt and personal savings. This is because federal deficits supply the money to be saved.
8. Is it because federal deficits/debt replaces private debt? No, because federal deficits add money to the economy, they facilitate private borrowing.
9. Is it because federal spending gives government too much power? No. Federal deficits could and should support states, counties and cities, where the local governments direct the programs and the federal government merely supplies the money. This is similar to the way Medicaid is handled.
10. Is it because the U. S. government is like the euro nations, whose large deficits and debts are driving them toward insolvency? No, those nations are monetarily non-sovereign, so cannot create their currency. The U.S. is Monetarily Sovereign and can create its currency. The rules that apply to monetarily non-sovereign nations do not apply to Monetarily Sovereign nations.
11. Is it because federal deficits/debt increase the wealth gap between the rich and the poor? On the contrary, reductions in federal spending impact the poor more than the rich. Social programs and the military not only are skewed toward the poor, but occupy the largest part of federal spending. The majority of suggested budget cuts would affect the poor more than the rich.
So why is there concern about the federal deficit/debt? Because people confuse personal debt with federal debt, and think the same rules apply.
Still, what is wrong with reducing the federal budget? Here’s what: The federal government supports thousands of valuable projects that improve our lives — from Medicare to Social Security, roads, bridges, dams, food inspection, aid to the poor, housing, the military, financial oversight, product safety, medical research, scientific research, homeland security, education, energy, communication, FDIC, and on and on and on. Losing these benefits would severely impact our lives. The budget cutters claim to protect our children and grandchildren, but in reality, they punish those they claim to protect.
Further, a growing economy requires a growing money supply. Federal deficit spending is the federal government’s method for adding the money to grow the economy. All depressions and most recessions have come as a result of reduced growth in federal deficit spending.
In short, there is zero value or purpose to cutting the federal budget and thousands of reasons not to.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.
Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”