Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
You may have seen your bank; you may have seen your safe deposit box. But have you ever seen your checking account?
No, you haven’t. Your checking account is not a physical reality. It is an accounting notation. You could travel to your bank, and walk into the lobby, and you would not be one inch closer to your checking account than if you had stayed home.
When you receive a printed checking account statement, you receive evidence you own the dollars in your checking account. But, you never will see those dollars. They too, are not physical realities, but rather, accounting notations. In fact, you never will see a dollar, anywhere. No one on earth ever has seen a dollar.
A dollar bill is not a dollar.
A dollar bill is a piece of paper telling the world the bearer owns a dollar. It can be compared to a title. When you own a car or a house, you have a document telling the world you own that car or house. The document is called a “title.” The title is not the car or house. You can’t drive a title; you can’t live in a title. It’s just evidence of ownership. Your dollar bill is evidence you own that invisible dollar.
A dollar has no physical existence. You can’t hold a dollar. A dollar has no more substance than does a number. You can’t hold the number “one.” You can’t carry the number “ten.” When you write a check, from your invisible checking account, that check is a set of instructions telling your bank to debit your checking account and to credit the payee’s checking account.
One account is debited and another account is credited. No dollars move. They can’t. They aren’t physical. The peso, the euro, the mark, the pound, the yuan, – none of the world’s currencies are physical. They all are accounting notations.
The U.S. federal government has been Monetarily Sovereign since we went off the gold standard in 1971. Money creation no longer is limited by the availability of gold. Our Monetarily Sovereign government can pay any bill of any size at any time, merely by sending instructions to banks to credit bank accounts.
The world’s financial structure is based on instructions to banks. When the federal government owes you $1,000, it sends you a check for $1,000, and you send the check to your bank. The check is not money. It is a written instruction to your bank to credit your account. The bank does as instructed, and your account balance is increased by $1,000. The federal government can send such checks – such instructions – endlessly. It doesn’t need to borrow or collect taxes. It merely sends instructions.
The federal government never “prints” dollars. Printing implies a physical creation. But dollars are not physical. Warren Mosler, uses the analogy of a football scoreboard. The government creates dollars by crediting bank accounts; the scoreboard creates points by posting them. The government never can run short of dollars just as the scoreboard never can run short of points.
Is paying a debt a burden to the federal government? Is posting a score a burden to the scoreboard? Does the federal government need to tax or borrow dollars? Does the scoreboard need to tax or borrow points? Can the government run short of dollars? Can the scoreboard run short of points. Would the posting of points be “unsustainable” as some claim the federal debt is?
The federal government pays all its bills by typing numbers into a computer – just like a scoreboard.
The dollar bill is an IOU. On its face is printed, “Federal Reserve Note.” The words “bill” and “note” describe debt instruments (as in “T-bill”and “T-note”). These instruments are held by creditors to demonstrate debt.
When you hold a dollar, who owes you what? The federal government owes you full faith and credit, which may not sound like much, but actually is powerful. It means:
– The government will accept U.S. currency in payment of taxes
– It will pay it’s debts (T-bills et al) and its bills with U.S. currency
– It will force all your domestic creditors to accept U.S. currency, if you offer it, to satisfy your debt.
– It will not require domestic creditors to accept any other money
– It will maintain a market for U.S. currency
– It will continue to use U.S. currency and will not change to another currency.
– All forms of U.S. currency will be reciprocal, that is five $1 bills always will equal one $5 bill and vice versa.
Every form of U.S. money is a form of debt. For many people, the word “debt” is threatening. That may be true for you and me and the states, counties and cities, and Greece and Ireland, all of which are monetarily non-sovereign, but not for our Monetarily Sovereign government, which can credit bank accounts endlessly. Try to think of any U.S. money that is not owed by something to someone. You can’t.
Federal debt is not functionally the total of federal deficits. By law, the Treasury must issue T-securities (aka “debt”) in an amount equal to federal deficits. But that law is obsolete and could be eliminated immediately. Were it eliminated, there still could be deficits, but all federal debt would disappear.
Brief summary: A dollar has no physical reality. Neither does a checking account or any other bank account, debt, deficit, inflation, recession, depression, stagflation or money. All these terms are descriptive of accounting notations. The federal government can change any of these simply by typing into a computer.
Dollars do not physically move, because they don’t physically exist. When the government pays a debt, you may imagine dollars moving out of some government storage place into a creditor’s bank. But, there is no storage place; there is no movement. The government sends instructions to the creditor’s bank. That’s it. A Monetarily Sovereign government never can run out of instructions.
Given all of the above, how is there a debt crisis? How can the federal debt be a “burden” or “unsustainable” or a “ticking time bomb.” as the media love to claim?
One final thought: Debt-hawks typically confuse two questions:
1. How many dollars can the federal government create?
2. How many dollars should the federal government create?
When a debt-hawk is presented with the unassailable proof that the federal government cannot run short of dollars, and easily can pay any bill of any size, the rejoinder often is, “But that would cause inflation,” or “Why don’t we just give everyone a trillion dollars?” These responses indicate a quick switch in subjects, from question #1 to question #2.
This post describes only question #1. Question #2, which involves economic stimulus and inflation, is described in other posts. The answer to #1 is “infinite,” and that is why the federal debt is an obsolete, useless, meaningless, indeed harmful, concept.
Isn’t economics crazy.
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 Monetary 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 teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it ruined my future.”