An alternative to popular faith
I live in Chicago, and I’m angry with the Chicago Tribune. It continues to be clueless about economics. In a June 15th editorial, the Tribune said, “With 79 percent of Americans rating (the federal debt) ‘extremely serious’ or ‘very serious,” it tied with terrorism for the top (‘scariest threat’). So what does the Obama administration plan to do about it? It proposes to pile on more debt. . . . Americans have good reason to be so worried about the . . . that someone will have to repay.”
Does the term “exploding national debt” sound familiar. If you go back and read TICKING TIME BOMB , MORE BOMB NONSENSE and DEBT BOMB REDUX you will see that the Tribune and its media friends have been referring to the federal debt in explosive terms for the past seventy years! Think about it. For seventy years the media has told you a debt bomb is been ready to explode, and today we are no closer to any of those dire forecasts than we were in 1940.
Does daily failure of prediction stop the Tribune? Nope. Tribune readers keep following their prophet up the mountain to await the end of the world. When the world fails to end, do they ever begin to question their leader? No, they march back down, and sit mesmerized as their prophet repeats the same old predictions – for more than seventy, long years.
Here is what outrages the Chicago Tribune today: “$50 billion in emergency spending to help state and local governments . . . avert massive layoffs of teachers, police and firefighters . . . Block a 21 percent scheduled cut in reimbursements to doctors who treat Medicare patients.”
Yes, helping avert layoffs of teachers, police, firefighters and doctors truly is awful, especially when compared with the unsupported, unproven, patently wrong “risk” of a federal debt that in the Tribune’s misguided words, “someone will have to repay.”
If you read some of the posts on this blog, starting with SUMMARY you will see there is no “someone” who has to pay. Taxpayers neither owe nor service the federal debt. There is no relationship between federal income and federal spending. The so-called “debt” merely is a balance sheet calculation of net money created by the federal government, a calculation that neither inhibits, nor is inhibited by, federal spending.
A curse be upon the person who first labeled this balance sheet column “debt” rather than the correct, “net money created.” Incorrectly calling it “debt” has misled millions of otherwise intelligent people, and worse, has prevented important programs (See: CHILDREN & GRANDCHILDREN) of benefit to us all.
I’m angry with the Tribune, not because they are clueless. Each of us is clueless about many things. I’m angry with them because they have such power to make a positive difference in our economy, but instead they are too intellectually lazy to learn, preferring to parrot the popular myths of the day. What a waste.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity
#Monetary Sovereignty - Mitchell 
Watch the debt hawks, the media and the Republicans destroy America:
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“By ANDREW TAYLOR, Associated Press 6/16/10
WASHINGTON”
“Virtually certain of losing a showdown vote in the Senate, Democrats frustrated in their quest to extend jobless benefits and help for doctors facing Medicare payment cuts are scaling back a catchall tax and spending bill.
“Anxiety over record budget deficits is fueling the moves, which include rolling back last year’s $25 a week increase in unemployment checks and giving doctors just a short reprieve from scheduled cuts in their Medicare payments.
“It’ll take at least two Republicans to clear a supermajority hurdle requiring 60 votes in the 100-member Senate since the pending version violates budget rules by adding $80 billion to the deficit over the upcoming decade.
“Those votes are lacking, Democrats admit, even though an earlier version passed the Senate fairly easily just three months ago. Now, with voter anger over deficits rising, GOP support has evaporated, which means Democrats will have to pull out the shears and cut the measure back to have any hope of passing it with the handful of Republican votes that will be needed.
“As a result, people on unemployment insurance are likely to see their benefits cut by $25 a week. Doctors are likely to win only a seven- month reprieve from a 21 percent cut in their Medicare payments that’s set to take effect Friday. Those steps would appear to cut about $20 billion from the measure.”
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Nations fear outside enemies, but die from within.
Rodger Malcolm Mitchell
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Rodger,
You are the one who is clueless. In your world, the government can borrow an unlimited amount of money and never pay it back, and by the way this won’t cause any inflation. The truth is that the national debt is increasing about 12%/yr and will hit $20T by 2014 and $40T by 2020, doubling every 6 years thereafter. At some point within the next 10 years, interest rates will rise from the current 2% to over 10% and every single dollar of revenue will go to paying interest and hyperinflation will become inevitable.
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“In your world, the government can borrow an unlimited amount of money. . .
Since 1971, the government has had the ability to create an unlimited amount of money. Federal borrowing is unnecessary.
. . . and never pay it back . . .
The government never fails to service its debts.
. . . and by the way, this won’t cause any inflation.
There is a point at which money creation can cause inflation. We are nowhere near that point. Since 1971, inflation has been associated with oil prices, not money creation. (See: INFLATION ) In the 10 year period, 1980 – 1989, federal debt grew 210%, from $900 billion to $2.8 trillion (a 12% annual debt increase), while GDP grew .96% from $2.8 trillion to $5.5 trillion (a 7% annual increase). During that same period, inflation fell from 14.5% in 1980 to 5.2% in 1989.
. . . every single dollar of revenue will go to paying interest. . .
The government does not pay its bills with tax revenues. From the standpoint of federal finances, federal taxes are unnecessary, though taxes have other uses.
. . . hyperinflation will become inevitable.
Hyperinflation is not just big inflation. It is a different process from inflation, and is not caused by money creation.
Meanwhile, debt fear has cost you, your children and grandchildren sorely. See: CHILDREN
Rodger Malcolm Mitchell
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Some follow up questions:
Since 1971, the government has had the ability to create an unlimited amount of money. Federal borrowing is unnecessary.
Are you suggesting that the Treasury issue its own notes (or their electronic equivalent), like United States Notes, separate from Federal Reserve Notes? Wouldn’t this require additional legislation?
… every single dollar of revenue will go to paying interest… The government does not pay its bills with tax revenues. Right now the interest paid is fairly low – the 2011 budget has $187B for Net Interest. But if at some point, caused by a combination of increased debt and increased interest rates, the interest exceeds the tax revenues, wouldn’t this be absurd? Yes, I agree the government doesn’t need revenues to pay its bills, but the interest would just be tacked on to the debt making it grow even faster. The debt may hit $100T by 2030 (unfunded liabilities are already over $100T), and with a few more doublings could exceed $1 quadrillion. Ok, I agree this wouldn’t necessarily cause hyperinflation, we are only talking about 12%/yr increase here and we could lop off a few zeros if the numbers got too big, but how is this perpetually sustainable? Isn’t the world going to abandon the dollar long before quad mark is reached? And this lack of confidence could cause hyperinflation, correct?
Thanks for listening.
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” . . . Treasury issue its own notes . . . “
Not suggesting that. Just suggesting we stop creating and selling T-securities.
” . . . exceed $1 quadrillion . . .”
Borrowing is unnecessary. No borrowing = no debt. Visualize a brand new country, with no debt. How does this new government pay its first bill?
Rodger Malcolm Mitchell
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“The U.S. government can create dollars at will to meet any obligation, and it will doubtless continue to do so.” Alan Greenspan, 6/18/10 in the Wall Street Journal.
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Why do we have to pay taxes then? Why don’t the state and local governments get their money from the fed also? Why don’t we just print enough money to give everyone free health care and education?
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Two excellent questions, Alyssa. Now, after 1971, the end of the gold standard, federal taxes have not supported the federal government’s ability to spend. Taxes literally could be eliminated, and this would not affect the federal government’s ability to spend by even one penny.
I do not recommend the immediate elimination of all taxes, as such a sudden act would create chaos in then financial system. However, as a first step in tax reduction, I do recommend the elimination of FICA.
And yes, the government can and should provide free health care to everyone.
The standard debt hawk fear is that federal spending causes inflation. Since 1971, there has been no relationship between federal spending and inflation. See Items 8, 12, 13 and 14 in the SUMMARY
Rodger Malcolm Mitchell
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