–The debt clock: A symbol of economic ignorance

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Lately I’ve been seeing this image published more often, in various media.

Debt clock

This surely is the most misleading, downright untruthful sign you ever will have the misfortune to encounter. It’s untruthful because it shows the gross federal debt, which includes money the federal government borrows from itself.

Example: For convenience, my wife and I have separate checking accounts. When we are not together, she can write checks and I can write checks, and it’s easier to balance than if both tried to write checks from the same checkbook. Periodically, if one account is low, we transfer money from one account to the other (the government would call that “borrowing,” but it’s just debiting one account and crediting the other), so both accounts will have positive balances. I don’t feel I’m in debt to my wife, nor she to me. I never would consider these periodic internal transfers to be “debt.”

Similarly, the federal government’s internal “creditors” (i.e. Social Security et al) are not going to dun the federal government for payment of its “debt.”

While the Gross Federal Debt is around $14 trillion, the net debt is only about $8 trillion — well below the debt ceiling (another misleading, untruthful gimmick). Sadly, Congress and the President pretend not to understand that. So they injure our economy about something that isn’t real.

For their own selfish, political reasons, these politicians do more harm to America than al qaeda ever could. (I wish there could be a law precluding these traitors from standing in front of an American flag when they speak.)

The misleading part of the sign has to do with the words, “Your family share.” Most people interpret those words to mean their family owes a share of the gross federal debt, which as we have seen, is a fake number. But worse, your family does not owe a share even of the net federal debt. Your family could more accurately be said to own a share of the debt.

The federal so-called “debt” is the total of outstanding T-securities. When the government “borrows” it debits the “lender’s” checking account and credits the lender’s savings account (aka T-security account) at the Federal Reserve Bank. No dollars are shipped anywhere. It’s just an asset exchange accomplished by a debit and a credit.

When the government pays its “debt,” the process is reversed. The checking account is credited and the savings account is debited. At no time are taxes involved so at no time do you or any other taxpayers owe anything. Whether taxes are $0 or $100 trillion, the federal government’s ability to debit and credit bank accounts does not change.

Buying a T-security is essentially identical with transferring dollars from your checking account to your savings account.

You could be said to own a share of the debt, because federal debt is a measure of money in the economy. You are part of the economy, so that money benefits you. The greater the “debt,” the healthier the economy.

I don’t know whether the Durst family, which owns and maintains the clock, knows what it really means. They may be forerunners of the Tea Party, those clueless folks who hate government but love their Social Security, Medicare and Medicaid checks, their safe food and drugs, their highways, army protection, scientific research, FDIC security, homeland security and the myriad other perks provided by the federal government.

It’s enough you to know that every time you see that sign, you see economic ignorance at work.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

MONETARY SOVEREIGNTY

28 thoughts on “–The debt clock: A symbol of economic ignorance

  1. Rodger,

    Thanks for another great post! Could you further clarify the difference between the gross and net national debt? Also, where can I find the numbers on both those figures?

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  2. You say here that our government owes $6T to itself. In reality, it is not to itself, but to the FED Reserve, which is for all practical purposes, a private cartel. In fact, every year, we owe $400B in interest to these private bankers. Unless the 1913 act is reversed, doesn’t the US gov’t actually owe all the accumulated interest to date? That money, while part of the overall economy, could be specifically spent on education, infrastructure, energy, medical… and help create jobs.

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  3. Fed is not private, but (in your words) “for all practical purposes,” a federal agency. In fact, the Fed turns over its “profits” to the Treasury. The Fed Chairman and the board are Presidential appointees, serving at the pleasure of the President.

    Much of the so-called “debt” is “borrowed” from Social Security

    There is no limit to the amount a Monetarily Sovereign government can spend on education, infrastructure, energy, medical and job creation. The government is not short of money. It is short of brains that will allow it to spend money.

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  4. I can totally relate to your logic and meticulous reasoning, and I do not subscribe to conspiracy theories. “The creatures from Jekyll Island” by Griffin and “The web of debt” by Ellen Brown, both excellent well researched books assert with compelling collateral, that the FED Reserve is a private cartel. Here’s a direct quote from Ellen’s book: “The “Federal” Reserve is not actually federal. It is a private corporation owned by a consortium of very large multinational banks.” More: “The federal income tax was instituted specifically to coerce taxpayers to pay the interest due to the banks on the federal debt. If the money supply had been created by the government rather than borrowed from banks that created it, the income tax would have been unnecessary” You have been advocating that. And more… “If governments everywhere are in debt, who are they in debt to? The answer is that they are in debt to private banks. The “cruel hoax” is that governments are in debt for money created on a computer screen, money they could have created themselves.”
    You have been advocating that in some form. It’s only when I couple your logic & conclusions with these authors’ research, that the whole messiness of our system comes into perspective. No offense Rodger, but when experts like you and the renowned authors above disagree on a simple matter, we have no way of determining what exactly to believe. We agree FED Ex is not federal, but is the FED Reserve really federal??

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    1. Prakash,

      If I were you, I’d re-evaluate where you get your information.

      G. Edward Griffin is a conspiracy theorist (although I will say he more “conspiracy theorist-lite” as opposed to the Alex Jones craziness), and his book, the one you cite, has been debunked. His other books are even worse with regards to conspiracy theory (oh, and I forgot to mention he’s a creationist that believes Noah’s Ark has been found). Additionally, his economic views are the same as Ron Paul and Peter Schiff, probably the two most famous economic illiterates currently around. But at least he has some financial credentials….

      Ellen Brown is a total kook. She’s trained as a lawyer (not an economist or a doctor), and she wrote a book called “Forbidden Medicine,” which is one of the biggest pieces of medical quackery around (Griffin also engages himself in similar quackery).

      Make sure you question your sources.

      Best,

      Nathan

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  5. Anyone can “prove” the Fed is independent or dependent. In theory, it is independent, but . . .

    1. The federal Reserve Board of Governors, including the Chairman are appointed by the President of the United States and confirmed by Congress, and they all serve at the pleasure of the President.

    2. The Fed turns over its profits to the Treasury.

    3. The Fed is subject to Congressional oversight

    That said, there are many intertwined relationships with federal banks, and a case can be made that the Fed favors big banks — as does Congress and the President.

    Consider any large federal agency, Social Security, Medicare, the military et al, and they have some independence and some not-so-independence. In that sense, is the Fed different from the Department of Education or the Department of Homeland Security? I think not.

    Ms. Brown undoubtedly can cite many reasons the Fed is independent, and I can cite many reasons the Fed is part of the federal government, and we both will be right.

    But, her comment, “The federal income tax was instituted specifically to coerce taxpayers to pay the interest due to the banks on the federal debt. If the money supply had been created by the government rather than borrowed from banks that created it, the income tax would have been unnecessary, is just plain wrong.

    The federal income tax is not necessary, so her “would have” is misleading. Further, taxpayers do not pay the interest on T-securities. Finally, there is no operational relationship between federal deficit spending (which adds to the money supply) and “borrowing.”

    If you want to understand economics, Ms. Brown is a questionable source. I recommend Warren Moslers “7 Deadly Innocent Frauds of Economic Policy. Easy to read, and he actually knows what he is talking about.

    Rodger Malcolm Mitchell

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    1. Unfortunately the narrative Prakash is reciting is more dramatic than reality. Sinister plots and unnamed men in dark rooms make more interesting tales than the bland truth.

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    2. Prakash, since she wrote that book, Brown has moved basically to the MMT / Monetary Sovereignty point of view, partly under the tutelage of Michael Hudson. As long as they remain monetarily sovereign, a nation’s debt is not so important. Except that our national debt right now is probably too small for financial stability! The only thing that counts is whether there is inflation and whether all the debt owned by the public is owned by the top 1%, that this financial wealth is not badly distributed.

      Sure, the banks behave like banksters, and the Fed operates as the representative of a corrupt and arrogant financial sector plaguing the real economy, but the Fed fundamentally is a public institution, a central bank. It does not have so much power, except for the policing it refrains from doing. The real power is the government spending done by the Treasury at the behest of Congress.

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  6. Rodger,
    Your hatred for the Tea Party seems contradictary to everything you espouse. TEA stands for Taxed Enough Already. How can you continually bash them, but in the same breath say that we don’t need taxes because we are Monetarily Sovereign? I should think you would only be half-dissatisfied with them, with their desire to cut spending, but that you would concur with their desire for less taxes. Especially since you continually say how many taxes are regressive and “double taxes”. While I agree with your theories, and I think there should be less taxes and more spending. If that model were enacted, how do you think credit markets would react?

    Peace

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    1. If the Tea Party restricted their beliefs to cutting taxes, I would be in their corner. But, they have transitioned into an anarchist group, that espouses cut-spending nonsense.

      Less taxes + more spending = Economic prosperity. The credit markets love prosperity.

      Rodger Malcolm Mitchell

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  7. Mr Mitchell,
    I saw your comment on the Time ‘Curious Capitalist’ article this morning. All I can say is, I admire your strength, to even attempt to educate the rabble that assemble in the comments section there. Keep fighting the good fight.

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  8. You do not need to be a “conspiracy theorist” to come to the conclusion that the marriage between high finance & corrupt Govt. has formed a kleptocracy. Thinking of them as opposing forces rather than two components dependent on each other to make the machine work, is simply a misinterpretation. There’s a wealth of evidence to make this case but one only need refer to “the bailout”.

    This is why you wont see members from either the political or the financial networks dare speak honestly about “the debt crisis”. It isn’t a mistake. I’m guessing it would be difficult to dismantle the New Deal by way of debating its mertis alone. One only needs a “crisis”. Naomi Klein’s Shock Doctrine gives a nicely researched account of how this all works.

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  9. Why doesn’t the US introduce two currencies. The Republicans can manage one and the Democrats can manage the other. Both will be legal tender.
    The exchange rate between the two will be allowed to vary.

    (I assume the Republicans will tie theirs to the value of gold.)

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  10. Today’s quote from my senator, Mark Kirk: “We are spending money we do not have – upward of 40 cents of every dollar the federal government spends is borrowed from China and elsewhere. This year, we will pay over $225 billion of taxpayer funds to people who lent us money for interest payments alone.

    Would someone please tell him the federal government does not spend borrowed money? Would someone please tell him if borrowing was $0, that would not affect by even one penny the federal government’s ability to spend? Would someone please stop him from voting on economic questions, until he learns a bit about economics? Please.

    Rodger Malcolm Mitchell
    .

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    1. I see that number being thrown around every day, “upward of 40 cents of every dollar the federal government spends is borrowed”
      – How are they arriving at that? What is its origin?

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  11. nethacker,

    That 40 cents supposedly is the amount of deficit spending compared with total spending, i.e. total spending minus taxes. It’s a phony number in that the federal government does not spend any borrowed money. There is no operational relationship between federal borrowing and spending. That is one of the many ways a Monetarily Sovereign government differs from you and me.

    Rodger Malcolm Mitchell

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  12. A Monetarily Sovereign nation does not need to issue bonds. If the U.S. stopped issuing bonds, this would not change by even one penny, the federal government’s ability to spend. This has been true since 1971, the end of the gold standard.

    Rodger Malcolm Mitchell

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  13. 7/29/11: “Merck, the US drug company, will cut as many as 13,000 jobs, or 13 per cent of its workforce, as it looks to slash costs and invest in emerging markets. The cuts, to be achieved by 2015, follow those announced last year when Merck said it would reduce its staff by 17 per cent. Merck has been looking to achieve the savings it promised when it acquired Schering Plough for $41bn in 2009.”

    Questions for Congress: Will a federal tax increase help Merck and other companies like Merck? Will a federal spending cut help Merck and other companies like Merck? Since increased taxes and reduced spending are the only methods for reducing the deficit, why do you want to reduce the deficit?

    Rodger Malcolm Mitchell

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  14. Some are saying that the Trust Fund does not increase the National Debt—(see below # 1)
    Which has been going around on the Internet-
    See #2—This is my response to #1—-
    #1–The public sale of a T-bill provides cash and replaces the Treasury security held in the Trust Fund by the US government. Both the T-bill and the Trust Fund security are notes and the only difference is that the government holds the note in the Trust Fund whereas a private entity would hold the note if it was a T-Bill. There isn’t an increase in the national debt regardless of whether the Trust Fund holds the note or the public holds the note. Who holds the note is irrelevant to the US government’s obligation to pay the note.

    #2—I’m not sure but I would say there is a increase in the National Budget-The U.S budget
    is a “Unified Budget—The Surplus in SS OASDI budget offsets the total deficit,making it
    appear smaller than it otherwise would be.

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  15. Dude, so you’re saying that.. We can spend as much money as we want… ’cause we can create it with a blink.. But actually, our ‘leaders’ don’t know this.. So they are cutting the spending… It is your own little secret..

    This makes no sense at all. I do not think that >”””””some random””””< Ministry of Finance doesn't know what is going on, and you do know.

    Also, I do not know who you are, but your 'debunking' of negative comments are weak, you give no sources! You say this and that and I know best, but where are your sources? I do not think you have one.

    And now, there's this crash which I was expecting for at least three months (call me slow) and now the whole world owes money to itself. I guess you should send this part to Obama, tell him that there's nothing to worry about because he can create as much money as he wants, save the world!

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  16. Ok, I knew those facts more or less but now I ‘know” (read: interpreted) what your frame of reference would be.

    But you know, the more I understand of economics, the more I percieve it’s stupidity. Monetary Sovereignty is a complete different world compared to our physical world.

    Let’s say I have some hide, and we need it to keep warm. Offcourse we only have some limited amount of hides and there is no way we can get more for we killed a whole lot of animals for it. This is the real world.

    Now with economics. We have some hide, but we can have as much of it as we want because we create it out of thin air – this is offcourse impossible.
    You don’t need money to build your house, to get feed for your family, to fuel your car or whatever. You need building materials, food and fuel.

    Also, instead of money supposedly being an incentive to work, you see everywhere that this simply isn’t true. Teachers (smart people I suppose) work their asses off for almost no salary. Einstein, Da Vinci, the Wright Brothers, James Watt, children, you name it. Did NOT want money for their work. They did this out of personal interest.

    Money slows down thechnological progress. Imagine you have a small manufactory, produce low-quality products and sell just enough to get your head above water. You cannot afford to buy machines to improve your quality AND output, you continue to waste resources on watches(eg) that break down within half a year. Your only costumers are those who do not have enough money to buy a better watch. There really is nothing you can do about this. Just because the limiting factor of ‘money’ (which just isn’t real) comes before the technology and materials available for these improvements.

    By the way, now that the tertiary sector is slowly being ‘conquered’ by robots, where will all the jobless go? Sort out stones?

    I think that we would be way better of with a Resource Based Economy, using the Scientific Method to interpret results, come to solutions and survive.

    http://www.thezeitgeistmovement.com/

    In the end, no one owns anything. No one has more right than another to ‘posess’ something, and above all, everyone has the right to live healthy. And believe me, it may sound idealistic, but it is possible.

    P.S.
    ~Economy :
    1. careful management of resources to avoid unnecessary expenditure or waste; thrift
    http://dictionary.reference.com/browse/economy

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  17. AmazingDreams

    Your name is apt.

    “But you know, the more I understand of economics, the more I percieve it’s stupidity.”

    Just think of what a long, misinformed, pointless comment you’ll be able to write when you do understand more of economics.

    I don’t know why I wasted 20 years learning economics when you know it all, right out of the box.

    Rodger Malcolm Mitchell

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  18. I have listened to people who also spend a large portion of their life’s studying economics. I have taken a look at several solutions to rule out the faults and errors of the monetary system. In fact, when I try to see beyond the errors I am still frightened about the fact that this economy is so unstable. The fact that we came up with this system ourselves, and now we are all scared that it’ll fail, most people forgetting about the former.
    ‘Everyone’ is dying, just because our imagination tries to take over the world. The fundamental rules of modern economics fail greatly at the simple definition we gave to the word itself. It doesn’t even come close. I’d call modern economics as an anti-economy

    Monetary economics is great in times of scarcity, but at this moment scarcity is simply a marketing strategy to drive up sales.

    http://video.google.com/videoplay?docid=-2550156453790090544

    They say that wisdom comes with age, but this is not true. The older you are, the more biased you are. A clear source:

    Sorry about this one being dutch, it holds many good sources:
    http://zmnetherlands.com/index.php?option=com_content&view=article&id=96&Itemid=73

    Like

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