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●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The more federal budgets are cut and taxes increased, the weaker an economy becomes. .
●Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
●Austerity is the government’s method for widening the gap between rich and poor.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Everything in economics devolves to motive, and the motive is the Gap.
Professor Allen W. Smith is professor of economics, emeritus, from Eastern Illinois University. He wrote an article titled, “Is the government able and willing to repay Social Security debt?”
His article demonstrates the false information being given, not only to the public, but to students of economics, and not only to students at Eastern Illinois University, but to students at universities all across America and the world.
Many of these students will become influential leaders, and so will pass this false information to other students and to the public. This is how the Big Lie has been, and is being, promulgated.
Here is my open letter to Professor Smith:
Dear Professor Smith;
Your article, “Is the government able and willing to repay Social Security debt”? appeared in the February 25th issue of the Sun Sentinel.
I knew immediately, from the title alone, that your article would be filled with inaccuracies, because our Monetarily Sovereign government is able to repay any debt of any size, though it may not always be willing.
The U.S. government, being Monetarily Sovereign, by definition is sovereign over its own currency. It can create as much as it wishes, any time it wishes.
The federal government never can run short of dollars, which it creates ad hoc, every time it pays a bill. The federal government never needs to ask anyone for U.S. dollars — not you, not me, not China.
Here are a few excerpts from your article, and my comments:
“The short-term solvency of Social Security is in the hands of the federal government. Enough payroll taxes have been paid to cover full benefit payments until 2033. But $2.7 trillion of that money was taken by the government and spent for non-Social Security purposes. The spent money was replaced with government IOUs, called Special Issues of the Treasury.”
Social Security is an agency of the U.S. federal government, which can pay any size bill at any time, simply by pressing a computer key. The federal government pays its bills by sending instructions (not dollars) to each creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account.
At the moment the bank complies, and not before, dollars are created.
There is no financial limit to the amount of instructions our Monetarily Sovereign federal government can send to banks. The federal government never can be insolvent, and so, no federal agency can become insolvent, unless Congress wills it.
The White House, Congress, and the Supreme Court are three of the 1,000 federal agencies, for which no federal tax is collected. Yet they cannot become insolvent.
How then could Social Security (which does have a federal tax — FICA — collected on its behalf) become insolvent? Clearly, it cannot.
“The financial condition of the United States government is dire. The national debt, which first reached $1 trillion in 1981, is today more than $18 trillion. The credit of the United States government today is not nearly as good as it was in 1981.”
This statement is based on the popular, though false, belief that federal finances are like personal finances, where debt is a burden. For our Monetarily Sovereign government, debt is no burden whatsoever.
First, as we have said, the federal government has the unlimited ability to pay any bill denominated in its sovereign currency, the dollar. But more importantly, federal debt is considerably different from personal debt (and different from city, county and stated debt).
To “lend” to the federal government, you buy a T-security (T-bill, T-note, T-bond, etc.). You instruct your bank to transfer dollars from your personal checking account to a T-security account at the Federal Reserve Bank. You become a depositor at the FRB.
To repay your “loan,” the FRB does what any bank does when it pays a depositor: It transfers existing dollars from your T-security account to your personal checking account.
It’s a simple asset transfer. No new dollars are needed, except for interest, which our Monetarily Sovereign government creates ad hoc.
What most people do not understand, though I’m sure you do, is that all bank deposits are considered bank debt. So when you put money into your bank savings account, your bank’s debt increases by that amount.
Yet your bank boasts about the size of its deposits, while the public wrings its hands about the size of federal “debt” — which is nothing more than the total of deposits in T-security accounts at the FRB. Federal “debt” = deposits in T-security accounts at the FRB. Debt is bank deposits.
If you and your colleagues would more properly refer to federal “deposits,” rather than federal “debt,” all the concerns about federal “debt” would disappear.
“The statement, ‘Social Security has enough money to pay full benefits until 2033,’ is made over and over as proof of Social Security’s short-term solvency. It has been repeated so many times that almost nobody questions its validity. But it is not true.
“Social Security does not have the means to pay full benefits, even for the current year. Since 2010, the cost of paying full Social Security benefits has exceeded tax revenue, and the gap is widening at an increasing rate.”
The U.S. government became Monetarily Sovereign (on August 15, 1971). Federal taxes no longer fund federal spending.
Even if all federal tax collections fell to $0, the federal government could continue spending, forever. It simply would continue to send instructions to banks, telling the banks to increase checking account deposits, thereby creating dollars.
This means, FICA does not fund Social Security benefits. FICA could, and should, be eliminated, and Social Security benefits should be increased.
Again, you confuse federal finances with personal finances.
“Each year, the government has to borrow money to fill the gap. Without the borrowing, full Social Security benefits could not currently be paid.”
Absolutely, 100% false. The federal government never needs to ask anyone for its own sovereign currency. It does not need to borrow money to “fill the gap,” or for any other reason. Nor does it need to levy taxes so to pay its bills.
Taxation and the issuance of T-securities (falsely known as “borrowing”) are relics of the gold standard days, when the federal government was not Monetarily Sovereign.
“On Oct. 3, 2013, President Obama warned that unless the debt ceiling was raised Social Security checks would not go out on time.”
Sadly, the President of the United States, every member of Congress, most media and most mainstream professors tell the Big Lie — the lie that federal spending relies on federal taxing.
Even more sadly, some politicians may simply be ignorant of the facts, but the professors are not. But have been paid to go along with the Big Lie.
The rich — the upper .1% — are rich because of the Gap between them and the rest of America. If there were no Gap, no one would be rich, and the wider the Gap, the richer they are.
So, the primary goal of the rich is not just to make more money, but rather, to widen the Gap, either by lifting themselves or pushing the rest of us down — or both.
The rich bribe those of influence. They bribe the President and Congress via campaign contributions and promises of lucrative employment later.
They bribe the media via ownership. They bribe mainstream economists via contributions to universities. They even fund “independent” think tanks to spread the gospel (i.e. the Big Lie) that benefits to the poor- and middle-income people depend on taxes. And since current taxes are less than benefits, either the benefits “must” be decreased or taxes “must” be increased.
“David Walker, the Comptroller General of the GAO, tried to make it clear that the trust fund did not hold any real bonds. He said, ‘There are no stocks or bonds, or real estate in the trust fund. It has nothing of real value to draw down.'”
Of course. To the public, this may sound shocking, but it always has been true. In fact, the Unites States Federal Government neither has nor needs dollars. It pays its bills, not with dollars, but by sending instructions, ad hoc, to banks, telling the banks to create dollars by increasing the balances in checking accounts.
If you receive a check from the federal government, that check is not money. It is a set of instructions, telling your bank to increase the balance in your checking account.
“President Bill Clinton’s 2000 budget proposal included a statement of just what the IOUs truly were: ‘The Social Security Trust Fund does not consist of real economic assets that can be drawn down in the future to fund benefits.
Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.'”
President Clinton, who like President Obama today, was owned by the rich, so he said what the rich told him to say. His comment is a clever combination of truth and the Big Lie.
It is true that “The Social Security Trust Fund does not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury . . .” But the rest is the Big Lie.
These claims on the Treasury will not need to be “. . . financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.” That is what the rich want the populace to believe.
“Raising taxes and reducing benefits” is exactly how the Gap has been widened over the years.
Then professor, you finish your article with your final summation of the Big Lie:
“If the government repaid its debt to Social Security, there would be no short-term Social Security solvency problem.”
The government does not owe a debt to its own agency. Like the federal government as a whole, Social Security neither has nor needs dollars. It pays all its debts by sending instructions to banks.
Similarly, there is no “Social Security solvency problem.” This is an invention by the rich, to justify increase in taxes on the rest of us, of reducing benefits to us.
The politicians, had they any morals, would be ashamed at what they are doing. The media too, which pretend independent news dissemination, should be ashamed.
But, the most ashamed should be the mainstream economics professors, who spend their lives investigating the facts, then turn their backs on the facts and teach eager young minds the Big Lie.
For shame, Professor Smith! For shame, Eastern Illinois University! For shame, America’s academic institutions!
Rodger Malcolm Mitchell
The Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Federally funded, free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually. (Refer to this.)
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
Initiating The Ten Steps sequentially will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)
2. All deficit spending grows the supply of dollars
3. The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
4. The limit to non-federal deficit spending is the ability to borrow.
THE RECESSION CLOCK
Vertical gray bars mark recessions.
As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.