●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which 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.
MONEY IS NOT A PHYSICAL THING
To understand U.S. federal debt, you first must understand money, specifically the dollar. There is no physical entity called a “dollar.” You never have seen, smelled, touched or tasted a dollar. In today’s economy, a dollar is nothing more than a number in an accounting balance sheet.
The dollar bill in your wallet is not a dollar; it is a title to a dollar. It merely is evidence you own a dollar, much like a house title is evidence you own a house, or a car title is evidence you own a car or a patent is evidence you own an invention.
But unlike a house or a car, a dollar is no more physical than is, for instance, the number six. Although the number six and a dollar are real, you can’t see, smell, touch or taste either of them.
Is it possible to own something that is not physical? Consider a copyright. It demonstrates ownership of a book. But that book is not a physical thing. If I go to a store and I buy your book, who owns the book? I own the physical representation of the book, but your copyright gives you ownership of the non-physical book.
DOLLARS ARE ONLY NUMBERS
Your bank checking account and savings account do not contain dollars. They contain numbers that tell how many dollars you own.
Imagine you are one of the lucky employed, and you have a bank checking account and a bank saving account. Today, your boss gives you your first paycheck: $1,000. What exactly has your boss given you? Money? No, that paycheck is not money.
That paycheck is a set of instructions to your bank, telling your bank to increase the number in your checking account by 1,000. So, for instance, if your checking account number had read 3,476, now that number reads 4,476.
Although for convenience, you might say you now have 4,476 dollars in your checking account, you really have nothing in your checking account but the number, 4,476.
Let’s say you give someone your check for 3,000 dollars. Your check instructs your bank to reduce the number in your account by 3,000 and to increase the number in your creditor’s checking account by the same amount. Although, for convenience, you say you have transferred dollars from your account to your creditor’s account, there really has been no transfer. It’s just that your bank has reduced the number in your account and your creditor’s bank has increased the number in his account.
DOLLAR TRANSFER IS AN ILLUSION
When you wait at a railroad crossing, you see a red light moving back and forth, back and forth. Except the red light really isn’t moving. It’s two lights that blink alternately, and give the illusion of motion, an illusion so powerful that though you know it’s a illusion, you won’t be able to see it as two lights, blinking alternately. Try it.
Similarly, the illusion that dollars move from one account to another is so powerful, we all (including me) talk about dollars moving. But dollars, being non physical, cannot move.
Let’s say that the number in your checking account is 4,476, and you write a check for 6,000 (i.e. send instructions to reduce your account, and increase your creditor’s account by 6,000) Your creditor’s bank will follow your instructions, and increase his checking account number by 6,000. Then his bank will route the check to your bank for “clearing.” But, because your checking account number is too small, your instructions won’t “clear,” and your bank will return the check to your creditor’s bank, i.e the check will “bounce.” Your creditor’s account will be reduced 6,000.
ALL BANK DEPOSITS ARE BANK DEBTS
When you deposit dollars in your bank accounts, you actually lend to your bank. Those dollars are loans, not gifts. Your bank owes you those dollars, and if you want them, your bank is obligated to give them back to you. If you tell your bank you want the dollars in your savings account transferred to your checking account, will this be a problem for your bank? No, your bank simply will debit your savings account and credit your checking account.
By depositing dollars into your checking or savings account, you have forced your bank into debt. All bank deposits are bank debts. Banks love to be in debt. They actively solicit debts (deposits). Being in debt is the mission of a savings bank.
Bank deposits are not “unsustainable,” nor do they cause bankruptcies. Though a bank can become bankrupt, the fault is not deposits, but rather poor business practices. No bank ever went bankrupt because its deposits were too large.
ALL FEDERAL DEBTS ARE BANK SAVINGS ACCOUNTS
All federal debt is just the total of T-security deposits (T-bills, T-notes, T-bonds) in accounts at the Federal Reserve Bank (FRB).
Today, the total federal debt is about 12 trillion dollars. This means the total of deposits in T-security accounts at the Federal Reserve Bank, is about 12 trillion dollars. When you buy a T-bond, you “lend” dollars to the Federal Reserve Bank. You deposit dollars into your T-bond account at the FRB. You are a creditor to the FRB.
Your T-security account at the FRB is essentially identical with your savings account at your local bank. You put dollars in (credit); you take dollars out (debit), and meanwhile you earn a bit of interest.
Whenever you want your dollars back from your “loan,” you merely wire or mail instructions to the FRB to reduce the number in your T-bond savings account, and increase the number in your checking account. The FRB can do this all day long, in any amount. It’s a simple exchange of existing balances.
WHAT IF OUR CREDITORS WANT THEIR MONEY BACK?
Debt hawks worry about what will happen if all our creditors – China, Japan, European nations et al – suddenly want their dollars back. No problem. The FRB simply would debit all their T-security accounts and credit all their checking accounts. Instantly, all federal debt would disappear.
So, why can’t you and I pay off our loans that way? Why are our debts a burden to us, while the FRB’s debts are not a burden to the federal government?
There is a fundamental difference between a loan and a deposit. You aren’t the Federal Reserve Bank. When you borrow, you are not accepting a deposit. If someone lends you dollars, he is not opening a savings or checking account with you.
You borrow in order to spend, so if your creditor wants his money back, you may have spent it. But the FRB does not spend depositors’ dollars. It holds 100% of those dollars in T-security accounts. The FRB always can debit T-security accounts and credit checking accounts. There never has been a time when the FRB was unable to credit checking accounts, and there never will be.
So to all you people who worry that the federal debt is too large, the debt/GDP ratio is too large, the debt is “unsustainable,” China “owns” us, or somehow the U.S. government will not be able to pay its debts, I have some good news. The FRB could pay off 100% of all federal debt tomorrow, simply by transferring already existing dollars from T-security savings accounts to checking accounts.
If you are a lender to the federal government, your money is all there, right in your T-security account at the FRB. All of it. Every cent. So is China’s money, Europe’s money, Japan’s money – every one of those 12 trillion dollars of federal “debt,” all sit safely in FRB T-security accounts.
And despite what the fear mongers tell you, you don’t owe a penny of it. Nor do your children, nor do your children’s children. The FRB owes it all, and it’s all there in T-bill accounts.
So stop worrying about the size of the federal debt. Stop worrying that the U.S. Federal Reserve Bank has too many dollars on deposit. It’s not possible for the FRB to have too many dollars on deposit.
WHY DOES THE GOVERNMENT BORROW DOLLARS?
It doesn’t. It allows interest paying deposits in T-security accounts at the FRB. Why then, does the federal government issue T-securities? It’s an obsolete process based on an obsolete law that, very simply says: The total of T-securities issued each year, must equal each year’s total federal deficit.
Not that there is any functional relationship between deficits and T-security accounts (There isn’t.) It’s just that by law the two numbers must be equal. So, for instance, if the federal government spends $10 million and receives only $3 million in taxes, it runs a $7 million deficit, and is required by law to issue $7 million worth of T-securities, though T-securities have no relationship to deficits.
It’s almost like having a law stating for every car there also must be a horse – a meaningless relationship.
Years ago, there was a reason for this strange law, but no more. Change the law, and the government could run that deficit without issuing a single T-security. The dollars in T-security accounts are not used for federal spending. They just sit there, at the FRB, waiting to be paid back.
WHY ARE GREECE AND ILLINOIS GOING BROKE?
The U.S. “debt” is 100% in dollars, our sovereign currency. Being the sovereign creator of dollars (aka Monetarily Sovereign), we never can run short of dollars. So anyone wanting dollars from the FRB, will have no trouble getting them. The U.S. does not spend the dollars it “borrows.” Those dollars are kept in T-security accounts at the FRB.
When the U.S. spends, it send instructions to creditors’ banks to increase the dollar numbers in those banks. These instructions are cleared by the FRB. This is how the U.S. government creates dollars.
But Greece and Illinois are monetarily non-sovereign. They do not have a sovereign currency. Greece uses euros, which it does not have the power to create. It cannot store borrowed euros in its central bank. Greece needs to spend the euros it receives from borrowing.
Illinois too, uses dollars, but dollars are not its sovereign currency. Like Greece, Illinois has no sovereign currency. It spends the dollars it borrows, rather than being able to store them in a bank account.
Federal debt is not like non-federal debt. Same word; two different meanings. Federal debt is the total of deposits in T-security accounts at the Federal Reserve Bank. The Federal Reserve Bank has more that $12 trillion in deposits. Many private banks have billions in deposits.
Bank deposits are a sign of strength, not weakness.
Federal “debt” is a myth, promulgated by people whose agenda is to reduce federal spending for the poor and middle classes. Pay no attention to these evil people. Growing federal debt is a sign of strength, not weakness.
Rodger Malcolm Mitchell
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%
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 Imports