The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
You may think that when you pay taxes, you send money to the federal government. Wrong. You send only instructions to the federal government. The instructions tell the government, “Debit my checking account and credit your checking account.” Money never is sent anywhere. Just instructions.
Mail a dollar bill and all you are mailing is instructions to the federal government to credit the account of the person who hands the dollar to a bank teller. That’s all a dollar bill is: Not money, but instructions.
Think of it this way. Say you own two houses, a summer house and a winter house, but you can afford electricity for only one house. So, during the summer, you tell the electric company to connect the electricity for your summer house. Then, when winter comes, you tell the electric company to disconnect your summer house and connect your winter house.
Question: Have you now sent electricity from your summer house to your winter house? No. You only have sent instructions. So it is with dollars. Though I often have said, “Money never stops,” meaning whoever receives money immediately passes it to a bank or spends it or invests it, the truth is, money doesn’t exist in any physical form, so in fact, money never moves. It can’t.
Things that have no physical presence can’t move. Can a number move? Can a story move? Can a memory move? No, and neither can money. When you “send” money, what moves are instructions.
Mail a check and you are mailing instructions. Run your charge card and you are sending instructions. The transaction merely is a debit to one account and a credit to another.
This is important, because it can help you understand what happens to your taxes. When you send a check (instructions) to the IRS, your checking account is debited and the government’s account is credited. If the government were like the states, counties, cities, businesses or persons, crediting their account would give them dollars they previously didn’t have.
But the federal government is unique. Crediting its accounts does not give them anything they didn’t previously have, because as a Monetarily Sovereign nation, the federal government already has the unlimited ability to credit all bank accounts, including its own.
Yes, the federal government can credit its checking account any time it wishes. Whether the IRS debits your account $1 for taxes or $1 trillion, this does not affect the federal government’s ability to credit bank accounts. Essentially, your tax money is destroyed. Useless. Gone. And the government has no more money than if you paid no taxes at all.
The government does not spend your tax money. Federal spending is not related to taxes. This is the fundamental difference between the federal government and state/local governments. It is called Monetary Sovereignty, and it is why our children and our grandchildren never will “pay for” federal deficit spending. There is no mechanism by which a private party can “pay for” a federal obligation.
The government “pays for” things by sending banks instructions to credit accounts, and we taxpayers have no role in this.
Because federal taxes do not enrich the federal government by even one cent, the whole discussion about the so-called federal “deficit” and “debt” is nonsense. The federal government’s ability to debit your bank account does not change the federal government’s ability to credit someone else’s bank account. The fact that credits to someone else’s account may exceed debits in your account (aka a federal “defict”) means nothing. The two are unrelated.
So when you hear or read someone pontificating about the “unsustainable,” “ticking time bomb” “burden” of the federal deficit – when you read that our children will have to “pay for” the federal deficit — understand this: The federal deficit merely is the difference between debits to private bank accounts and credits to federal bank accounts, and the federal government has the unlimited ability to credit any bank accounts, public or private.
Now, how does it feel to know the federal taxes you pay are destroyed, useless, meaningless and a net loss for you and for the economy?
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.
Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”