–Letter to Tony Hunter, president, publisher and CEO of Chicago Tribune Company. Probably fruitless.

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
I had a very brief correspondence with Tony Hunter, president, publisher and CEO of Chicago Tribune Company, which culminated in my sending him the following note. I do not expect him to answer. The editors of the Tribune often write about economics, but have shown no inclination to understand economics.

So, why did I write? Just tapping on the sleeper’s shoulder. Who knows which tap will awaken someone there. I hope you will continue contacting your politicians and media. You may be the one to end the nightmare.


Would you be willing to publish a short (condensed to less than 1,000 words) OpEd article telling the other side of the deficit story? Here’s a sample:

The Myth of Federal Deficits

The federal deficit discussion is based on the false belief that federal finances resemble our personal finances. The federal government is not like us. You and I, Chicago, Cook County, Illinois and every business are “monetarily non-sovereign.” To pay bills, we need income coming from an outside source – a salary, a loan or, in the case of state and local governments, taxes.

Uniquely, the federal government does not need income to pay its bills; it merely sends instructions to banks to mark up creditors’ accounts. A check from the federal government is not money. It is a set of instructions to your bank to mark up the numbers in your checking account. Because the federal government is “Monetarily Sovereign,” it has the unlimited ability to send these instructions, endlessly.

Unlike state and local governments, the federal government does not rely on taxes. Whether federal taxes fall to $0 or rise to $100 trillion, neither event would affect the federal government’s ability to pay bills, that is, to send instructions to banks. The federal government is the only entity in America that has this ability, though certain other foreign governments have it in their own nations: Canada, Australia, China, etc.

What about inflation?

The only limit to federal spending is not taxes, or debt or deficits or debt/GDP or any other popular measure. The limit to federal spending is inflation. We have had inflation over time because the Federal Reserve believes some inflation is beneficial, so it establishes a target rate at about 3%. The Fed has the power to cause 0% inflation, or even deflation. Historically, U.S. inflations have not corresponded with federal deficits but rather with oil prices.

So, why do we pay taxes at all?

Prior to 1971, the U.S. was on a gold standard. Its ability to pay bills was limited by its gold supply. When gold was in short supply, the U.S. borrowed, which meant federal debt or taxes were needed to reduce the debt. On August 15, 1971, President Nixon ended the gold standard. Today, even were there not one ounce of gold in Fort Knox, the federal government retains the unlimited ability to pay its bills.

Though the world of economics changed on that August day, politicians, the media and even old-line economists never changed their theories. They continued to believe federal borrowing and taxing were necessary. When underlying facts change, but beliefs don’t change, the beliefs are wrong.

How will we ever pay off our debt?

The federal deficit is the difference between taxes collected and federal spending. Federal debt is the total of outstanding Treasury Securities (T-bills, notes and bonds). A law, created many years ago, during the gold standard, requires the Treasury to sell T-securities in the same amount as the federal deficit. Were it not for this obsolete law, there would be no T-securities and thus no federal debt.

To purchase a T-bill, you instruct the federal government to reduce the balance in your checking account and to increase the balance in your T-bill account. The government “pays off” by increasing the balance in your checking account and reducing the balance in your T-bill account. Except for interest, this process does not add money to the economy, so has virtually no inflation implications.

The federal government could eliminate all federal debt, tomorrow, merely by instructing banks to credit the accounts of T-security holders, while debiting their T-security accounts – a simple act of accounting. Because the relationship between federal deficits and federal debts is only a legal one, there could be deficits without debt, and debt without deficits. The two are not functionally related.

Why not reduce the deficit?

By definition, a small economy has less money than does a large economy. So for an economy to grow, its money supply must grow. When the federal government deficit spends, money enters the economy via credits to checking accounts. Deficit spending increases the money supply, while federal surpluses decrease the money supply. That is why every depression in U.S. history, and the vast majority of recessions, have resulted from decreases if federal deficit growth, and all recoveries have corresponded with increases in deficit growth.

Today, we try to recover from the most serious recession since the Great Depression. We were saved from another depression by federal deficit spending that began to grow dramatically in 2008. Unfortunately, federal deficit growth began to decline at the end of the recession and has been in decline for what soon will be three years. This, together with the ongoing Congressional demand for reduced deficits, signals the probable return of recession in 2012.

What should be done?

Ending a recession and returning to prosperity requires adding money to the economy. There is no other solution. I suggest the following three steps:

1. End FICA: This regressive tax takes money from salaried workers and from business. Social Security and Medicare should be financed the same way all of the other 1,000 federal agencies are financed: By direct federal support.

2. Reduce income taxes gradually. Increasing the standard deduction by $10,000 each year.

3. Increase federal support for the states (which are monetarily non-sovereign) on a per-capita basis. The states then could support their counties and cities, while reducing local taxes. Each $1,000 of per capita support would add about $300 billion to the federal deficit.

In Summary

The federal government is unique. The rules that apply to you and me, do not apply to the federal government. It cannot run short of money. It cannot go “broke” as Rep. Boehner claimed. It can pay any debt. Our economic growth requires ongoing increases in the money supply, that is, increases in federal deficit spending. The only limit to federal spending is inflation, which not only is nowhere near, but can be controlled by the Fed.

Reducing the deficit will cause recessions, depressions and a decrease in quality of life for us, our children and our grandchildren.

Rodger Malcolm Mitchell

Rodger Malcolm Mitchell

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. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings


11 thoughts on “–Letter to Tony Hunter, president, publisher and CEO of Chicago Tribune Company. Probably fruitless.

  1. Warren Mosler, 2009: “… the Fed [is currently] on guard over inflation and ready to hike rates to keep things from overheating (not that rate hikes do that, but that’s another story).”


    1. I’m with you on how to prevent inflation.

      After the Volcker recession, I hope we never again have to choose between inflation or increasing the unemployment rate.


  2. Tyler,

    You’ve hit on the one area Warren and I argue about. He says increasing interest rates causes inflation because it increases business costs. I say increasing interest rates fights inflation because it increases demand for money.

    The situation is quite complex: (Oil prices are the primary cause of inflation. High interest rates increase the money supply. The Fed does increase rates when it senses inflation.)

    So, it’s difficult to get a clean comparison. But, Warren’s effect should show interest rate increases preceding CPI increases. If anything, I see interest rate increases preceding CPI decreases. http://research.stlouisfed.org/fredgraph.png?g=2nC

    Finally, the Fed has been successful in coming close to its inflation target. How? By raising rates to stop inflation. That’s pretty good proof in itself.

    Rodger Malcolm Mitchell


    1. The limit to federal spending is inflation. We have had inflation over time because the Federal Reserve believes some inflation is beneficial…

      I’m confused. I infer that too much federal spending can ultimately cause inflation, so what does the Fed have to do with it, if the source is generated at the federal spending level? If the Fed has the power to cause deflation, does it have the power to also cause inflation regardless of the level of federal spending?


      1. The Fed controls inflation by increasing interest rates, which increases the demand for (value of) money. Under ordinary circumstances, the Fed could cause deflation by raising interest rates substantially.

        Currently, the Fed is afraid of deflation, and should it occur, the Fed will raise rates.

        Rodger Malcolm Mitchell


  3. Thanks for this letter, Rodger. I’d been looking for a simple explanation of “why deficits don’t matter” that I could share with my non-economically literate friends.


  4. Dan, I’m sorry to tell you your friends will say you’re nuts for wanting to “print money forever.” And if it were so simple, the government already would be doing it. And, “Why do you know what no one else knows.”

    Then, if you try to explain it, they will get angry.

    Let me know if your experience is different.

    Rodger Malcolm Mitchell


  5. The Chicago Tribune continues to parrot the popular wisdom. Its 9/26/11, editorial titled, “Plow ’em under: Time to end farm subsidies,” included this short paragraph:

    But the giveaways at taxpayer expense must stop. They’re an unaffordable drain on the Treasury.

    One can argue about whether farm subsidies should be eliminated, reduced or re-directed, but they do not cost taxpayers one cent, they are not unaffordable and they do not drain the Treasury.

    Our Monetarily Sovereign federal government spends by marking up creditors’ checking accounts, a process not related to tax collections. If taxes fell to $0 or rose to $1000 trillion, neither event would affect the government’s ability to spend, i.e. to mark up checking accounts.

    There is no limit to the federal government’s ability to mark up creditors’ checking accounts; therefore nothing is “unaffordable.”

    And the Treasury does not store money. It creates money ad hoc, by spending. Therefore, it cannot be “drained.”

    Unfortunately, the Tribune does not understand the difference between the federal government and state/county/city governments, which do spend taxpayers’ money, and for which spending can be unaffordable and can drain their treasuries.

    One wonders when, if ever, the Tribune editors, who write about economics, will bother to learn economics.

    Rodger Malcolm Mitchell


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