●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity starves the economy to feed the government, and leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
In economics, the BIG LIE is the idea that somehow a Monetarily Sovereign government unwillingly can run short of its own sovereign money. The purpose of the BIG LIE is to make the populace believe the federal government cannot afford social spending.
And the purpose of that is to increase the gap between the upper 1% income group and the lower 99% (The lower 99% receives a greater percentage of its income from federal social spending than does the upper 1%.) Increasing the gap is the primary goal of the 1%.
Republican Representative John Boehner, famously repeated the BIG LIE when he declared “America is broke.” Main Street Americans, not understanding the difference between federal finances and personal finances, accept the BIG LIE without question.
In an August 14th online discussion, AARP President Rob Romasco answered questions about Social Security funding, and essentially admitted the BIG LIE, though he didn’t realize it at the time:
Comment From Guest: “I hear conflicting statements in the media about Social Security running out of money. What is the real story: Is it expected to run out of money?”
Rob: “Social Security receives money from 3 main sources: the payroll tax, interest earned from bonds that are held in the Trust Funds, and the taxation of benefits.”
Comment From Guest: “Is the FICA tax holiday hurting Social Security?”
Rob: “This is a very good question… The FICA tax holiday is in no way hurting the Social Security program. Even though the payroll tax was decreased by 2 percent, money is transferred from the ‘General Fund’ to make up for the lost payroll tax.”
So there you have it. To pay for the “lost payroll tax,” money is transferred from the General Fund. And in fact, to pay for any “lost” payroll tax, money always can be transferred from the General Fund. If there were no payroll tax at all – i.e. if FICA were $0 – money to pay Social Security benefits still could be transferred from the General Fund.
What does this all mean? The General Fund, the Social Security Trust Fund, and indeed all federal funds are accounting fictions. They do not exist in any real form. They all are nothing more than numbers on balance sheets and the numbers are wholly controlled by the U.S. government. That is what we mean when we say the government is Monetarily Sovereign.
Until August 15, 1971, the federal government limited its dollar-creation to its supplies of physical gold. If gold supplies ran low, the government would not allow itself to create the dollars to pay its bills.
This was entirely a self-limitation; dollars have no physical existence. The federal government always has had the power to change the numbers in its balance sheets, but prior to 1971, chose to tie its own hands as a presumed protection against creating “too many dollars,” i.e. inflation.
By 1971, it had become clear this artificial limitation prevents economic growth and can cause a self-created bankruptcy. So President Nixon simply removed the limitation. After that date, nothing prevents the federal government from increasing its fictional supply of dollars by any amount.
Dollars don’t come from taxes. Dollars don’t come from borrowing. Dollars don’t “come from” anywhere. They simply are numbers added to the General Fund by arbitrary credits.
In accounting, any credit requires a debit, so where do the debits come from? Some come from the “taxes received” line of the balance sheet. And the rest come from what erroneously is called “borrowing,” but actually is the total of outstanding Treasury securities.
This provides the illusion that taxes and borrowing “pay for” federal spending. But if there were no taxes and no borrowing (T-securities), the federal government still could pay its bills as always — by crediting and debiting accounts. That illusion is what makes the BIG LIE persuasive.
What would happen if not enough people wished to own T-securities? The Federal Reserve Bank simply would credit T-security accounts (which are at the FRB) by enough to make up the difference.
Remember: Though dollars may seem real and scarce to you and me, for the Monetarily Sovereign federal government, dollars are an accounting fiction. They are nothing more than numbers the government can manipulate at will.
Need a trillion dollars to pay for Social Security? No problem. Credit the General Fund by $1 trillion, and debit the T-security account. Need another trillion to pay for Medicare? Still no problem. Credit the General Fund, and debit the T-security fund, by another trillion.
Need more dollars in the T-security account? No problem. Credit the T-security account and debit other accounts at the Federal Reserve Bank. This is especially convenient since all T-security accounts are kept at the FRB.
You and I are not Monetarily Sovereign. Neither are Illinois, Cook County, Chicago or General Electric. None of us has the legal authority to change the numbers in bank accounts at will. The federal government has this legal authority.
It can instruct your bank to increase the numbers in your checking account (i.e. pay your Social Security benefit). Your bank will obey, and forward these instructions to the Federal Reserve bank, which will clear the transaction (i.e. credit your bank’s account), because the instructions came from the government.
Bottom line: Dollars do not exist in any physical sense. They are an accounting fiction, wholly controlled by our Monetarily Sovereign government, which can create an infinite number of them, simply by crediting accounts. The government can credit Medicare, Medicaid and Social Security accounts endlessly, just as it can credit all federal agency accounts, endlessly.
The only way Social Security could run short of dollars is if the government fails to credit its accounts. The same is true for Medicare (which is why the much-despised individual mandate is unnecessary). The same is true for all federal spending.
Sadly, Rob Romasco ended his response to the Social Security question, with this comment:
Rob: “Nevertheless, AARP believes the temporary payroll tax holiday should not be extended beyond the current year.”
Thus, despite admitting benefits can be (and are being) paid by debiting the General Fund, AARP continues to promulgate the BIG LIE that the federal government can run short of dollars.
After all, AARP is a private organization, owned and directed by the 1%.
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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports