More on tariffs. Moron tariffs Thursday, Dec 13 2018 

We often have written about the giant misunderstandings regarding tariffs.

Many (most?) people believe import tariffs benefit America by:

  1. Protecting Americans’ jobs
  2. Providing the federal government with dollars

This is not even laughably wrong. It is tragically wrong.

To paraphrase the comedian, Henny Youngman, “Take this article, please”:

US reaps more than $1.4 billion from steel and aluminum tariffs, report finds
By Stephanie Dhue, Kayla Tausche, Published Mon, 13 Aug 2018

*Between March 23 and July 16, the U.S. collected $1.4 billion from levies on foreign imports of steel and aluminum.
*That figure could reach $7.5 billion this year, based on last year’s import levels.
*Tariff revenue is impacted by Commerce Department exclusions and President Trump’s change of heart.

In less than five months, the Trump administration has collected more than $1.4 billion in new revenue from steel and aluminum tariffs, according to a recent report prepared for members of Congress.

The Congressional Research Service estimated that, between March 23 and July 16, the U.S. reaped $1.1 billion and $344.2 million from levies on foreign steel and aluminum, respectively.

Those earnings are on the rise as trade negotiations with allies linger on and President Donald Trump moves to hike tariff rates on countries like Turkey.

CRS says the new tariffs could reap the U.S. some $7.5 billion$5.8 billion on steel and $1.7 billion on aluminum– based on last year’s import levels.

Whom do you think will pay that $7.5 billion? Not Turkey. Not Canada. Not China. Not any foreign nation.

The answer: You, the American consumer, will see $7.5 billion taken out of your pockets, and transferred to the U.S. government, where all $7.5 billion will be destroyed.

That’s right, destroyed. As soon as those dollars hit the Treasury, they no longer will exist as part of any money-measure. The government doesn’t need or use those dollars.

To pay creditors, the government creates brand new dollars, ad hoc. Paying creditors is the only method by which the government creates U.S. dollars. 

Those federal tariffs constitute a $7.5 billion tax on the American economy, a net loss for the private sector and a net gain for no one.

Just as a tax cut is stimulative, a tariff not only is recessive, but it also is inflationary, as it increases prices.

Trump has suggested the tariffs – originally unveiled as a national security provision – could have the added benefit of reducing the federal deficit, which rose to $77 billion in July, wider than the July 2017 budget deficit of $43 billion.

And the Treasury’s borrowing to fund government operations is set to top $1 trillion this year for the first time ever.

There are only two ways to reduce the deficit: Increase federal taxes and/or cut federal spending. Both are recessionary. They reduce the number of growth dollars coming into the economy.

A growing economy requires a growing supply of money. Reducing the deficit is the worst possible act if one wishes the economy to grow. 

Red line shows changes in federal debt. Reductions in debt growth lead to recessions (vertical gray bars) by taking dollars from the economy. Increases in federal debt growth cure recessions by adding dollars to the economy.

Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated,” Trump tweeted on Aug. 5. “At minimum, we will make much better Trade Deals for our country!”

As usual with Trump pronouncements, this is false. Tariffs do not in any way help pay down the federal debt.

The debt is paid down by returning the dollars that already exist in Treasury security accounts. No taxes are used for this.

And in any event, paying down debt causes depressions.

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

In short, while tariffs may protect a relatively few jobs in a chosen industry, they cost jobs overall by being recessive and inflationary. 

Taking $7.5 billion from the economy in an attempt to save jobs is moronic.

Rather than destroying $7.5 billion, the government could, if it wished, support those chosen industries by:

  1. Reducing their taxes
  2. And/or buying from them
  3. And/or giving them money

Though we have come to expect moronic ideas from Trump, we also receive the same moronic ideas from “respected” sources. For instance:

What to learn from Trump’s accidental tariff success 
THE WEEK, Ryan Cooper

President Trump’s economic choices over the last two years have been terrible. When he wasn’t busy shoveling vast piles of cash into the suppurating maw of the top 1 percent, he busied himself starting a flailing trade war with China and Europe.

So far, so good, but why is that trade war failing? Because all trade wars fail.

However, there have been some accidental side benefits. The tax cuts provided a bit of badly needed fiscal stimulus that jolted the economy half-awake (despite being otherwise monstrous policy).

Right. The tax cuts are stimulative, because they add dollars to the economy. Unfortunately, the primary benefits of Trump’s tax cuts went to Trump and his rich pals.

And, as an Economic Policy Institute report details, his tariffs on aluminum have restored some employment and production in that sector.

Whereas nearly the entire American aluminum industry had vanished between 2010 and 2017, after tariffs went up in March of this year, production is up 67 percent, three smelters have been reopened, and one has been expanded, resulting in 1,000 new jobs and $100 million in new investment.

Taking billions from the economy does not create “new” jobs. It shuffles jobs from one industry to another, while costing the economy money and inflating the price of all things made with aluminum.

Not that tariffs are always and everywhere good, but they can be an important tool for managing trade and the economy.

Tariffs are taxes. Taxes are not a tool for managing the economy; they are a tool for shrinking the economy.

Sure, some tariffs have been pretty lousy or misguided. For instance, the Smoot-Hawley tariffs of 1930 at a minimum utterly failed to cure the Great Depression — and quite possibly enabled a protectionist race to the bottom that ultimately worsened the situation.

Tariffs, being taxes, cannot cure anything. As you have seen from the above data, recessions are caused by reduced money growth, and are cured by increased money growth. Taxes (tariffs) take dollars from the economy.

But, free trade (especially of capital) under a fiat currency regime can fuel devastating financial crises just as it did in the 1920s.

The depression of 1929 was caused by ten years of federal surpluses (taxes exceeding spending).

What the world and America need is a global trade regime that allows poorer nations to get started on the development ladder, but without creating (politically disastrous) severe trade imbalances, or requiring the United States to run a gigantic trade deficit until the end of time so nations can settle their international accounts.

Utter nonsense. “Trade imbalances” (i.e. more money leaving a country than entering it) are no problem for a Monetarily Sovereign government. Such a government creates its own sovereign currency at will, and at no cost.

The U.S. consistently runs trade deficits, which actually are beneficial. Trade deficits allow the federal government to obtain valuable goods and services in exchange for dollars they produce at the touch of a computer key.

Past Federal Reserve Chairman Ben Bernanke: “The U.S. government has a technology that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

This is discussed further at: Questions about the trade deficit illusion. Do we even have a trade deficit?  Monday, Dec 10 2018

A world trade system like Bretton Woods (but better) would be best — but tariffs can absolutely be part of such an effort in the meantime.

Bretton Woods was the last of a series of gold standards which inevitably fail because they tie money creation to the availability of a physical chemical. Nations that are short of gold cannot grow, just as nations that are short of money cannot grow.

For the author, Mr. Cooper, to mention Bretton Woods favorably, demonstrates an abject ignorance of economics.

Trump’s tariffs show they do pretty much exactly what they say on the tin: change the price structure to make domestic production more feasible.

No, tariffs cost both people and nations money, and have zero positive value.

It’s long since time China (and Germany, for that matter) rebalanced its economy to be less export dependent.

Cooper does not even understand that Germany is monetarily non-sovereign. It cannot create its own sovereign currency at will, as it does not have a sovereign currency. So Germany, and all euro nations, must be net exporters (i.e import money) to survive.

The U.S., by contrast, does not need exports in order to import money. It can create its money at will.

As John Maynard Keynes suggested, a trade system favoring neither surpluses nor deficits is a much more sensible way to structure the global economy.

“A trade system favoring neither surpluses nor deficits” would be a zero growth trade system.

Bottom line: A Monetarily Sovereign nation should not levy tariffs, ever. It can encourage any of its industries and their jobs, if it wishes, simply by supporting those industries financially.

A tariff is a tax. Just as a tax cut is stimulative, a tariff not only is recessive because it takes dollars from the private sector, but it also is inflationary because it increases prices.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

A debt question from Quora, asked and answered Wednesday, Dec 12 2018 

Quora is a site where people ask questions, and other people answer them. Many people ask about the U.S. federal “debt,” and I’ve tried to illuminate the world, one candle at a time.

Here, for example, is a typical question and answer, with a follow up by one reader. The original question and answer were:

Why would Trump state “I Won’t Be Here” when asked about the looming debt crisis?

Answer from Rodger Malcolm Mitchell: Contrary to what others are telling you, there is no “debt crisis.”

The federal government, unlike you and me, is Monetarily Sovereign. And unlike you and me, it never can run short of dollars with which to pay its debt. In fact, paying debts is the method by which the federal government creates new dollar.

In fact, the so-called “federal debt” isn’t even debt. It is the total of deposits into Treasury Security accounts, similar to savings accounts.

To “lend” to the federal government, you instruct your bank to send your dollars to your Treasury Security account.

There your dollars remain – they are not used by the federal government. Then when your account matures, your dollars, plus interest are returned to you.

Image result for federal reserve

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
Ben Bernanke: “The U.S. government has a technology that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
St. Louis Federal Reserve: “The government is not dependent on credit markets to remain operational.”

It is not a burden on our Monetarily Sovereign government, nor is it a burden on federal taxpayers.

Federal taxing does not fund federal “debt.”

People who worry about the federal debt do not understand Monetary Sovereignty.

The so-called “debt” has increased an astounding 40,000% since 1940, and here we are, with the economy healthy and growing, and inflation near the Federal Reserve target.

Pay no attention to the debt Henny Pennys who have been calling it a crisis for 78 years. These people don’t learn from reality.

Then came the follow-up question and its answer:

Chamchadik
You’re right- being fiat, the us federal reserve can just print as much currency as it wants and settle all debt: I would like to hear your reasoning on why they haven’t done this already?

————————–Reply——————————————-

Rodger Malcolm Mitchell
The so-called federal “debt” is merely the total of outstanding Treasury securities (T-bills, T-notes, T-bonds). It isn’t “debt.” It is “deposits.”

The government does not issue T-securities to obtain dollars. It creates all the dollars it needs.

Issuing T-securities has two primary purposes:

1. To provide a safe, interest-paying, storage place for holders of dollars. This helps stabilize the dollar.

2. To assist the Fed in controlling interest rates. This helps control inflation.

Yes, the government could eliminate all federal “debt” tomorrow, if it wished, simply by returning the dollars in the T-security accounts, back to the owners.

But, there is no reason why the government would want to reduce the “debt.” These T-securities serve valuable functions, and the “debt” is no burden whatsoever on the government, on taxpayers or on anyone else.

The word “debt” confuses people. If instead, it was properly called “deposits,” no one would want it reduced.

Perhaps, the next time someone tells you the federal “debt” should be reduced, you might answer, “Why would the government want fewer deposits into Treasury security accounts? These deposit accounts are valuable to the government and are no burden on anyone.”

Just a thought.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

Questions about the trade deficit illusion. Do we even have a trade deficit? Monday, Dec 10 2018 

Here are a few questions about the “trade deficit.” We could begin by asking, “What is a trade deficit”?

Some say a country has a “trade deficit” when it imports more goods and services than it exports.

A trade deficit is felt to be “bad,” and a trade surplus is felt to be “good.” At least, that is the common belief as expressed by politicians and most economists.

The U.S. imports more goods and services than it exports, so this is called a “trade deficit.” But the U.S. exports more U.S. dollars than it imports.

I. If exports are “good,” why isn’t this export of dollars called a “trade surplus”? 

You run a goods and services trade deficit with your butcher, your baker, and your candlestick maker. Is this a bad thing for you?

II. Should buy fewer goods and services from them, until they buy more goods and services from you?

Why or why not?

III. Your employer runs a services trade deficit with you. You export more services to your employer than he exports to you. Is this a bad thing for your employer?

IV. Should your employer buy less of your services until you buy more of his services?

What if to pay your butcher, baker, and candlestick maker you are allowed to use something you can obtain in limitless amounts — for instance spoken words.

That is, imagine your butcher tells you, “I’ll sell you all the meat you want, and you pay me by saying a few words.” Would you be concerned about running a “trade deficit” with him, i.e. paying him more words than he gives you?

You probably wouldn’t be concerned about this “trade deficit” because you will receive meat, something that is scarce to you, and in return, you will give him words, of which you have infinite.

Image result for ben bernanke

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

And that is the exact description of the U.S. trade deficit.

Because the U.S. is Monetarily Sovereign, it can produce an infinite amount of dollars, at virtually no cost, and it can exchange those dollars for valuable and scarce goods and services.

V. If I give you something that is valuable and difficult to obtain, in exchange for something that costs you nothing, is that a trade deficit you would want to reduce?

Think about that as we explore excerpts from these articles:

Why aren’t Trump’s tariffs closing the trade deficit?
By Jeff Spross

President Trump, as he recently reminded us, is a “Tariff Man.” He’s slapped tariffs on America’s imports of steel and aluminum from around the globe, and on roughly half of our imports from China.

The president’s enthusiasm for tariffs is largely driven by his antipathy for America’s massive trade deficit, which Trump regularly denounces as evidence that the rest of the world is ripping us off.

But a funny thing happened on the way to Trump’s trade war: America’s trade deficit actually went up.

The purpose of tariffs is to make imports more expensive. That should discourage Americans from buying from abroad, reduce our imports, and thus bring our imports and exports into closer balance.

There is no purpose served by “bringing our imports and exports into closer balance.”

VI. If the U.S. can, as former Federal Reserve Chairman Ben Bernanke reminds us,  “produce as many U.S. dollars as it wishes at essentially no cost,” why would we wish to reduce our imports?

VII. And why would we wish to make the American people pay more for those imports, thereby exacerbating inflation?

The article explains why, despite “Tariff man” Trump’s efforts, the U.S. trade deficit actually has gone up, and ends with this:

There’s simply not a lot Trump can do to reduce America’s trade deficit. In this arena, at least, he remains at the mercy of the rest of the world.

There is zero value to America in trying to reduce the amount we import relative to the amount we export. We create an unlimited supply of U.S. dollars, at no cost to us, and exchange them for valuable goods and services.

The more, the better. What’s not to like about that arrangement?

And then, there is this article:

How John Maynard Keynes’ most radical idea could save the world
By Ryan Cooper

The basic problem with international trade is that imbalances can develop: Some countries get big export surpluses, while others necessarily develop big trade deficits (since the world cannot be in surplus or deficit with itself).

And because countries typically must borrow to finance trade deficits, it’s a quick and easy recipe for a crash in those countries when their ability to take on more debt reaches its limit.

It’s not as bad for surplus countries, since they will not have a debt crisis or a collapse in the value of their currency, but they too will be hurt by the loss of export markets.

This problem has haunted nations since well before the Industrial Revolution.

Keynes comments apply to the time when virtually all nations had surrendered their Monetary Sovereignty in favor of “pegging” their currency to gold, silver, or to another currency.

Pegging eliminates a government’s unlimited ability to create its own currency, and thus diminishes its sovereignty over its own sovereign currency.

Today, Keynes comments do not apply to such Monetarily Sovereign governments as the U.S., Canada, Mexico, China, the UK, Japan, Australia, et al.

Those countries do not need to “borrow to finance trade deficits.” The U.S., for example, issues Treasury Securities, but the dollars paid for those T-securities are not used to finance trade deficits. 

Instead, the dollars a deposited into privately owned T-security accounts, and held there until the securities mature, at which time the dollars are returned to the account owners.

Thus, there is no time when the U.S.’s “ability to take on more debt reaches its limit.” Nor will the U.S. ever have “a debt crisis or a collapse in the value of their currency.”

Being Monetarily Sovereign, i.e sovereign over its own currency, the U.S. has absolute control over the value of its currency (by interest rate control and/or by fiat).

The article continues:

Nations like Germany with a large export surplus often portray it as resulting from their superior virtue and technical skill.

But the fundamental reality of such a surplus is that it requires someone to buy the exports.

Without some sort of permanent mechanism to recycle that surplus back into deficit countries, the result will be eventual disaster.

It’s precisely what caused the initial economic crisis in Greece that is still ongoing.

No, the economic crisis in Greece came about because it voluntarily surrendered its Monetary Sovereignty to the European Union. Greece no longer uses the drachma, over which it was sovereign, but currently uses the euro, over which the EU is sovereign.

Unlike a Monetarily Sovereign government, monetarily non-sovereign governments must have a net money inflow in order to survive long term.  To achieve this inflow, they must borrow money and or sell goods and service.

The governments of Boston, and Illinois, and France, and Greece are examples of monetarily non-sovereign governments that must have a net inflow of money to survive long term.

If the ability to borrow and export goods and services hits limits, these governments are forced to take money from their citizens, aka “austerity.”

Austerity, in turn, causes recessions, which inevitably must lead to deeper recessions, until money can be supplied by some outside source like the EU or the International Monetary  Fund or the U.S. government.

For the euro nations, this reduces them to permanent beggar status.

In Summary

There is no reason why a Monetarily Sovereign nation considers a trade (money) “deficit” to be any sort of threat.

The U.S. trade “deficit” merely reflects the facts that the U.S. has the unlimited ability to create dollars at no cost, and never can run short of dollars. Dollars are not scarce to it.

Exchanging these no-cost dollars for valuable goods and service benefits America.

The greater the trade “deficit,” the more valuable goods and service enter America — at no cost to the government.

America doesn’t have a trade deficit. We simply buy more than we sell, using dollars we create at no cost. Concerns over the size of the trade “deficit” are economically ignorant.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

 

ity to create money.

The U.S., Canada et al, need no net inflow of money. They have the unlimited ability to create their sovereign currency.

Finally, a faint ray of hope about the federal deficit Friday, Dec 7 2018 

In what may seem to be a strange result, we may be seeing a faint ray of hope about the U.S. federal deficit. Read the following excerpt:

Caring about the budget deficit cost George H.W. Bush the presidency; his successors took note
By DAVID LAUTER, DEC 07, 2018 | 5:10 AM

At the funeral for President George H.W. Bush, former Sen. Alan Simpson recalled his friend’s reaction when Simpson and other allies urged him to go along with a tax increase to shrink the budget deficit.

“OK, go for it, but it will be a real punch in the gut,” Bush said, knowing the political heat he would take.

“When the really tough choices come, it’s the country, not me,” Bush said, according to Simpson. “It’s not about Democrats or Republicans, it’s for our country that I fought for.”

We venerate that “country first” attitude in theory, but in practice, it likely cost Bush the presidency: The tax increase, as Simpson said, sparked a revolt within the Republican party that was “one of the main factors assuring his return to private life.”

SILENCE OF THE DEFICIT HAWKS
A generation later, Bush’s successors, especially his Republican successors, have learned that lesson: Voters say they care about reducing the national debt, but more often than not, they punish politicians who do it.

Bush’s immediate successor, President Clinton, built on the budget he inherited, adding an upper-income tax increase of his own. By the end of Clinton’s term, with the help of an economic boom, the federal budget was in surplus.

And that budget surplus helped cause the recession of 2001. In fact, virtually all recessions are caused by reductions in federal debt growth, while actual reductions in federal debt most often cause depressions.

Recessions (vertical gray bars) come on the heels of federal deficit reductions and are cured by federal deficit increases.

U.S. depressions tend to come on the heels of federal debt reductions.
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

Bush’s son, President George W. Bush, promptly pushed the government back into deficit with two large tax cuts. The financial crisis at the end of Bush’s presidency caused the deficit to rocket upward.

Republicans objected loudly to the deficit while President Obama was in office, even as he steadily brought it under control in his second term. But the deficit hawks have been mostly silent under President Trump as the red ink has once again spread.

And that is our ray of hope:. The deficit hawks, who tend to be right-wingers, being silent about debt.

No, it isn’t that they have learned why federal deficit spending is necessary for economic growth.

And no, they may not understand that the federal government is Monetarily Sovereign and never can run short of dollars to pay its financial obligations.

But, at least they are keeping their mouths closed for political reasons, and that will make it at least a bit more difficult for them to object to future federal deficits. Maybe.

This past year, the annual deficit hit $779 billion, despite a healthy economy. A big tax cut, combined with spending increases on the military and some domestic programs have pushed it higher.

By the time Trump’s current term ends, the deficit will likely have hit $1 trillion a year.

No one in either party claims that big deficits in healthy economic times are a good idea. But Republicans resist any tax increases, and neither side has much interest in cutting the biggest categories of federal spending — social security, the military, Medicare.

Perhaps “no one in either party claims that big deficits in healthy economic times are a good idea,” but the people who understand economic reality know that deficits grow the economy.

And no, deficits don’t cause Zimbabwe hyperinflations. (All hyperinflations in history have been caused by shortages, most often shortages of food.)

As Sarah Wire reported, Congress and the administration have a budget deadline right before Christmas that could cause a partial government shutdown.

But it’s not the rising deficit that’s at issue but, instead, whether to provide money for Trump’s wall along the Mexican border.

As much as anything else, Bush’s willingness to take political heat for a balanced budget marks him as a political figure from a bygone era.

We can hope Bush’s loss also set the stage for the realization that deficits are necessary for economic growth, and the federal debt is no burden on the federal government or on future taxpayers. (While state and local taxes fund state and local debt, federal taxes do not fund federal debt. That is the meaning of federal Monetary Sovereignty.)

Image result for bernanke and greenspan

It’s our little secret. Don’t tell the people we don’t use their tax dollars.

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Alan Greenspan: “Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. A government cannot become insolvent with respect to obligations in its own currency.”

St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e.,unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

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