–Radio interview with Abigail Romaine

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.

Yesterday, I was interviewed by Abigail Romaine on radio station WNZF. The interview opened with some audio clips of Ron Paul pandering to his audience with silly jokes about how irresponsible it would be to increase the debt ceiling, and federal borrowing and debt are unsustainable, and why we should cancel the health care program and why we should go back on the gold standard. He got a huge laugh from his audience about creating money from thin air, as though that were something unimaginably ridiculous.

Abby asked for my comments. I fought the impulse to tell her Ron Paul knows as much about economics as I know about quantum chromodynamics. And this is the man who is Chair of the House Monetary Policy subcommittee! Yikes! No wonder we are in trouble.

But instead, here is the context of what I told Abby on air.

Economics is complex, but the real complexity is that the basis for modern economics is counter-intuitive. The key questions in modern Economics are:

#1. How many dollars CAN the federal government create?
#2. How many dollars SHOULD the federal government create?

I. How many dollars CAN the federal government create?
In 1971, we were on the gold standard, which limited the federal government’s ability to create money. Had the situation continued, we actually could have faced bankruptcy, identical with what Greece, Italy et al now face. President Nixon unilaterally took us off the gold standard, and made us Monetarily Sovereign, which meant dollars no longer had to be backed by gold or by anything else. Money no longer was related to anything physical.

This is difficult for most people to imagine, but we see the same thing in our everyday life. Warren Mosler gives a “scoreboard” example on his web site and in his book. Imagine a football game in which the scoreboard reads 0-0. One team scores.

Now the scoreboard owes that team 6 points. Where will the scoreboard get those 6 points? Someone pushes a computer button, and now the scoreboard reads 6-0. Where did the scoreboard get the 6 points? Is there a scoreboard tax that people pay into a scoreboard fund, to provide points for the scoreboard?

No, the scoreboard is sovereign for points just as the U.S. government is sovereign for dollars. The government can’t run out of dollars any more than the scoreboard can run out of points. The points have no physical basis, just as dollars have no physical basis.

Because the U.S. dollar is not physical, you can’t hold a dollar. You can’t touch a dollar. You can’t see a dollar. The dollar is just a score. “But wait,” you say. “The dollar is physical. I have some in my wallet. I can see it, touch it, fold it. The dollar is perfectly physical.”

And that is one source of the misunderstanding about money, for that piece of paper in your wallet is not a dollar; it is a receipt for a dollar. Imagine you own a house. How do you know you own the house? You have a piece of paper called a “title.” That title is your evidence you own the house. The title itself is not a house. You can’t live in the title. It’s just a receipt.

Similarly, that piece of paper in your wallet, which we confusingly call a “dollar,” is just a receipt showing you own a dollar, but it in itself is not a dollar. A dollar is just a score, and the federal government can change that score by pressing a computer key, the same way the scoreboard operator can change the score.

Imagine you’re on Social Security. You have $2,000 in your checking account. When you receive your $1,000 monthly benefit, suddenly you have $3,000 in your account. How did that happen? The government pressed a computer key, which changed that 2 to a 3, just like the scoreboard.

So, in answer to the question, How many dollars can the federal government create, ask yourself, “How many points can the scoreboard create?” The answer, of course: “Unlimited.” Send government a bill. To pay you, the government simply will change the numbers in your bank account. This means the federal government never can run out of money. There is no “scoreboard ceiling,” just as there should be no debt ceiling.

What are the implications?
1. If all federal taxes were reduced to zero, this would not reduce by even one dollar, the federal government’s ability to spend.
2. It’s impossible for the federal government to be forced into bankruptcy. All federal debt is sustainable.
3. People worry about our $900 billion debt to China. Imagine that China said, “You owe us $900 billion, and we want it all tomorrow.” What would the federal government do? No problem. It simply would press a computer key, and China’s checking account at the Federal Reserve bank would be increased by $900 billion.
4. No agency of federal government can be forced into bankruptcy. Congress is an agency of the federal government. It has no source of income. There is no “Congress tax.” There is no “Congress fund.” Yet, Congress never runs out of money. The federal government supports Congress by creating money. It simply clicks that computer key.

Similarly, the Supreme Court is an agency of the U.S. government. It has no source of income. There is no Supreme Court tax; no Supreme Court fund. Yet the Supreme Court never runs our to money. The government pushes a computer button and all Supreme Court bills are paid.

Social Security and Medicare are agencies of the federal government, but misleadingly, there are Social Security and Medicare funds. These funds don’t exist. They are an accounting fiction. And there are Social Security and Medicare taxes. They have no function. The federal government supports Social Security the same way it supports Congress and the Supreme Court. It pushes computer buttons to add money to the bank accounts of creditors.

Despite all the misguided hand-wringing about when Social Security and Medicare will run out of money, FICA could be eliminated, and this would not move Social Security and Medicare even one dollar toward insolvency. Social Security and Medicare can no more run out of money than could Congress and the Supreme Court.

State and local governments, business, you and I can be forced into bankruptcy. We can run out of money. But for Monetarily Sovereign, no debt is unsustainable. Sadly, Ron Paul does not understand Monetary Sovereignty. He thinks federal debt is like personal debt. His ignorance hurts America.

II. The second key question was: How many dollars SHOULD the federal government create? There is but one limitation on federal money creation: Inflation. Though the dollar is not physical, it is a commodity. It even is traded on the Chicago Mercantile commodity exchange. The value of any commodity is based on supply and demand. If we were to increase the supply of money too much, the value would go down, and we would have inflation.

So to prevent inflation, we either must reduce the supply or increase the demand.

Normal population increase reduces the per capita money supply, but does not allow for economic growth. A growing economy requires a growing supply of money, and history shows that when money growth lags, we have recessions and depressions.

To prevent these recessions and depressions, while also preventing inflation, we must increase the demand for dollars. Demand is influenced by the reward for owning money, which is interest. When interest rates are high, people invest in money. That is, they invest in money market accounts, bank CDs and savings accounts. When rates are low, people invest in non-money: stocks and real estate.

This is why the Fed raises rates when it anticipates inflation and lowers rates when it anticipated deflation. The system has been reasonably effective. Since we went off the gold standard, the federal debt has increased an astounding 3600%, yet inflation has been reasonably close to the Fed’s target rates. In fact, a graph of inflation vs. deficits shows no relationship between the two. Rather, inflation has been caused by oil prices.

Ron Paul likes the debt ceiling. He does not consider the hardships it will cause for us, our children and our grandchildren. Less money will be spent on roads, on bridges, on the military, on health care, on research, on education, on security, on the ecology, on fighting poverty, on fighting crime. All this pain for our children and grandchildren, because the Ron Pauls in Congress do not understand the basics of economics.

The federal government can pay any debt of any size. Why have a ceiling? What is the purpose? History shows every depression and most recessions come from too little debt. And what is “healthcare reform”? Cutting dollars the federal government not only can provide at the touch of a button, but which actually benefit us adding money to the economy? This nation should make sure all Americans can afford the best health care, not cut health care because we don’t understand Monetary Sovereignty.

The federal government, unlike the state and local governments, doesn’t need to borrow. Borrowing is a relic of gold standard days. We could end borrowing tomorrow, and this would not affect by even one penny, the government’s ability to spend.

Politicians think the federal government is like you and me. But the federal government is Monetarily Sovereign. And you and I are not. The only restraint on federal money creation is inflation, and we have the means to control that.

The Ron Pauls of the world want to sentence our children and grandchildren to miserable, unhealthy lives of poverty, rather than allow our government to use its powers to provide prosperity. Ignorance has its costs.

I’ll let you know about any follow-up conversations I have with Abby.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity.

29 thoughts on “–Radio interview with Abigail Romaine

    1. Am I really this stupid that I cannot buy into MS???! Sure, we can print money unendingly, but isn’t wealth still measured in commodities? There isn’t enough food, oil and lumber in the world to validate the wealth of unlimited money printing. So how could printing money as a way to pay government debt actually satisfy our debt holders?? A neverending printed payoff wouldn’t be able to buy enough wealth (see commodities) to manifest its values. All they would have is a bunch of numbers!


  1. There’s a good article at Eugene Robinson. The author discusses the pickle the Republicans have got themselves into, by proposing the elimination of Obama’s health care plan while not having any plan of their own.

    I predicted this way back in April ( Republicans fall into Obama’s trap).

    The Republicans have two problems with their “fight-Obama-on-everything” strategy.
    1. People want the benefits the health care plan offers.
    2. Creating a cheaper plan, not only harms the economy, but directly harms the voters.

    The Republicans need a new strategy, and as I said back then, “First step: Disavow the McCains, the Palins and the Fox News right-wing panderers. Go to your strength, which is business and jobs. Teach voters that strong business means employment, and employment means wealth. Teach America you know the path to the American dream.”

    Rodger Malcolm Mitchell


  2. The problem with health care is that it is a public good and is pretty much recognized as such. Polls show that people in general do not agree that it is a commodity that ought to be rationed strictly by price.

    This present an insurmountable problem for a purely private, market-based solution because providing health care at consonant with public demand and what current law provides (ER treatment for all) is not profitable and government has to absorb some of the leakage anyway.

    The only workable solution is single-payer, since government is not constrained by affordability. As long as real resources and services are available for sale, a monetarily sovereign government can afford to purchase them under a fiat regime. Since the government is the currency monopolist, it is also the price setter.

    Why are we waiting for the obvious?


  3. Alot of cOol aid drinkers here. You show alot of deference to Obama and the crooks at the Federal Reserve.
    The only value of the government’s paper is a matter of confidence. To think that the sovereignty of the Fed’s private bankers should be the people’s concern is absurd. Now we can argue about whether or not the nation should have a monopoly on the currency, but continuing the status-quo means having a government run by, of, and for the convenience of the monopoly bankers and Wall St! Giving the power of controlling people’s money to profit mad speculators has a predictable end; namely the creation of a debt so large that the entire GDP paid over 50 years would not pay it off!

    I have heard the pro-central planning advocates speak on the complexity of monetary policy, but in reality it is all smoke and mirrors. The central bank requires a population of economic ignoramuses, who believe the geniuses at the Fed are so intelligent that the average Joe is incapable of comprehending the actions it takes! If the Fed could just print money and pass it out, why should any of us ever have to work another day in our lives? Forget single-payer healthcare, let’s have a single-payer market completely!

    To disagree with this idea means that only the banker deserves the fruits of issuing the nation’s currency. The gold standard (or some other tangible commodity standard) is the only monetary system that restrains the power of the state, and allows a currency that works equitably for everyone. The individual is the sovereign- NOT the government or the money changers!


    1. “The gold standard (or some other tangible commodity standard) is the only monetary system that restrains the power of the state, and allows a currency that works equitably for everyone.”

      How well did that work in the Gilded Age of the 1890’s that led to the Panic of 1907, the reason for the creation of the Fed and the 16th amendment allowing an income tax? Following on that debacle, the bankers put together as friendly a plan as possible in their influence on the Federal Reserve Act of 1913, when it was obvious the hammer was coming down on them because of the recurrent panics. But the gold standard did not prevent the crash of ’20 and the ensuing Great Depression.

      Convertible fixed standard regimes like the gold standard are inherently deflationary and favor the financial class over the working class, which in the US comprises most of the middle class.


    2. “the creation of a debt so large that the entire GDP paid over 50 years would not pay it off!”

      GDP does not pay for federal debt. GDP and the paying of federal debt are entirely unrelated. The federal government could pay off the entire debt tomorrow with the press of one computer key, and this could be done even if the GDP were zero.

      You seem like an intelligent man. I urge you to familiarize yourself with Monetary Sovereignty.

      Rodger Malcolm Mitchell


  4. Do you feign ignorance over the history of the central bank- how the founders fought against it, how the eastern financiers would seek monetary monopoly, to be struck down, and appear again? JP Morgan, Paul Warburgh, Jekyll Island, the Aldrich Plan, the Money Trust. Denial of this historical battle is true ignorance!

    Sovereignty is an important issue! But who is the sovereign? The state? What happened to a union of states, who created the federal government? The states created by the people within the states?

    It is governments throughout the history of civilization that have made war, committed atrocities, and enacted untold death, destruction, and suffering throughout the generations. A sovereign state that has unlimited capital knows no bounds, will accept no limits to its authority. Whether you trust the current administration or not, can you trust the next? Are you ignorant of the atrocities committed by the US government?


  5. JT,

    You said, “If the Fed could just print money and pass it out, why should any of us ever have to work another day in our lives?”

    You are new to this blog. No one suggests unlimited money creation. The limit on money creation is inflation, which we currently have under control. Meanwhile millions of people suffer today, and our children and grandchildren will suffer tomorrow, because of unreasoned fear of deficits.

    You said, “It is governments throughout the history of civilization that have made war, committed atrocities, and enacted untold death, destruction, and suffering throughout the generations.”

    True. Some were on a gold standard; some were not. All governments have done bad things . . . and good things, whether or not they were Monetarily Sovereign. By their nature, all governments have the power to do good or evil.

    Often, starving governments do evil, and wealthy governments do good. I see no evil effect of Monetary Sovereignty.

    The U.S. and the world came off the gold standard in 1971. Is the world more evil now than we were prior to 1971? Or, are you suggesting anarchy?

    When you go on Social Security and Medicare, when you drive on a road, when the FBI catches a terrorist, when you eat safe food and take safe drugs, when you are protected from foreign armies, when you receive the millions of benefits the government provides, your opinion about governments may moderate a bit.

    Rodger Malcolm Mitchell


  6. If you think about it, the “value” of gold when used as money is only a matter of faith that we’ve assigned to it as well. It’s only inherent value is it’s usefulness as a commodity, and if it came down to it, in the apopocalyptic scenarios portrayed by some goldbugs a gun & tin of beans would of more value than a kilo of gold.

    As Rodger says, a quick look at history shows the Gold standard didn’t prevent the great depression, nor many other finacial collapses with their associated hardships before it. Expecting a gold standard now to be some sort of magic cure all given the lack of historical evidence seems somewhat optimistic.


    1. “Expecting a gold standard now to be some sort of magic cure all given the lack of historical evidence seems somewhat optimistic.”

      Right. It’s magical thinking.


      1. A bit like interest rate rises being seen as a magical cure all – so much so that you have to raise them early to ward off bad spirits (or something) in the medium term.

        Quite how they got this mystical cure all property I don’t know.

        If you stick with Rodger’s “increasing the demand to hold money” line at least there is some rationality there.


  7. Yes, the gold standard is fundamentally the same as the “euro standard,” now crippling Europe. All standards are derived from the same thinking: “We fear inflation more than we fear recession and depression. So we will tie our hands with an artificial constraint, to prevent money creation.”

    That was the source of the euro standard, and will be the source of every proposed standard. Never mind that money creation is necessary for a growing population and a growing economy.

    Rodger Malcolm Mitchell


    1. “Money is not, properly speaking, one of the subjects of commerce; but only the instrument which men have agreed upon to facilitate the exchange of one commodity for another. It is none of the wheels of trade: It is the oil which renders the motion of the wheels more smooth and easy.”
      Of Money by David Hume(1752)

      Too much oil and the wheels get gummed up, too little and they freeze up. Just the right amount of oil and the wheel hum along.


  8. Joshua,

    ” . . . wealth measured in commodities.”

    Is that how Bill Gates’s and Warren Buffett’s wealth is measured? By commodities?

    ” . . . bunch of numbers.”

    Exactly. Now you’re starting to understand. That’s all money is — just a bunch of numbers.

    Rodger Malcolm Mitchell


  9. Man, there is some serious ignorance in your MS stuff.

    Despite the fact that others have already pointed out some major flaws I’ll add my own fiat cents…

    Saying deficits don’t matter is fine, right up until the moment they do matter.

    Already America has interest payments that exceed the tax income. You claim the government doesn’t “need” to borrow – yet it does, because if it merely printed more money you’d rapidly hit hyperinflation.

    You claim the deficit hasn’t increased inflation… no of course not, because it hasn’t been paid. If the bonds were converted into liquid capital do you have ANY idea what what 14 trillion dollars of extra dollars would do to inflation?

    Now it’s true there’s a deeper level that most people don’t understand – that every dollar created is actually a DEBT to the private banks of the Federal Reserve. If all debts were paid off there’s be no “dollars” in existence. However that would be impossible, because all those debt-dollars are repayable with INTEREST to those same private banksters.

    So where does the interest come from? It can only come from the creation of yet more DEBT.

    You don’t need a PhD in economics to see, at a glance, that this system is plain bizarre, and outright lunacy.

    Sure, it’s great for the banks but it means everyone has to pay the inflation tax, not in exchange for any services or value, merely to maintain the lunacy (and the banker’s standard of living)

    You claim the gold standard didn’t prevent the great panic of 07 – which most people have never heard of as it was so minor and cured itself! Contrast that to the Great Depression that occured very shortly after the creation of your beloved Federal Reserve.

    Claiming the euro is the same as the gold standard is nuts. The euro is also a fiat currency, one that is having to compete against the ever-inflating petro-dollar.

    You’re either incredibly ignorant (for someone who writes a blog on this stuff) or a wilful shill for the FR. Considering the volume of shills for the Fed that doesn’t make you particularly interesting, what fascinates me is that you can bring yourself to write such tripe, when you must know deep down how hideously wrong-headed it is.

    So how do you do that?

    How do you even look in a mirror?


  10. You’re welcome.

    You claim that a growing economy needs more money..?


    Why is a (relative) reduction in the money supply worse than an increase?

    The inflation tax steals from everyone, devaluing their earnings and savings. In contrast deflation literally makes everyone ‘richer’ because things become more affordable.

    By what logic do you look at something, say a TV set, and declare “I’m better off if I pay more for this TV set than I would be if I paid less for it”?

    As an economy grows it does a better, more efficient and more productive job of converting available resources into things useful and valuable. As such the natural and expected result SHOULD be a price reduction in most things.

    After all, what is the point of improving, for example, the productivity of a TV factory? Partly to make more direct profit perhaps, or simply to compete better by offering the same as your competitors for a lower price. Or both.

    Yet to you that decrease in costs, usually translated into a decrease in the retail price, is a bad thing?


    Sure, people making and selling TVs may not make as much profit. That’s the incentive for them to also find ways to improve their productivity (or come out with 3D TVs or whatever). It’s what drives innovation forward.

    Today most people can afford a TV, while it was a real luxury not that long ago. Same with cars, cell phones, comfortable shoes, pretty much most things. All because productivity improvements have pushed prices down DESPITE government/Fed inflation.

    Think how much cheaper such things would be *without* those years of inflation?

    Now if inflation were merely used as you claim, just to maintain things and allow for more people or whatever, then prices should be about the same.

    As it happens, inflation has devalued the dollar to the point that a penny costs more than a penny (cent) to produce.

    When your economy gets to the stage you can’t afford to make your own debased coinage you know you’ve hit the skids…

    Now you may say ‘Ah, but with all those extra people and stuff there’s be more demand for the same amount of goods’ . And? That would just hold prices up naturally, no need for the government to go printing money and becoming ever-more up people’s behinds (and foreign people’s too)

    Today my phone has a 1000Mhz CPU, nearly a gigabye of RAM and 8GB of storage space, making it literally 10X more powerful than my first full-size PC. Even ignoring inflation that phone cost me 1/4 of the price of that PC (1500 UKP v 1500 Malaysian ringgit)

    To you that’s a bad thing? Perhaps my phone should just cost 10X the price of the PC, 15,000 pounds?

    That massive price reduction was despite inflation, not because of it. It was despite government interference in the market, not because of it.

    Yes, when the banksters deliberately throttle the money supply it can indeed created a recession – but that’s because they previously RAISED the money supply – and you know that.

    Just leaving the money supply alone would result in smooth deflation, making more goodies more affordable for more people. That’s what’s happened anyway, DESPITE the inflation you love so much.

    So tell me again why we ‘need’ inflation?


    1. “You claim that a growing economy needs more money..? Why?”

      A large economy has more money than does a small economy. Therefore, a growing economy requires a growing supply of money.

      “Why is a (relative) reduction in the money supply worse than an increase?”

      If you truly want answers, and are not just being argumentative, please read:




      Those two pages summarize Monetary Sovereignty, and provide facts to substantiate it. Then, if you have facts (please, no more intuition), please feel free to submit them.

      Rodger Malcolm Mitchell


    2. “Why is a (relative) reduction in the money supply worse than an increase?”

      Because private debts are nominal. They don’t increase and decrease with inflation.


  11. Thanks. I already read one of those links and wasn’t by any means convinced. I’ll look through the 2nd one…

    “By definition, a large economy has a larger money supply than does a small economy. Therefore, a growing economy requires a growing supply of money”

    I disagree. For example the UK pound is worth 4 Malaysian ringgit, or literally thousands of Indonesian rupiah, ie the numbers are meaningless. What matters is buying power.

    If we only define growth as meaning “more money” then sure but that’s a circular argument. Real growth means increased productivity and profitability. Measuring it by the scraps of paper used in exchange is like declaring a foot is longer because you’re measuring in centimeters instead of inches. It’s only really “growing” it it becomes longer than a foot in length.

    Your 2nd point you give a definition of money that doesn’t need to exist, especially the idea that it must be debt.

    Why not merely a unit of exchange? A 3rd item to a barter, no debt required. I see no reason why anyone anywhere has to be in debt in order for me to trade my chicken livers for your shoes. If you’re prefer a few grams of gold we could use that instead – it remains a straighforward exchange, just using a more exchangable commodity than a bucket of chicken livers.

    Your 3rd and 4th point are interesting (recessions after surpluses) – but one could equally argue that it was the increase in the money supply (creating the surplus) that led to the inevitable crash later.

    5. As you acknowledge, since removing the gold standard the US has faced 6 recessions, each time the can was kicked by creating more money and keeping the whole charade going.

    For how long do you think you can keep doing that?

    6. “Federal borrowing of the money it previously created..” But the federal government does not create those dollars, it borrows them from the Federal Reserve, at interest.

    7. Taxes are unnecessary – I agree, though I’m a libertarian anarchist 🙂

    8 – 9 I agree that unpaid debt doesn’t translate into inflation.

    OK, I think I’ve narrowed down a key point of contention. You claim the federal government creates the dollars, then destroys them again upon receiving them as taxes.

    My understanding is that the government does not create the dollars, it borrows them from the private Federal Reserve, meaning debts paid back to the Fed are destroyed, not taxes paid to the government.

    Could you provide a source please, on this issue that tax dollars sent to the government are destroyed?

    Are you perchance saying that taxes are paid directly to the Federal Reserve?

    Ouch – reading further you say:

    “higher rates increase the demand for money, which is anti-inflationary”

    That’s the complete opposite of my view, in that the interest rate is the price of money (“capital”).

    Increasing the price of something DECREASES the demand, it does not raise it.

    High interest rates ( a high price) encourages savings, which makes more capital available, yet at a higher price.

    Usually the increase in availability would then bring the price down again (normal market forces). When the government/Fed attempt to price-fix interest rates you create all kinds of errors in the pricing mechanism – the very thing that causes bubbles and recessions in the first place.



  12. Sorry, just found this site…not sure if you are still responding. Just want to ask though, Pig’s statements seem to make more sense than anything else I have read in your blog so far, so I really need you to explain something. I think I understand what you mean by the sovereign monetary system governments use to spend on their programmes, departments, etc. And then there is a separate non-sovereign money system that the rest of the world, me, you, small businesses, etc are on. My question is simply, how do we increase the value (purchasing power) of this non-sovereign money, ie: how to make 1USD purchase more goods and services than before? For example a sandwich that cost 1USD last week may cost 2USD in a few months time. Let’s say that even if that is within the 4% planned inflation rate, how is that a good thing for a person that salary has not increased 4% or more in that same period? Is there any link between the sovereign money being printed out of thin air by the government that causes the price of the sandwich to go up? If so, what can the government do to help the average person?


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