University of Chicago Economics still living in a pre-1971 world. Astrology next on the curriculum?

17 thoughts on “University of Chicago Economics still living in a pre-1971 world. Astrology next on the curriculum?”

1. RMM
   “On August 15, 1971, the U.S. government became Monetarily Sovereign.”

   While the MS caps are hard to understand, the actions taken on that date were an expression of the soveriegn powers of the United States government over monetary matters.

   This country was born of monetary sovereignty, and has remained monetarily sovereign throughout her existence. The expression of her sovereign power on that date changed nothing about her perennial monetary sovereignty – it was merely a mechanistic action that reversed another expression of our sovereignty, whenever we went onto the gold exchange standard.

   MMTers claim that the monetary conditions that changed on that date is what being ‘monetarily sovereign’ is all about, but that is merely an MMT construct.

   We needed to have monetary sovereignty in order to take any of the actions regarding our national monetary system since the dates of our birth. Therefore, getting on and off the gold standard or fixing or floating exchange rates, or having the Treasury or private bankers issue our national circulating media (Greenbacks or Federal Reserve bank credits) are all acts of monetary sovereignty.

   Surely, abandoning the gold exchange standard made the issuing power both more obvious and more advanced for the federal government. But the Treasury received revenues from taxation and bond-issuance, and paid out those monies for public goods and services, just EXACTLY the same on August 14th as it did on August 16th, and no one can prove any other mechanism exists to manage the real balances in Treasury accounts.

   The saddest irony to me is the failure of the MMTers to demand an actual expression of our sovereign powers over money by having its issuance be made exclusively and dirctly as an act of government.

   But that is not convenient for some of MMT’s founders.
   Thanks.

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   1. A Monetarily Sovereign government has the unlimited ability to create its sovereign currency. Being on a gold standard destroys this ability, because money creation is limited by gold inventory.

      That is the reason President Nixon abandoned the gold standard. We were running out of gold, and our creditors were demanding gold.

      Further, in a Monetarily Sovereign government, neither taxes nor borrowing pay for spending. This is unlike monetarily non-sovereign governments such as the U.S. states, counties and cities, and the euro nations, where government spending does rely on taxes and borrowing.

      The differences between Monetarily Sovereign and monetarily non-sovereign are many. Is this an argument over terminology or substance?

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2. Thanks, Rodger.
   Like I said, I understand the construct of the “operational reality” theory of the Neo-Chartalists. I just don’t believe it, and I do not see any proof that it is true. I have asked you and others to show some proof that the government does not need to manage its revenues so as to pay its bills.
   I have seen exactly none.

   The statutes establishing the Department of Treasury require that it manage its funds in the same manner as every other government, banana-republic or superpower.

   A few days ago another Fed paper by Paul Santaro, Senior Financial/Economics Analyst at FRBNY, titled “The Evolution of Treasury Cash Management During the Financial Crisis” described, as does the Treasury’s website, the Department of Treasury’s Principal Mission as such:

   “The principal mission of the U.S. Treasury is collecting income taxes and other taxes prescribed by statute and funding the financial commitments of the United States government.”

   Rather than chastising the economists at the Chicago School for not understanding the functional reality of “monetary sovereignty” in its entirety, why don’t you call Mr Santaro or a counterpart at Treasury and tell them that they are totally misinformed as to the mission of Treasury since we got off the gold standard, In doing so, please cite a bonafide source that has proof that, without the gold standard, the government “neither has nor doesn’t have any money” as Warren is fond of saying.
   Prove it.

   As I said, getting off the gold exchange standard was an action of a monetarily sovereign government. With regard to what the legal and political reality of what constitutes a monetarily sovereign government, nothing changed on that day, except for a liberalizing of external monetary operations.

   To me it appears that MMTers finally came to realize that we ARE monetarily sovereign, and we were now capable to exercise that sovereignty without the ball and chain of a gold standard. To shoe-horn that newfound reality under the rubric of the title “monetary sovereignty” is to deny that legal and political reality that always existed for defining every nation’s absolute and ultimate control of its monetary system.

   This is how I see it going down:
   “For the sake of discussion under MMT, we will call the nation’s that have no exchange standard for its currency and no debts in other currencies as being monetarily sovereign, all other legal definitions of the term notwithstanding.”

   Given the reality of the changes in M-3 “money”, I laugh at the ‘monopoly-issuer” caveat.

   But that begs the larger point here. Where, in the evolution of that definition of monetary sovereignty, did there come into being a new truism – that those newly so-called monetarily sovereign nations do not need to balance their public financial systems as according to the statutes that established their Treasury departments of government?

   Was it a ‘lo and behold’ kind of thing? Over a few beers or what? How exactly did that happen?

   The problem is that the government can be sued for illegally operating according to the MMT construct of monetary sovereignty. Just another of those cranky old self-imposed constraints I guess. Or, prove to me that they cannot.

   For the Money System Common.

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   1. As I asked earlier, is this an argument over terminology or substance. I see now, it is an argument over terminology. So far as I can see, you define “Monetary Sovereignty” as including the power to go off and on a gold standard as one sees fit.

      Yet, you said, “we were now capable to exercise that sovereignty without the ball and chain of a gold standard. “Ball and chain? You say, there is a ball and chain?

      That ball and chain is non-sovereignty, for a truly sovereign nation does not have a ball and chain. It is sovereign, i.e. the master of it’s currency. That’s what “sovereign” means. No ball and chain.

      If I decide to create a new nation, with me as sovereign, I will create as much sovereign money as I wish. I won’t need to tax. I won’t need to borrow. I simply will pay bills with my sovereign currency. I will be Monetarily Sovereign. Add a ball and chain of any kind, and I no longer will be Monetarily Sovereign.

      Perhaps you are confusing the fact that our Monetarily Sovereign nation acts as though it were monetarily non-sovereign, which indeed is a problem, and is the reason I write this blog.

      The federal government pays bills by instructing banks to mark up the balances of creditors’ checking accounts. Banks obey, and forward these instructions to the Federal Reserve for clearing. The balances are cleared against federal accounts, which the federal government, as Monetarily SOVEREIGN, can set at any numbers is chooses.

      You asked whether “monetarily sovereign nations need to balance their public financial systems as according to the statutes that established their Treasury departments of government?” But they do need to balance according to existing statutes.

      That’s the whole purpose of this blog. The statues can and should be changed, as they do not reflect current functional reality. They reflect a gold standard reality.

      What is the functional difference between being on a gold standard and not being on a gold standard. Would you understand better if I referred to “gold standard” instead of monetary non-sovereignty? Or do you see no difference between pre-1971 and post 1971?

      I know you won’t answer that question, since you have no idea what the differences are.

      But you did ask me to: “call Mr Santaro or a counterpart at Treasury and tell them that they are totally misinformed as to the mission of Treasury since we got off the gold standard.” I would be delighted to. Can you get me an appointment?

      But first, tell me what you think are the functional differences between being on a gold standard and not being on a gold standard.

      Rodger Malcolm Mitchell

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3. Rodger, Please.

   This is NOT about terminology. How could it be more substantive?

   This gold-standard stuff is silly.
   Until 1971, we were on a gold-exchange standard for the settlement of current accounts.
   The nature of using that exchange standard for settling account balances for these international relationships was convoluted and unnecessary. As a result, everybody abandoned what had been tried since Bretton Woods. This has next to nothing to do with our discussion.

   I will take your offer to meet with Treasury in all seriousness, but put it aside in the hope of making further clarifications here.

   I have many points of disagreement with your description of the way things supposedly are in regard to how the money system works.

   But today, I see some light in your position. Of necessity, it begs further explanation. You constantly describe the world in some “functional” terms, however those descriptions have nothing to do with legal and operational reality. Please define “functional” for us all.

   For instance, you oft state that the government can write any check it wants to and pay any Bill without regard for first obtaining tax or security revenues to the Treasury.

   I challenged you on that, stating that Treasury must balance its internal accounts and be audited to assure that it does not spend money that it does not FIRST actually have in those accounts.

   Now you say here that what you describe is not actually WHAT IS, but what could be if we reform the statutes that have been in place in this country since its inception. You said here that “they do need to balance according to existing statutes. “

   If the Treasury’s books need to balance as according to existing statutes, then how can you possibly with a straight face claim otherwise?

   You know what, Roger, THAT is why we are monetary reformers. Because we know that the game is rigged against the people by the private money powers. WE reformers directly challenge the existing legal structure and propose the changes that are needed. Meanwhile, the MMTers pretend that these are mere inconvenient formalities that can be quickly dissolved once the folks at Treasury wake up to the fact that this is not 1970.

   I have said to many MMT advocates: Where are YOUR proposals? I asked for them at the Fiscal Sustainability Teach-In. I have asked what objective and goal of the MMT movement would not be achievable with passage of the Kucinich Bill, H.R. 2990 , which totally transforms the money system.

   The Kucinich Bill enables Treasury to create and issue the nation’s money, what Lincoln called government’s “supreme prerogative”. This is something that you and others falsely claim the Treasury does today. The Treasury does NOT create and issue money today when it pays its Bills. The only money the Treasury creates is through the minting of coins, circulated into existence at face value. This is because we have not transformed the Treasury as you claim.

   Treasury today still, by statute, must receive from taxation and bonding the monies it spends for goods and services. It MUST do so. Why do you make a vacuous claim that the government creates the money when it sends the electronic $ signal TO a bank account.

   All that money was already in existence, being born via debt-issuance by private bankers. It flows from a taxpayer’s checking account into the Treasury’s General Account(TGA) these days, and from there into the checking account of the receiver of the government’s deposit. NO money is thus created. The government merely uses that debt-based money once and returns it to circulation.

   Because I earlier specifically asked for you to explain how the Treasury works according to the MMT dream and why the Treasury does not NEED to conform to its statutory obligations, you answered that it DOES need to meet its statutory obligations, claiming that “functionally” it COULD act as you claim if we just change the laws.

   That’s a big step, Rodger.

   Now, please explain the “money-creation’ process, given those legal constraints of both statute and regulations regarding the government’s budgeting process.

   I’ll get back with you regarding Mr. Santaro.

   Thanks.

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4. joehbed,

   You still are thinking with a monetarily non-sovereign brain, when you say, “I challenged you on that, stating that Treasury must balance its internal accounts and be audited to assure that it does not spend money that it does not FIRST actually have in those accounts.”

   That describes how you and I pay our bills, but the federal government creates dollars ad hoc, by paying bills. The federal government neither has nor needs dollars in advance.

   Where do you think the original dollars came from? Someone had to create them. They couldn’t come from taxes or borrowing, as there would have been no dollars to tax or borrow.

   When I say a law needs to be changed, I’m not talking about a massive overhaul. Rather, its the law that says the Treasury cannot run a deficit. But lest you think even that simple law is too much to change, here is how the federal debt could be eliminated tomorrow, with no change in the law.

   As you know, the federal debt is the total of outstanding T-securities. So, redeeming (buying back) all outstanding T-securities would eliminate the federal debt.

   Read: 31 USC § 5112 “Denominations, specifications, and design of coins,” section (k): “The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

   Translated, this means the Secretary of the Treasury by current law can create a $15 trillion (or $100 trillion, for that matter) platinum coin, deposit it in the Federal Reserve and buy back all T-securities, and further never issue another T-security, but rather use the dollars that platinum coin (and future platinum coins) created.

   So there you have it. The U.S. not only has the functional ability, but the legal ability to create dollars without limit — no taxes and no borrowing needed.

   Actually, this doesn’t teach you Monetary Sovereignty, but it does get past that legal problem you have.

   Rodger Malcolm Mitchell

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5. Rodger,

   Thanks. Moving forward.

   Please withhold judgment on who is or isn’t the non- versus sovereign- monetary thinker until the end.

   Sorry if I keep insisting that your claims need to assessed against the existing set of laws and regulations that have ALWAYS guided the public finances of this country, but to me, that is the ONLY way to move forward.

   For instance, you repeat here, without one word of reference or explanation that : “… the federal government creates dollars ad hoc, by paying bills.”

   You say the government can and in fact DOES “pay its bills” while creating money. I say it cannot and does not. I offered that the law of the Government Budgeting Constraint, where the government’s “Bills” are expenses of the Budget, prevents the same government from making any payment that is not matched on the revenue side with taxation or debt.

   That either is or isn’t the truth. If it is the truth, then the government CANNOT and DOES NOT create dollars, ad hoc or otherwise, by paying its Bills.

   You say: “The federal government neither has nor needs dollars in advance.”
   I cite the statute creating the Treasury and the legal requirements that IN FACT, the government NEEDS the dollars in advance of making a payment. What do you offer as proof, other than a slight variation of a Warrenism?

   Then, pretending that I haven’t ALREADY answered this question, you ask: “Where do you think the original dollars came from? Someone had to create them.”

   And from my previous reply, the answer is : “
   “All that money was already in existence, being born “endogenously” via debt-issuance by private bankers. It flows from a taxpayer’s checking account payment into the Treasury’s General Account(TGA) these days, and from there into the checking account of the receiver of the government’s payment. NO money is thus created. The government merely uses that private bankers’ debt-based money once and returns it to circulation ( in another checking account).”

   In other words it is merely a ‘flow’ of the money in existence through the government’s accounts. I really don’t know why that should be a mystery to anyone who has read Lavoie’s various treatises on endogenous money. Money comes into existence in this system by virtue of banks issuing loans in response to requests for same by the public. The money supply is thus ‘demand-driven’.

   Monetary reformers have pondered aloud often at the apparent dichotomy present in the endogenous money explanation coupled with the “government creates the money when it pays its bills” scenario.

   Please explicate, Rodger.

   I have said several times here that the government DOES NOT create the supply of money. Yet you ignore it and ponder about for an alternative government-money-creation rationale. In this case, going for the “(15)Trillion Dollar Coin” .

   You are conflating here Rodger.

   The government cannot create a (15)Trillion Dollar Coin and put it into the revenue side of the budget. The Trillion Dollar Coin must be ‘issued‘ upon minting, and something done with it. Coins issued by Treasury are SOLD to the FRBs at face value, again as I said earlier.

   Please understand: I am not saying that that Treasury could not issue a Trillion Dollar coin. I AM saying that the coin could not supplant taxes and debt on the revenue side of the budget, at least until the GBC is removed.

   See Treasury: http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html

   I know you’ve read it a hundred times, Rodger.

   Again, you try to reduce the legal reality of the day, and since the existence of the nation, regarding government accounts into a slight inconvenience.

   We have always been monetarily sovereign.
   We have always needed to have a balancing of public accounts.
   Nothing about that changed in 1971.
   Nothing.

   I don’t understand why MMTers do not get the fact that claiming an illegal ability to create money by paying bills, not spelled out anywhere that I’m aware of, is off-putting to people who want to take control of the public’s money system and use it for public purposes. This is as Simons, Fisher, Knapp and others have all claimed is not only the right of we the people, but necessary to restore stability to our monetary, financial and economic systems.

   Thanks.

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6. If the government always has been Monetarily Sovereign, what changed on 8/15/71, and why did we do it?

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   1. Rodger I feel that you must either explain whether EVERY nation is monetarily sovereign or not, just like us, from our birth, having won our sovereignty over money from Britain in the War for Independence.
      This is really silly stuff.

      As to WHY we-the-U.S. got off the gold-exchange standard, I have already said why and a quick read of the 1982 Government Commission on Gold states the obvious in Chapter 2, pgs 81 to 91 and in the Summary Notes.

      Click to access Gold%20Commission%20Report%20Volume%20I.pdf

      Finally, the recent (02/2012).Royal Institute of International Affairs paper on : “Gold and the International Monetary System” echoes the Gold Commission and had this to say on the “WHY”.

      “”In an attempt to sustain the credibility of an official, fixed price for gold, the G10 states24 agreed in 1960 to set up a Gold Pool that intervened in the London market. But by 1966 the central banks of the G10 countries were forced to become active sellers of gold in order to prevent its price from rising.
      This resulted in a significant reduction in the amount of bullion held as reserve assets. Following the November 1967 devaluation of sterling, which then still served as a secondary global reserve asset, speculation against the US dollar price of gold ratcheted up, causing the Gold Pool’s operations to be suspended in March 1968(Schenk, 2010).

      This was the first official step in the Bretton Woods era towards explicitly moving the international monetary system away from gold and deliberately encouraging the demonetization of bullion. While central banks had pledged to continue trading gold at the official price of $35/oz, the private market price was allowed to float. The emergence of a parallel private market for gold where the price soared well above the official fixed price led to speculation and eventually prompted even central banks to cash in their dollars for US bullion.

      These pressures meant that maintaining a fixed price of gold on demand for all those holding US dollars became untenable. Finally, in August 1971, President Richard Nixon decided to suspend the gold convertibility of the dollar, in effect closing the gold window and triggering a devaluation of the US dollar.

      The commitment to pegged exchange rates prompted a last effort to prop up the system through the Smithsonian Agreement with new parities in December 1971, but the market pushed the limits of the
      ability to defend these new rates. From June 1972 sterling floated against the US dollar and from March 1973 most other currencies did so too. The Bretton Woods regime had come to an end.

      It took another five years before the formal role of gold was removed by an amendment to the IMF Articles of Agreement, which sought to promote the SDR as the foundation of the international monetary system. This marked the culmination of more than 40 years in which the role of gold had been reduced in progressive stages.
      END

      I would ask why YOU think we did it, but this is all irrelevant.

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      1. Not every nation is Monetarily Sovereign. Those nations that are not sovereign over their currency are monetarily non-sovereign. This includes the euro nations and any nation that pegs its currency to a physical commodity or another currency.

         “These pressures meant that maintaining a fixed price of gold on demand for all those holding US dollars became untenable.” Correct. Maintaining a fixed price meant the dollar supply was limited by the gold supply.

         You may be confused by the fact that a nation may have a sovereign currency, but not be Monetarily Sovereign.

         When countries began to hoard gold, the U.S. was in danger of not being able to pay its debts. We were not sovereign over our own sovereign currency. Today, we are, as we have the unlimited ability to create dollars, and never can run short.

         By the way, have you ever seen a dollar? See: https://rodgermmitchell.wordpress.com/2011/06/20/why-a-dollar-bill-is-not-a-dollar-and-other-economic-craziness/

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7. Joebhed,

   The federal government pays its bills by instructing creditors’ banks to increase the numbers in the creditors’ checking accounts. A corresponding debit appears on the government’s accounts, over which the government has sovereignty. It can make those numbers anything it wishes. Our sovereign government is sovereign over its money and its laws.

   Your response (You said), “The problem is that the government can be sued for illegally operating according to the MMT construct of monetary sovereignty.”

   How would you sue the government, considering the fact that it is the government that makes the laws?

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   1. Rodger,
      This starts out with the same way I pay my Bills.

      Then, you say, of the government payments :
      “It can make those numbers anything it wishes.”

      To which I say : No Rodger, it cannot make those numbers anything in excess of the fund balance in the Treasury General Account. – subject to audit – without violating the law.

      You say our government is sovereign over its money – which of course I not only agree with, but claim that it ALWAYS has been – and its laws.

      In making that statement relevant, the “government” needs to be defined. True, the sum of the legislative, executive and judicial branches are collectively sovereign over the laws of the land, but here the issue is with the executive branch, which is NOT sovereign over the law.

      We are in fact, a nation of laws. And to claim that the executive branch of government is not subject to the national laws as adopted by Congress and upheld by the judiciary is in good right-wing company these days. However, I would not suggest that your vehicle for promoting a new monetarism become a heinous claim that the government is above the law.

      Legally, sovereign immunity’s meaning is contested and contestable.
      I leave it at that.

      Thanks.

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8. Joehbed,

   By the way, if I’ve not mentioned it earlier, federal borrowing is different from personal borrowing. Here is how the federal government borrows, say from China.

   1. China deposits already existing dollars into its checking account at the Federal Reserve Bank.

   2. China instructs the FRB to debit its checking account at the FRB and credit its T-securities account, also at the FRB. Since a T-securities account is almost identical with a savings account, this transaction is similar to your telling your bank to transfer money from your checking account to your savings account.

   That’s it. The federal government receives nothing. China’s checking account is debited and its “savings” account is credited. Period.

   Then to pay off the “loan,” the government debits China’s T-securities account and credits China’s checking account — plus interest, which it creates ad hoc.

   Your misunderstanding is your belief that monetarily non-sovereign finance is the same as Monetarily Sovereign finance. But if I do you a disservice, please explain how monetarily non-sovereign borrowing and bill paying differs from Monetarily Sovereign borrowing and bill paying.

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   1. Rodger,

      Neither of us said anything about government borrowing – so WHY do you bring it up?

      I understand the central banks role in inter-government finance. I don’t understand why it’s relevant.
      Was it to provide a pretense for explaining why I am misunderstanding something – like how YOUR definition of monetarily sovereign finance works?

      Besides irrelevant, it seems pretty desperate. It could only be made relevant by explaining how the transaction was made differently in 1970, or in explaining what happens when a – BY YOUR DEFINITION – monetarily NON-sovereign government wants to invest in our Treasuries.

      Actually, even those would not make government ‘borrowing’ relevant to this discussion.

      Thanks.

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9. This is in response to Rodger at 5:50pm.

   Rodger, there MUST be more than repetition to give “currency” to your ideas.

   Your statements do not make sense to me.

   You can keep repeating them and ignore my comments all you like.
   Where is your definition of monetary sovereignty taken from – from where did it originate?

   ANY nation that pegs its currency’s exchange rate or that uses another currency in its national economy MUST BE sovereign, or they cannot make that decision, or reverse that decision.

   We did both of these over the many years as a sovereign nation. We decided, using our monetary sovereignty, to go on the gold standard. Had we no longer enjoyed the right of national monetary sovereignty, we would not be able to reverse that decision. Which we did.

   I’ll ask it this way, then.
   Is monetary sovereignty a temporal facet of a continuing national government? By your mangled definition, it is temporal, does it come and go with several evolving criteria being determinative. Where are these laid out Rodger? In the MMT handbook? Sorry, Rodger, that is ridiculous.

   The answer is no, again regardless of your MMT shoe-horning of the reality of national legal jurisdiction.

   Did anyone present in the discussion leading up to the abandonment of the gold-exchange standard make the case for BECOMING monetarily sovereign? They did not. They realized that the exchange standard was unworkable, having many multiples of potential claims for gold than we had gold in the vault, and in an ACT OF SOVEREIGNTY, abandoned the standard.

   I am beginning to think that your definition was adopted over a few beers. Warren and Randy, maybe Eric and a few others………… “let’s call that government independence over money ‘monetary sovereignty’. Anybody object?”

   You need monetary sovereignty to become and remain monetarily independent, which is what every country should do.

   The question is out there, Rodger. Where, in the annals of modern monetary economics and central banking, can you find the definition of monetary sovereignty that you claim?

   Thanks.

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10. Hi, if I may enter I would like to ask;

    1)
    Does not Monetary Sovereign mean that one is in control of ones monetary base? To clarify what I mean, in the case of the USA it would mean that the congress (or, one could argue, the republican trio of Senate, congress and president) should be in control of the quantity of the main monetary medium, the dollar. (Not the dollar Bills or notes but the M3)

    2)
    Is it really in the congress decisions are made, that regulate the money supply? The US government only issues bonds, not dollars, which are exchanged for newly created dollars with the FED, who creates those dollars. Are we in agreement so far? The question is then, is it the congress or the FED or someone else who decides how many bonds and dollars are created?

    To me it seems that, since 90% of the money-creation and deletion is done by private banks to the private sector through Fractional Reserve Lending, the current “rate” (set by the Fed?) determining rates for private loans and deposits in the entire country, except perhaps North Dakota, would ultimately decide if the economy grows or not.

    Thanks!

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    1. Congress and the President set budgets for federal agencies, which to pay their bills, send instructions to banks to increase the balances in creditors’ checking accounts. That increase in checking account balances increases the money supply.

       Thus, it is Congress and the President who create dollars, through a process of clearing through the Federal Reserve Bank and the Treasury.

       Just as your bank does not create dollars when you write a check (i.e., send instructions), the Federal Reserve Bank does not create dollars when federal agencies send instructions. It merely does the accounting.

       Additionally, banks create dollars by lending, and they destroy dollars when loans are repaid. Because of repayment these are temporary dollars. The Federal government is ultimate creator of dollars. Without federal dollar creation, there would be no dollars.

       The Fed Funds rate, which is set arbitrarily by the Fed determines interest rates.

       The growth of the economy is not determined by interest rates but rather by federal deficit spending. See: https://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation/

       GDP = Federal spending + non-federal spending – Net Imports.

       For GDP to grow, federal spending and non-federal spending must grow (or imports must fall). Non-federal spending is reduce by taxes. If federal spending and taxes both increase (no additional deficit), non-federal spending will decrease, leaving no change in GDP.

       So, for GDP to increase, federal deficits must increase. Algebra.

       Rodger Malcolm Mitchell

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