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.
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As we, a Monetarily Sovereign nation, suffer the bordering-on-insanity discussions of the federal debt ceiling, and a vote almost is upon us, I thought this might be a good time to reprise a post I wrote last year. From what I can tell, the myths are even more solidly entrenched than they were then.
Updated Tuesday, May 31, 2011:
The U.S. and the world, lurch from boom to bust in seemingly uncontrollable waves. Popular faith holds that recessions and depressions are an unavoidable part of the natural economic cycle. I suspect these “natural” cycles occur because actions (or lack of actions) are based on false beliefs.
Economics has engendered an amazing number of myths, most based on what may seem like logic. But it’s the same logic that says the earth must be flat, else we would fall off. Here is a list of myths, false beliefs and fairy tales. If you disagree with any item on this list, please let me know, and I’ll explain why it’s there.
HOW MANY OF THESE MYTHS DO YOU BELIEVE?
(Do you understand why they are myths?)
• There is no difference between Monetary Sovereignty and monetary non-sovereignty
• Money and debt are two different things.
• A growing economy does not need a growing supply of money.
• Federal surpluses help the economy grow.
• The federal debt is too large.
• The federal debt ceiling has a beneficial function.
• The current level of deficits is unsustainable.
• Current federal debt growth is unsustainable
• Federal taxes help pay for federal spending.
• The federal government cannot create money; only the Fed can
• State, county and city governments are financially similar to the federal government.
• Federal borrowing helps pay for federal spending.
• The federal government spends taxpayers’ money.
• Our children and grandchildren will pay for today’s federal deficits.
• A balanced federal budget is more prudent than a federal deficit.
• The federal debt/GDP ratio measures the government’s ability to service its debts.
• The federal debt/GDP ratio measures the health of the economy.
• Each of us is liable for a share of the federal debt.
• Federal earmarks, pork-barrel spending, and waste hurt the economy.
• The single biggest cause of inflation is excessive federal deficit spending.
• Consumer saving helps the economy grow.
• In fractional reserve banking, banks keep a fraction of deposits and lend the rest.
• The best way to cure inflation is to increase taxes and/or to cut federal spending.
• FICA taxes pay for Medicare and Social Security.
• The government cannot afford to fund Medicare or Social Security.
• The U.S., like the EU nations, can go bankrupt.
• Without increases in taxes or decreased spending, Medicare and Social Security will go bankrupt.
• Without tax increases, the federal government cannot afford to increase support for education, infrastructure improvements, bailouts for states, counties and cities, the military, research and local police.
• Gold is safer and more prudent than “paper” (fiat) money.
• The federal government needs to borrow to pay for deficit spending.
• Federal borrowing reduces the availability of lending funds.
• The two main reasons for the recent economic collapse were low interest rates and excessive bank supervision.
• Low interest rates stimulate the economy; high rates slow it.
• Taxing the rich does not hurt the poor.
• Cutting payments to doctors and/or taxing “Cadillac” health insurance plans, is one good way to help pay for improved health care.
• America should try to export more and import less, to achieve a positive balance of payments.
• The U.S. states, counties and cities should be self supporting via local taxes, and not rely on federal assistance.
• Rather than being a net borrower, the federal government should be a net lender.
• Greece, Ireland and the other troubled euro nations need to exercise spending restraint and austerity.
You might wish to ask your Senator or Representative — the people who vote on federal taxing and spending — which myths they believe. My guess: They believe them all.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary 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 my future.”
#Monetary Sovereignty - Mitchell 
Federal earmarks, pork barrel spending and waste hurt the economy.
–Aren’t many of these inefficient uses of resources? Wouldn’t the economy be better if resources are spent in ways that provide long term value to the country?
Inflation is too much money chasing too few goods.
–Isn’t it?
Low interest rates stimulate the economy; high rates slow it.
–Although I get your point about high interest rates paid on government debt create money, which is stimulative, don’t low interest rates increase the velocity of money – which is stimulative?
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Steve:
Yes, there are more efficient and less efficient uses of dollars. The point is, that even the least efficient uses, still stimulate the economy. Building the infamous “bridge to nowhere” would have created many jobs and added many dollars to the economy. Would the same money spent elsewhere, be more productive? Probably. But all federal spending is stimulative.
Re. the oft-quoted slogan about too much money chasing too few goods, please read: INFLATION SLOGAN
Finally, regarding the common belief that high rates slow the economy, please read: INTEREST RATE MYTH.
Rodger Malcolm Mitchell
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dear sir what are the short answers to these? thank you very much. erk.
• Money and debt are two different things.
• A growing economy does not need a growing supply of money.
• Federal surpluses help the economy grow.
• The federal debt is too large.
• The federal debt is the total of federal deficits.
• The current level of deficits is unsustainable.
• Federal taxes help pay for federal spending.
• Federal borrowing helps pay for federal spending.
• The federal government spends taxpayers’ money.
• Our children and grandchildren will pay for today’s federal deficits.
• A balanced federal budget is more prudent than a federal deficit.
• The federal debt/GDP ratio measures the government’s ability to service its debts.
• Each of us owes a share of the federal debt.
• Federal earmarks, pork barrel spending and waste hurt the economy.
• The single biggest cause of inflation is excessive federal deficit spending.
• Inflation is too much money chasing too few goods.
• Consumer saving helps the economy grow.
• In fractional reserve banking, banks keep a fraction of deposits and lend the rest.
• The best way to cure inflation is to increase taxes and/or to cut federal spending.
• State, county and city governments are financially similar to the federal government.
• FICA taxes pay for Medicare and Social Security.
• The government cannot afford to fund Medicare or Social Security.
• The U.S., like the EU nations, can go bankrupt.
• Without increases in taxes or decreased spending, Medicare and Social Security will go bankrupt.
• Without tax increases, the federal government cannot afford to increase support for education, infrastructure improvements, bailouts for states, counties and cities, the military, research and local police.
• Gold is safer and more prudent than “paper” (fiat) money.
• The federal government needs to borrow to pay for deficit spending.
• Federal borrowing reduces the availability of lending funds.
• The two main reasons for the recent economic collapse were low interest rates and lack of federal credit supervision.
• Low interest rates stimulate the economy; high rates slow it.
• Taxing the rich does not hurt the poor.
• Cutting payments to doctors and/or taxing “Cadillac” health insurance plans, is one good way to help pay for improved health care.
• The federal debt ceiling has a beneficial function.
• America should try to export more and import less, to achieve a positive balance of payments.
• The U.S. states, counties and cities should be self supporting via local taxes, and not rely on federal assistance.
• Rather than being a net borrower, the federal government should be a net lender.
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erk, the short answer is they all are myths. Pick any one you don’t understand, and I’ll explain it to you.
Rodger Malcolm Mitchell
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Let’s really get outside of the box. Let’s go back to the concept of iterest free money as legal tender, spent not lent into the economy. While there are some mis-informed critiques of Greenbacks, by and large they were the most perfect currency this nation ever had.
They were also the bain of every banker since the government didn’t acquire them through the bankers web of debt.
We have been brainwashed to believe that all money is debt. We haven’t taken the time to deduce that if you eliminate debt you can still have money.
Nor can anyone explain, with logic, why the Federal Government must pay interest on currency it authorizes into existence.
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Potomac,
Yes, the semantics kill us. Actually, all money is debt. In the case of dollars, the government owes the holder “full faith and credit.” That debt is what gives dollars their value. Without it, no one would want dollars.
But you are correct regarding what commonly is called the federal “debt.” That merely is the total of outstanding T-securities, and we can and should eliminate them.
Rodger Malcolm Mitchell
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It dumbfounds me that people don’t know what money is. How it came to be.
The short and simple history is as follows:
-People used to barter, trade goods for goods, or goods for services.
-This wasn’t always very useful if people had goods or services to trade that nobody nearby had a use for those goods or services at the moment.
-So the notion came into being of creating “I owe you” (IOUs) where one could trade on the promise of future delivery of goods or services, at a time the other would need them. This was the creation of the concept of debt or the promissory note.
-At some point someone had the notion of trading IOUs for goods and services, or even for other IOUs.
-Eventually the notion of currency was invented to replace the IOUs. This could be in the form of beans, beads, shells, etc. But that lead to inflation because one could just go collect such items in the wild, i.e. create money not backed by labor.
-Thus the notion of creating currency out of rare commodities, such as silver and gold. Which is where the concept of “The Gold standard” comes from.
-But this is where people have gotten confused, they forgot that the real value of money comes not from whatever its made out of, but from the promise behind it. The promise of future work or labor. And the real value behind currency is it’s ability to facilitate this trading of goods and services. —Currency is the lubricate of the economy, the more there is in circulation, the smoother the economy flows.
Now, where does the government get this authority to create currency?
That is also fairly simple to understand:
-Government gets it authority from the People. Government cannot legitimately do anything the People themselves do not have the right to do.
-We have the Right to Continue Our Existence (commonly referred to as the Right to Life, but I like to be more concise).
-We have the Right to Choose the path of our Existence (also known as Free Will).
-We have the Right to Act on our Choices (also known as Right to Liberty).
-We have the Right to Control the Product of our Actions (also known as Property Rights or the Right to Pursue Happiness).
-We have the Right to Defend and Secure our Rights (which is why we create government).
Our Right to create IOUs comes from our Right to Control the Product of our Actions. We could still barter our goods and services with each other, and no one would have any legitimate authority to stop us from doing so (we are ignoring the reality that people are using government to do this). But we can also pass on this right to government so it can create IOUs in our name to better facilitate commerce. That is it helps secure and facilitate our right to trade the product of our actions. And we have laws that prohibit the counterfeiting of money for the same reason we moved to using rare metals, to maintain a standard and to control inflation.
At least that is how I see it all working together.
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