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.
========================================================================================================================
Thank heaven for the Chicago Tribune. Without them and their ilk, I might have nothing to write. Despite frequent letters from me, they continue to display an almost supernatural reluctance to understand what they write about. These folks simply refuse to learn economics, and they seem proud of it. Here’s their latest:
“S&P didn’t wait for the hot air to finish blowing before raising the prospect that at some point, the U.S. government may not be able to keep paying interest on its bonds.”
Ah, yes, the old “at some point.” Add it to “eventually,” “someday,” “some time,” “soon,” “ticking time bomb,” “unsustainable,” “over time,” and other confident predictions about an unknown future.
The federal government is Monetarily Sovereign. It has the unlimited ability to credit checking accounts. In the space of one minute, the federal government could credit every bond holder’s checking account, not only for interest, but for principal. Further, because a government with the unlimited ability to create dollars does not need to borrow dollars, all federal debt could disappear in that one minute. And none of this would affect federal spending by even one cent.
Imagine. A nation without debt, and it easily can be accomplished without adding even one dollar to the money supply, so there are no inflation implications. What would the Tea (formerly Republican) Party have to scream about then?
Anyway, what does the Tribune mean when it says the U.S. government may not be able to keep paying interest? Ask them. Let me know if ever they answer.
“A rating cut almost certainly would push interest rates higher, undermining the Federal Reserve’s efforts to pump up the economy by printing money.”
Perhaps, the Tribune editors can be excused for not knowing it mostly is the Treasury that “prints money.” (Actually, credits checking accounts. Physical printing is a minuscule part of dollar creation.) But the Trib cannot be excused for thinking interest rates affect a Monetarily Sovereign nation’s ability to create money. Even were interest rates 200%, the government easily could continue creating dollars. Not that we recommend such a thing, but the physical ability exists.
“Unable to borrow on reasonable terms, America would have no choice but to win back the market’s confidence by jacking up taxes and slashing programs.”
I’ve asked the Tribune on many occasions, “Why would a nation, with the unlimited ability to create dollars, need to borrow dollars?” They never answer, so once again I’ll try to educate the ineducable. The federal government does not need to create T-securities, then trade them for dollars it previously created. T-securities could disappear (as could taxes), and this would not affect the federal government’s ability to spend. (Yes, yes, I know. There are inflation implications to the instant elimination of taxes, but not to the elimination of T-securities)
“It’s the federal government that can’t stop borrowing more than $4 billion a day to pay for politicians’ priorities.”
Federal borrowing pays for absolutely nothing. And excuse me, but do you consider Medicare, Social Security, Medicaid, food stamps, the military, the infrastructure, R&D, education, etc., etc., etc., to be politicians’ priorities? How about people’s priorities?
“(The U.S. is ) much more diversified and adaptable than the smaller European countries now in severe distress. But even the world’s most powerful nation can’t buy time forever when it’s running up a tab it hasn’t got the money to pay.”
Here the Tribune editors show they don’t understand the difference between the Monetary Sovereignty of the U.S. and the monetary non-sovereignty of “smaller European countries.” And as for, “. . . it hasn’t got the money to pay,” if that were true, how have we been paying it? (And please, please don’t say, “by borrowing.”)
Actually, this isn’t the worst Tribune editorial. It’s pretty much average on the ignorance meter. But it provides a reminder of how astray our media have helped lead America. The only solution is for the media to receive letters, lots and lots of letters, urging them to open their minds to learning. If you want to contribute to the effort, here are some people you may wish to contact:
Gerould W. Kern at ctc-editor@tribune.com
R. Bruce Dold, Editorial Page Editor at bdold@tribune.com
Jane Hirt, VP/Managing Editor at jhirt@tribune.com
Joycelyn Winnecke, VP/Associate Editor at jwinnecke@tribune.com
Perhaps, if enough of us write, the message will begin to penetrate.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
==========================================================================================================================================
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.”
#Monetary Sovereignty - Mitchell 
From: Frank Cornell, President, CDI
I’m a simple regular Citizen of the US and I have read your comments regarding the debt to try and be informed on both sides of the issue. And the question that pops out for me is; When is the rapid increase in, or the National debt itself become a problem? When the US credit rating is being downgraded doesn’t that mean the debt, or owner of that debt’s asset is not as secure of an asset? Consequently, the asset can be looked at like a potentially non-performing note and in reality not worth as much. I understand the Government can print money but, the more dollars that are printed dilutes the remaining dollars in circulation which, will devalue all of the dollars. So I’m looking at the issue of when is the Debt becomes a problem if at all in your opinion? I hope you don’t mind the questions but, I’m trying to understand everyone’s opinion and position on this issue. Thanks for your time, Frank
LikeLike
Hi Frank,
I would read more of Rodger, and I would read my post about the distinction between Insolvency and Debasement.
http://wp.me/p1b5Ih-jZ
LikeLike
Tell it to the Tribune. If you can’t hammer a nail with one blow, hammer it with many blows.
LikeLike
Hello Frank,
To understand the answer to your question, you first must understand that the federal debt is not functionally the total of federal deficits (though there is a legal relationship). Federal debt merely is the total of T-securities issued by the federal government. See left hand column: “Why the federal debt is not the total of federal deficits”)
Because a Monetarily Sovereign nation does not need to borrow its own sovereign currency, we could have deficit spending without debt, and we could have debt without deficit spending. So a rapid increase in debt is economically meaningless, though these days it is a political problem.
Federal debt could be eliminated tomorrow, simply by crediting the checking accounts of all debt holders. This would exchange one form of money (dollars) for another form of money (T-securities). No inflation implications.
In the past 40 years, there has been no relationship between federal deficit spending and inflation. (See the post in the left hand column: “Federal deficit spending doesn’t cause inflation; oil does”)
Rodger Malcolm Mitchell
LikeLike
Oh, come on, Chicago Tribune! Even Barry “debt hawk” Ritholtz didn’t seem to care about the what S&P said.
LikeLike