Social Security and Medicare Funds Face Insolvency, Report Finds Tuesday, Dec 10 2019 

It’s old news, fake news, and a lie — a “Big Lie.” But it demonstrates why the public is so confused and misinformed about federal financing.

Image result for national enquirer fox newsThis following came from the venerable and venerated New York Times, but the article is as accurate as an article in Breitbart, Fox News, or the National Enquirer.

Social Security and Medicare Funds Face Insolvency, Report Finds By Alan Rappeport, economic policy reporter, who covers the Treasury Department and writes about taxes, trade and fiscal matters, April 22, 2019

WASHINGTON — The financial outlook for Medicare and Social Security, two of the nation’s most important social safety net programs, remains precarious, threatening to diminish retirement payments and increase health care costs for Americans in old age, the Trump administration said on Monday.

An annual government report on the status of the programs painted a dire portrait of their solvency that will saddle the United States with more debt at a time when the economy is starting to cool and taxes have just been cut.

Let’s get this straight. The NY Times incredibly is being as honest as Breitbart, Fox News,  and the National Enquirer.

But, the U.S. federal government cannot become insolvent. That is 100% impossible.

Who says so? How about:

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

Image result for greenspan

Greenspan

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.”
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.

Since the U.S. federal government cannot become insolvent, no agency of the federal government can become insolvent, unless the federal government wishes it.

Social Security and Medicare are agencies of the federal government. Therefore, neither Social Security nor Medicare can become insolvent unless the federal government wishes it.

And as far as “saddling the United States with more debt,” the scare-mongers have been shoveling this manure for at least 80 years (See: “It is 2019, and the phony federal debt “time bomb” still is ticking.“)

Neither the United States nor U.S. taxpayers are “saddled” with even one cent of federal “debt.” The misnamed “debt” is nothing more than the total of deposits into Treasury security accounts. These accounts are paid off, not with federal tax dollars, but rather by simply returning the contents of those accounts to the account holders. No “saddle” there.

The NY Times editors surely know this. So why do they scare-monger a lie? Why did they publish the “Big Lie”? There is a reason, which we will discuss.

According to the report, the cost of Social Security, the federal retirement program, will exceed its income in 2020 for the first time since 1982. The program’s reserve fund is projected to be depleted in 16 years, at which time recipients will get smaller payments than they are scheduled to receive if Congress does not act.

Meanwhile, Medicare’s hospital insurance fund is expected to be depleted in 2026 — the same date that was projected a year ago. At that point, doctors, hospitals and nursing homes would not receive their full compensation from the program and patients could face more of the financial burden.

The so-called “reserve fund” is an accounting fiction. It is not a fund and it is not held in reserve. It merely is a record showing the difference between FICA and spending. It’s just a piece of information about the difference in two numbers; it does not reveal anything about the government’s ability to pay for things.

The U.S. government is Monetarily Sovereign, and so has the unlimited ability to create its own sovereign currency, the U.S. dollar. Even if all FICA collections totaled $0, the federal government could pay infinite Social Security benefits, forever.

An infinite account cannot be “depleted.”

The article continues:

“Lawmakers should address these financial challenges as soon as possible,” the trustees of the program wrote.

“Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”

There are no trustees because there is no trust. It is just an accounting record, that has none of the qualities of a trust. (See: Fake federal trust funds and fake concerns)

The above makes the naive and false assumption that federal (Monetarily Sovereign) financing is the same as personal (monetarily non-sovereign) financing.

For the federal government, there are no “financial challenges” that need “solutions.” And while the author of the article claims benefits will need to be cut or taxes increased, the public should not be prompted to “prepare” for those unnecessary changes.

It is all the “Big Lie.

Some Republicans sought to take credit on Monday for the fact that the news was not worse while also calling for changes to the programs.

“Following historic reforms to America’s tax code, this strong economy has strengthened these important programs, but today’s reports remind us of a fact we have known for far too long: Medicare is going broke and Social Security is not solvent,” Representative Kevin Brady, Republican of Texas, said in a statement.

Either Rep. Brady either is incredibly ignorant about economics, or he is an incredible liar. Pick one. There are no other alternatives.

The United States will not become insolvent, and for the same reasons, neither Medicare nor Social Security will go broke, unless a bribed Congress forces that to happen. 

Lawmakers have been struggling to come to grips with a solution for the country’s eroding entitlement programs, which have for years been at the center of a political tug of war between Republicans and Democrats.

No. Lawmakers have been struggling to find more ways to continue fooling the public. It’s been a struggle because arguing against plain facts always is difficult.

Mr. Trump was initially resistant to calling for cuts to the programs, but his budget proposal last month did just that. The request, which is being ignored by Congress, proposed shaving $818 billion from projected spending on Medicare over 10 years.

Completely unnecessary.

It also called for $26 billion less on Social Security programs, including a $10 billion cut to Social Security Disability Insurance, which provides benefits to disabled workers.

Well, of course, Mr. Trump wanted to cut Social Security and Medicare, two programs that benefit the middle classes and the poor. Isn’t that what the GOP always wants to do?

And of course, the GOP Congress passed tax cuts that mostly benefitted the rich. Isn’t that also what the GOP always wants to do?

The problem is not that the GOP, the party of the rich, wants unnecessarily to gut programs that benefit the non-rich. The problem is that the Democrats, supposedly the party of the middle- and lower-income groups, go along with the fiction of federal insolvency. 

“That fact that we now can’t guarantee full benefits to current retirees is completely unacceptable, and it should be cause enough for every policymaker to rally around solutions to restore solvency to those programs,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget.

“Certainly we should be focused on saving Social Security and Medicare before we start promising to expand these programs.”

She added that “now isn’t the time for partisan bickering — we need solutions.”

Just as Wayne LaPierre, of the National Rifle Association (NRA) is a mouthpiece for gun manufacturers, Maya MacGuineas, of the Committee for a Responsible Federal Budget (CRFB) is a mouthpiece for the very rich.

The rich in America, and all over the world, for that matter, never are satisfied. They want to become richer and richer. To become richer, you must widen the income/wealth/power Gap between you and those below you on any economic scale.

It isn’t sufficient that your income increases if the incomes of those below you increase even more. Without the Gap, no one would be rich; we all would be the same.

It is the Gap that makes you rich, and the wider the Gap, the richer you are.

This is known a “Gap Psychology,” the desire to distance yourself from those below and to approach those above.

So the rich bribe your three main economic information sources — the media,  the politicians, and the economics professors — to tell you the Big Lie, that federal spending is funded by federal taxes rather than by money creation.

–The rich bribe the media via advertising dollars and media ownership.
–The rich bribe the politicians via political contributions and promises of lucrative employment after they leave office.
–The rich bribe the economics professors via contributions to universities and with jobs at think “tanks.”

The public accepts the Big Lie because it equates to personal experience, where personal spending is funded by personal income.

One day, perhaps within your lifetime, the general public will learn that federal taxes do not fund federal spending, that the federal government and its agencies cannot become insolvent, and that social programs can and should be funded for the benefit of all America.

It will have to begin with a moral billionaire, a moral politician, or a moral economist who has both the money and the influence to promulgate the truth, and to have it accepted.

Waiting.

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

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The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

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 Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and 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 the rest.

MONETARY SOVEREIGNTY

What will trigger the next recession? Monday, Dec 9 2019 

Longtime readers of this blog are quite familiar with the following graph:

It shows the relationship between U.S. federal debt/deficit growth (green line) and U.S. recessions (vertical gray bars).

You can see this relationship detailed at: The relationship between federal deficit spending and GDP growth, but in summary, recessions follow a period of reduced federal debt/deficit growth, and are cured by increased federal debt/deficit growth.

The reasons relate to these fundamental truths:

  1. Every form of money is a form of debt. Debts require collateral. The U.S. dollar is a debt of the U.S. federal government. The collateral for the U.S. dollar is the full faith and credit of the U.S. government.
  2. Economic growth requires debt/money growth. Large economies have more money than do small economies. To move from smaller to larger, an economy must have an increased supply of debt/money.
  3. To cure a recession requires growing the economy which requires increasing growth in the debt/money supply.
  4. Federal deficits add money to the economy, and federal surpluses take money from the economy.

The above is why every depression in U.S. history has been introduced with a period of federal surpluses. (See item #3 of “To understand economics, you must understand Monetary Sovereignty.”),  and every depression has been cured by federal deficit spending.

We have discussed these facts many times with respect to federal deficits and debt.

However federal debt is only a fraction of total deficits and debt.

The above graph compares federal debt (green line) with the total debt of all sectors (blue line — state & local governments, domestic non-financial sectors, etc.).

While federal debt currently approximates $20 trillion, the total of all sectors approximates $75 trillion.

While federal deficits and debt are under direct federal control, and can be made to fluctuate significantly, “all-sectors” debt is not directly controlled, and has much greater inertia.

Though federal debt is an important source of U.S. dollars, there can be periods when federal debt changes in one way, while all-sectors debt changes another way.

Because the origin of money has less economic effect than does the existence of money, the all-sectors data (blue) most parallel Gross Domestic Product (red line in the below graph).

Total debt % annual change of all sectors (blue); GDP % annual change (red).

Yet, in a September 2, 2019 article in Fortune Magazine, you can read:

“We do know that there is a recession coming,” said Cindy Kuppens, the COO of O’Brien Wealth Partners. “Maybe next year, maybe 2021. We’re coming to the end of a business cycle.”

We could even be in a recession now without knowing. Economists have to wait for the data to measure GDP and new estimates come as additional information arrives. A previous quarter can slide in hindsight and a current period may be starting to slow.

That is just one example of numerous “recession is coming” predictions based on “this can’t growth go on forever” pontificating.

But “this can’t go on forever” is not a prediction. Nothing goes on forever. The world can’t go on forever. Predicting a recession because we haven’t had one recently, is the height of ignorance.

So pay no attention to the “it can’t go on forever” Chicken Littles.

Then there are the more scientific types, as in the article: “Is there a recession coming? Keep an eye on these key indicators.  They talk about such factors as: Yield curve inversion, employment figures, unemployment figures, housing prices, construction rates, housing supply, Consumer Confidence Index, manufacturing numbers, business sentiment, and a summary index like the Conference Board’s Leading Economic Index.

So which is/are the most important predictors, and how should these factors be weighted? No one knows, but we do know this: The U.S. economy, and indeed all economics, is ruled by money.

With federal debt growth, all-sector debt growth, and GDP growth all increasing, there are no signs of a coming recession, and until we see growth declining in at least one of the three, there absolutely will not be a recession.

The GOP, despite its long-time opposition to federal deficits, especially when a Democrat was in the White House, has now created what is predicted to be a $1 trillion deficit — and that is a good thing for the American economy.

Ironically, it will be remembered as the sole beneficial act by President Donald Trump’s administration.

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

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

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

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 Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and 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 the rest.

MONETARY SOVEREIGNTY

If you still claim Donald J. Trump was interested only in Ukranian corruption: Thursday, Dec 5 2019 

Image result for godfather

“Do me a favor, though . . . “

Rep. Denny Heck (D-Wash.): “I will never understand how some of my colleagues, in many ways good people, could ignore or deny the president’s unrelenting attack on a free press, his vicious character assassination of anyone who disagreed with him, and his demonstrably very distant relationship with the truth.”

Professor Michael Gerhardt, a law professor at the University of North Carolina: “If what we’re talking about is not impeachable, then nothing is impeachable. This is precisely the misconduct that the framers created a Constitution, including impeachment, to protect against. (If Congress gives Trump a) “pass,” then “every other president will say, ‘okay, then I can do the same thing,’ and the boundaries will just evaporate … and that is a danger to all of us.”

Professor Pamela Karlan, a law professor at Stanford University, said that the ‘most chilling’ aspect from previous testimony before the House Intelligence Committee was when U.S. Ambassador to the European Union Gordon Sondland said Ukrainian President Volodymyr Zelensky needed only to announce, but not necessarily execute, anti-corruption investigations.

(In Karlan’s eyes that debunks the idea that Trump and his allies like Rudy Giuliani were legitimately concerned about corruption in Ukraine and were only focused on going after the president’s domestic political rivals.)

“President Trump by pushing for Ukraine to investigate former Vice President Joe Biden struck at the very heart of what makes this a republic to which we pledge allegiance and that inviting foreign interference in an election undermines democracy itself.

Laurence Tribe, a Harvard Law professor and one of America’s top legal scholars (focused on constitutional studies) said about: Jonathan Turley, the George Washington University Professor who argued against impeaching President Trump “(He) was an utter waste of time. His call for solid evidence was a truism. He gave no reason at all to regard the evidence gathered by Rep. Adam Schiff as insufficient to establish impeachable offenses. And his carping about the speed of the process was pointless.”

Rep. Jerry Nadler: “The patriots who founded our country were not fearful men. But as they met to frame our Constitution, those patriots still feared one threat above all: foreign interference in our elections.”

Just a few years ago, it would have been inconceivable that the President of the United States would be a man subservient to the communist leader of Russia. It would have been even less conceivable that an entire political party, out of personal greed for power, would have supported such a man.

The deviations from law-abiding precedents are not just “Trump being Trump.” They are Trump being a traitor.

It is comical or frightening, depending on one’s view, to watch sophisticated politicians adopt the childish naivety required to believe Trump was really not imploring Ukraine (and Russia before it) to meddle in our elections and to work against a political opponent of Trump, but oh no, rather his only interest was corruption.

The Republican Party, once the party of “law and order,” the party of “family values,” the party of “religious tolerance,”  the party of accepting responsibility for one’s actions, the party of patriotism, and the party of “Constitutional originalism,” this party now has sold its soul to a man who subscribes to none of these.

It is said that “power corrupts,” but the lust for power corrupts even more. 

Donald Trump is a proven criminal, admitted adulterer, intolerant, blame-passing, turncoat who tries to twist the Constitution in order to enhance his own power, and who has gathered around him, an unprecedented coterie of convicted criminals and ne’er-do-wells.

The deviations from law-abiding precedents are not just “Trump being Trump.” They are not just modifications of the norm. They are Trump being a traitor.

It is time for those who care about America as a nation and about the human beings in it, to acknowledge what all the world sees: Our President is a traitor, America is paying the price, and only we Americans can save ourselves.

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

The Hyperinflation Myth Explained Saturday, Nov 30 2019 

There is a widespread myth that hyperinflations are caused by excessive government money “printing.” Perhaps you are among the vast majority who believe this pernicious myth.

Well, it simply isn’t so, and the belief alone is responsible for great misery, worldwide.

Consider these excerpts from the following article:

Fed analysis warns of ‘economic ruin’ when governments print money to pay off debt
NOV 26 2019, Jeff Cox, CNBC

St. Louis Fed economists warn in a paper of potential “economic ruin” if policies that advocate money-printing to pay off government debts are ever adopted.

Immediately, the article provides us with a misunderstanding. “Money-printing” never is used for paying off U.S. federal debt.

The federal debt is the total of net deposits into Treasury security accounts. When you buy a T-bill, T-note, or T-bond (aka “federal debt”), you open a T-security account, and into that account, you deposit the price of the T-security.

There, your dollars remain, collecting interest, until the T-security matures, at which time, your dollars — the dollars you deposited plus the interest in the account —  are returned to you.

During that entire round trip — you depositing dollars and those same dollars being returned to you — the only so-called money “printing” has occurred daily over a period of years, as your account accumulates interest.

The U.S. federal government could pay off the entire U.S. debt today, if it wished, simply by returning the $20 trillion that currently exist in T-security accounts. No money “printing” or taxes involved.

Returning to the article:

“A solution some countries with high levels of unsustainable debt have tried is printing money.

“In this scenario, the government borrows money by issuing bonds and then orders the central bank to buy those bonds by creating (printing) money,” wrote Scott A. Wolla and Kaitlyn Frerking.

“History has taught us, however, that this type of policy leads to extremely high rates of inflation (hyperinflation) and often ends in economic ruin.”

They cite Zimbabwe in the 2007-09 period, Venezuela currently and Weimar-era Germany . All three faced massive deficits that led to hyperinflation due to money printing.

In fact, all three nations provide examples of the real cause of hyperinflation, and it isn’t money “printing.”

(As an aside, money is  not printed; it is created via bookkeeping. Money has no physical existence. A dollar bill actually is a title to a dollar. Just as the paper title to a car is not a car, and the paper title to a house is not a house, the paper dollar bill, is not in itself a dollar. The actual dollar is nothing more than a non-physical accounting notation on the government’s books.)

The cause of general price increases, i.e. inflation, is shortages. Usually, these are shortages of food or energy. It is shortages, not money “printing” or full employment or excessive demand (as some people claim), that makes prices go up.

Zimbabwe
Hyperinflation in Zimbabwe began in February 2007. . In the late 1990s, the Robert Mugabe government evicted white landowners and gave their farms to blacks.

Many of these “farmers” had no experience or training in farming. As a result, from 1999 to 2009, the country experienced a sharp drop in food production, creating massive food shortages.

The non-farmers were unable to obtain loans for capital development, (money shortage). Food output capacity fell 45%, manufacturing output 29% in 2005, 26% in 2006 and 28% in 2007, and unemployment rose to 80%.

Everything, especially food, was in shortage, which is what caused the Zimbabwean hyperinflation.

Venezuela
Hyperinflation in Venezuela began in November 2016 during the country’s ongoing socio-economic and political crisis.

Since the 1990s, food production had dropped precipitously, with the government beginning to rely upon imported food using the country’s then-large oil profits.

In 2003, the government created a currency control board that placing currency limits on individuals, and that caused widespread shortages of goods.

In 2005, the government announced the initiation of Venezuela’s own “great leap forward”, following the example of Mao Zedong’s Great Leap Forward. An increase in shortages began to occur that year as 5% of items became unavailable.

In January 2008, 24.7% of goods were reported to be unavailable in Venezuela, with the scarcity of goods remaining high until May 2008, when there was a shortage of 16.3% of goods. Shortages increased again in January 2012 to nearly the same rate as in 2008.

In 2013, shortage rates continued to increase and reached a record high of 28% in February 2014. In January 2015, the hashtag #AnaquelesVaciosEnVenezuela (or #EmptyShelvesInVenezuela) was the number one trending topic on Twitter in Venezuela

General shortages caused the Venezuelan hyperinflation.

The Weimar Republic, Germany
The Weimar Republic experienced hyperinflation, between 1921 and 1923, primarily in 1923.

In April 1921, the Germany Reparations Commission announced the “London payment plan”, under which Germany would pay reparations in gold or foreign currency in annual installments of 2 billion gold marks, plus 26% of the value of Germany’s exports.

Since reparations were required to be repaid in hard currency, one strategy that Germany used was the mass printing of banknotes to buy foreign currency, which was then used to pay reparations, greatly exacerbating the inflation of the paper mark.

The brief German hyperinflation was caused by shortages of hard currency with which to pay for imports of goods, especially food and food production.

The resultant shortages caused the general increase in prices, i.e. the German hyperinflation.

In summary, prices rise not because the people have too much money (Germans, Zimbabweans, and Venezualians certainly didn’t) but because needed products, mostly food and/or oil, are in short supply.

Back to excerpts from the article:

The Fed analysis references a paper on MMT (Modern Monetary Theory) in a sidebar box on monetary “owls” — the owls, “suggest that a government that controls a fiat money system is not constrained because it can simply create more money to pay its debts.”

Indeed, MMT supporters argue that a country that runs up debts in its own currency can never default, and as long as inflation remains tame, there really are no problems with government deficit spending.

They further say that public spending can be used to stimulate the economy, that essentially a deficit in the public sector can be a surplus in the private sector.

In this, MMT is absolutely correct, and noted economists agree:

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

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.”

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.

The article continues:

The total federal government debt is just over $23 trillion, or 103.2% of GDP.

The Fed itself has come under criticism for “money printing,” which it did in three rounds of quantitative easing during and after the Great Recession.

This came along with keeping its short-term lending rate anchored near zero for seven years.

However, the central bank’s stated aims were to bring down long-term interest rates and stimulate economic growth, not to finance the national debt.

And that is exactly what happened. Despite all the hand-wringing from the deficit hawks, inflation stayed low, the economy grew, and the national debt was not “financed.”

Nothing “finances” the national debt if the word “finance” means pays off. The national debt is not like your debt, my debt, business debt or state/local government debt.

The national debt is just the net total of deposits into T-security accounts, that are paid off by simply returning the money in those accounts.

“There are ways in which the government can make investments today, that increase deficits today, that produce higher growth tomorrow and build in the extra capacity to absorb those higher deficits,” Stephanie Kelton, professor of public policy and economics at Stony Brook University, said in a video for CNBC.com.

“Their red ink becomes our black ink and their deficits are our surpluses.”

Kelton added that deficit spending can be used to fund improvements in education, infrastructure and other inequality-reducing programs without causing long-term damage.

Absolutely, 100% correct is Stephanie, a very bright lady with whom I have been in contact for many years.

Some of the most prominent advocates for MMT are Democratic presidential candidate Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez, both of whom identify as democratic socialists, as well as former Pimco economist Paul McCulley.

Too bad Sanders and Ocasio-Cortez do not really believe what Kelton has told them. They continue to search for ways to “pay for” Medicare for All, when the solution hangs right before their eyes: The federal government can and should pay for Medicare for All via deficit spending.

And contrary to what Ocasio-Cortez claims, this does not require more borrowing. Remember this quote from the St. Louis Fed: ” . . . the government is not dependent on credit markets (i.e.borrowing) to remain operational.

Most mainstream economists and Wall Street authorities, however, reject the basis that deficits don’t matter absent inflation.

Bond market guru Jeffrey Gundlach at DoubleLine Capital has called MMT “a crackpot idea,” while former White House economist and Treasury Secretary Larry Summers has labeled it “dangerous.”

However, hedge fund king Ray Dalio at Bridgewater Associates said its adoption is “inevitable” amid growing wealth disparity.

“Most mainstream economists and Wall Street authorities” do not understand the truth of Monetary Sovereignty. They still disseminate the “Big Lie,” that federal financing is similar to personal financing, where debt is a burden on the debtor.

Federal debt (deposits) is not a burden on anyone — not on the federal government and not on future taxpayers. It is a benefit to the economy and to taxpayers, and does not cause inflation.

There has been no relationship between changes in federal debt, aka deficits  (blue) and inflation (red).

Addendum
One of the many places where MMT (Modern Monetary Theory) and MS (Monetary Sovereignty) differ is with regard to the relationship between “full” employment and inflation.

MMT claims that one cause of inflation is “excessive demand.” We never have seen anyone point to nationwide demand as excessive (especially when inflation describes not one or two products and services, but an entire nation). We cannot agree on MMT’s proposed solution to inflation: Taxes.

Taxes are recessionary, and the opposite of inflation is not recession; it is deflation. Taxes are austerity, and are not a cure for inflation.

MMT also says that deficit spending at a time of full employment is inflationary. Again, we disagree. Deficit spending means the federal government’s taxation is less than its purchases of goods and services.

It is not clear why the federal purchase of goods and services during times of full employment (if those times ever really have existed outside of WWII), should be more or less inflationary than during times of low employment.

The theory seems to be that during full employment, people have more money (not necessarily true), and they will spend rather than save that money (also not necessarily true), and when they are spending in competition with increased government spending, all that increased demand will cause inflation.

The main problem with that hypothesis is that in the real world, it never actually happens:

1) No one can agree on exactly what “full employment” is.

a. Does “full” employment include single or married, men or women or children and of what age?
b. Does one person earning $100K equal four people each earning $25K?
c. Does “full” include only full-time or part-time work, and exactly what are the definitions of each?
d. Does “employment take into consideration productivity, i.e is one man on a riding mower equal to 4 men pushing manual lawnmowers?
e. And what about unemployed or retired people. Some have a great deal of money to spend; others don’t. How is that accounted for?

2) Federal spending not only increases demand, but it also increases supply. In response to federal contracts, contractors gear up to create more product to meet the anticipated demand.

3) The federal government generally buys different things than the public buys, creating demand in different areas, so a general increase in all prices does not ordinarily occur. Prices may increase in specific products or materials but overall price increases are not caused by federal buying except during major wars, when the government buys so much a broad range of products is affected.

Consider the case of Medicare for All. Will federal funding of this program cause a general increase in prices at a time of “full” employment? Will it cause a shortage of food and/or oil, the main cause of inflation?

That is the real question, and I submit the answer is, “No.”

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
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The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

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 Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and 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 the rest.

MONETARY SOVEREIGNTY

 

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