–The wasteful spending myth and The Big Lie

Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

Mitchell’s laws:
●The more federal 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 ultimately 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.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive.

======================================================================================================================================================================================

A soon as Congress and the President finish patting themselves on the back for their wonderful display of partisanship (enabled by the Republicans’s realization that the voting public may be catching on to Tea Party tactics), they will begin to criticize the $1.1 trillion federal spending bill they just passed.

They all will moan about the “pork,” the “wasteful spending” and the “earmarks” contained in the bill. And the Republicans especially will stammer that the reason the bill doesn’t include long term unemployment insurance is because other cuts were needed or (heaven forbid!) the deficit and debt would rise.

It’s all part of The Big Lie.

The reason long term unemployment wasn’t extended in this jobless economy is simple: It would benefit the non-rich and possibly narrow slightly the gap between the rich and the rest. Far better to keep these people as desperate slaves, willing to work for minimum wage and without benefits.

Assuming “wasteful” means “non-productive” or “valueless”, a Monetarily Sovereign government cannot spend wastefully. It’s impossible.

If the federal government were to pay 1000 people $1,000 each to dig a hole and fill it in, most people, ignorant of economics, would claim that’s wasteful. It isn’t.

Sure, there are more productive uses for that million dollars, than digging a hole and filling it in, but 1000 people now have an additional million dollars to spend. Business and other creditors will receive those million dollars, and they will hire and pay employees, and on and on.

Being Monetarily Sovereign, the government can create dollars endlessly, without collecting taxes and without borrowing endlessly.

Ben Bernanke could do his famous “helicopter” drop of a million dollars in the middle of Times Square, and even that would not be wasted spending. The people scrambling to pick up the dollar bills would spend or save, and either way, benefit the economy.

About the only way federal spending could be considered wasteful is if the dollar bills were dropped into a fire, and even then, the only thing that would be wasted would be the paper. No dollars would be lost. Dollar bills are not dollars.

Here are some of the examples of The Big Lie you have been told:

According to the Cato Institute, Chris Edwards is the director of tax policy studies at Cato and editor of DownsizingGovernment.org. He is a top expert on federal and state tax and budget issues.

He said, “Federal ‘waste’” is a broader problem than simple screw-ups, such as an unused $300 million Pentagon blimp. The federal government has been wasting money since the beginning of the Republic, and I (have) proposed reforms, including privatization and chopping aid to the states.

Well of course you have, Chris. Cato is the bastard child of the Koch brothers, those billionaire, “patriotic” Americans who spend billions to widen the gap between the very rich and the rest. Chris Edwards’s soul is owned by his rich employers.

“Privatization” means “Let our for-profit companies do it, so we can screw the public by raising prices and cutting services.”

A perfect example was Chicago’s Mayor Daley’s privatization of Chicago’s parking meters. Parking prices went way up, and the city’s taxpayers no longer will receive parking revenue — for another 99 years!

That’s “privatization,” the crooked politician’s way.

And as for “chopping aid to the states,” this too widens the gap. Like federal spending, the vast majority of state spending benefits the vast majority of each state’s residents — the non-rich. But states are monetarily NON-sovereign. They are unable to create their sovereign currency. They have no sovereign currency.

So by gutting state aid, the rich gut aid to the non-rich, thereby widening that gap between the rich and the rest.

It’s all part of the plan.

Senator cites need to stem tide of wasteful government spending

Sen. Tom Coburn of Oklahoma said this week that the lack of Republican power in the Senate will likely mean there will be no legislative fix to his “wastebook”:

*A $297 million blimp that would provide continuous surveillance of the Afghan battlefield. After it canceled the program, the Army sold the airship back to the contractor that was building it for $301,000.

*$7 billion worth of vehicles being transferred to other countries or destroyed in Afghanistan instead of shipped back to the U.S. DOD will save about $500 million by sending them to allied countries or selling them as scrap.

*The National Guard’s $29 million promotional contract with NASCAR driver Dale Earnhardt Jr. National Guard spokeswoman Michelle Hall responded that the contract generated $75 million worth of media exposure and allowed the Guard to tap into NASCAR’s fan base of 77 million people.

*The $34 million, 64,000-square foot Camp Leatherneck complex in Afghanistan, which the Defense Department has never used.

*Nearly $300,000 worth of benefits paid by the Army to Maj. Nadal Hasan, the admitted murderer of 13 people at Fort Hood, Texas, before his conviction in August. Army spokesman Troy Rolan noted the Fifth Amendment’s right to innocence — meaning Hasan was entitled to continue receiving his base pay.

*More than $400,000 spent on C-27J tactical transport planes that were never used.

Spokespeople for the military said the blimp, equipment and airplanes were cancelled because of the Afghan drawdown. The Dale Earnhardt money was “worth it.”

If they had been honest (and brave) they would have explained that this spending benefited the American economy. Instead, they just went along with The Big Lie.

Federal $100 billion: Overpayments to federal SS insurance recipients a ‘waste’

The Office of Management and Budget has recently alleged that the federal government made a total of $101.3 billion in “improper payments.” These include too much given to Social Security insurance recipients. The government has a very slim chance of ever getting back those wrongfully given SS and other funds.

What a shame! $101.3 billion that cost nobody anything — not you, not me, not our future children or grandchildren — went to the American people to spend or save as they choose. How much “better” it would be to raise taxes or cut federal spending, so the deficit could go down, and the economy could suffer. That is The Big Lie.

The conclusion of the Office of Management and Budget is if more attention were given to the over-spending allotted to SS insurance recipients and Medicare issues by the government, the U.S. nation could literally save dozens of billions of dollars in the coming years.

Note the clever use of the words “the U.S. nation.” They are in there to make you believe that somehow this “waste” is costing you money, when in fact, reducing the “waste” is what costs you money.

Federal finances are different from your “kitchen table” finances. The federal government is Monetarily Sovereign. You are monetarily non-sovereign. The two are diametrically opposite. Like comparing tunas and tubas.

The bribed politicians, bribed media and bribed mainstream economists don’t want you to know that.

Rodger Malcolm Mitchell
Monetary Sovereignty

====================================================================================================================================================
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
9. Federal ownership of all banks (Click here)

—–

10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

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:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports

THE RECESSION CLOCK
Monetary Sovereignty Monetary Sovereignty

As the federal deficit growth lines drop, we approach recession, which will be cured only when the lines rise. Federal deficit growth is absolutely, positively necessary for economic growth. Period.

#MONETARY SOVEREIGNTY

33 thoughts on “–The wasteful spending myth and The Big Lie

  1. “Being Monetarily Sovereign, the government can create dollars endlessly, without collecting taxes and without borrowing endlessly.”

    Its such a great irony that many people who oppose ZIRP because they believe its just a giveaway to the banks, also don’t want the Govt to “borrow” money and pay interest.

    What is the difference, operationally, between the govt “issuing money” and “borrowing money”? The interest rate of course! 3 month T-bills with a yield of .3% are effectively the same as if the Govt simply issued the reserves or “money”. What are the interest costs on $100 TRILLION in T-bonds with a ZIRP? ZERO DOLLARS!!!!!!!

    Like

  2. Of course Rodger, I am not saying that you believe the Govt is borrowing. I dont want to give the wrong impression here.

    Like

    1. Right. Understood. Semantics gets in the way.

      The government’s “borrowing” is similar to a bank’s “borrowing,” which we call “deposits.”

      The government’s “borrowing” consists of deposits in T-security accounts. It’s not like personal borrowing, in which the borrower uses the funds and then pays back out of his own funds.

      Government “borrowing” is paid back with the lender’s own funds, via a transfer from the lender’s T-security account to the lender’s checking account.

      The problem with zero interest is that it reduces the amount of interest the federal government pays into the economy. Far from being stimulative, the Fed’s QEs have been recessionary.

      QE is yet another example of my story, “Throwing sand on the fire.”

      Like

      1. Exactly, which reminds me of one of my favorite posts of yours…its the one titled something like…”how much US debt is there, $16 trillion, or $0?”
        Admittedly, thats a terrible attempt at paraphrasing he title, but you made the same point. Why is it that banks are applauded for increasing their bank deposit liabilities, yet people are terrified of Fed deposit liabilities? Nobody says, “B of A IS $2 TRILLION IN DEBT!!!!!!!!! So they shouldn’t accept anymore customer deposits.”

        A funny joke:
        A guy walks into a bank with a briefcase full of cash. $1M to be exact. He plops the case onto the teller counter and with a sense of great satisfaction, opens the case for everyone to see and admire. He’s thought about this moment all morning, just how awesome it was going to be to see the looks on the faces around him as he showed off just how great he thought he was. But then it happened, having never seen such a thing, the teller brings the branch manager over, and to the utter dismay of all the banks customers, the manager refuses to accept the man’s cash. “I’m sorry sir, but you’re going to have to take your business elsewhere because our bank is not accumulated anymore debt (deposit liabilities).”

        Get it?

        Come on, I bet you didn’t see the end coming. I’m like M. Night Shyamalyan here.

        Like

  3. Can federal spending ever be “wasteful”?

    I say yes.

    Federal spending can never be financially wasteful, since the US government has infinite money.

    However spending can be ethically and socially wasteful, since it can widen or narrow the wealth gap.

    Viewed through the lens of ethics and social usefulness, I submit this definition….

    Wasteful spending is that which benefits only a few.

    Efficient spending benefits much or all of society.

    Wasteful spending is that which widens the gap.

    Efficient spending is that which narrows the gap.

    Wasteful spending is that which increases the supremacy of the financial economy over the real economy.

    Efficient spending is that which creates jobs in the real economy, and encourages the exchange of money, goods, and services in the real economy.

    Again, I speak of ethical and social waste, not financial waste (which is impossible).

    For example, if the US government gives $500 billion to the Koch brothers, and they simply deposit the money in a bank, or use it to gamble in the markets, then that money is ethically and socially wasted, since it does not create jobs, nor boost the real economy, nor benefit society overall. (Remember, banks these days are not lending.)

    Conservatives conflate the two definitions (financial versus ethical) for their own ends. They claim that federal spending is financially wasteful (which is mathematically impossible) and that “entitlements” are ethically and socially wasteful (which is strictly a matter of politics).

    Hence, for conservatives, spending which widens the gap is “efficient.” Spending that narrows the gap, or which helps average people, is “wasteful” and “big government.” If a conservative points out that Pentagon spending is wasteful, then he is simply preparing his audience for an attack on social programs like Social Security. “Look at this Pentagon waste! And entitlements are far WORSE!”

    It is the same with all key terms. For conservatives, whatever widens the gap is praised as liberty, freedom, and national security. Whatever narrows the gap is condemned as dictatorship and terrorism.

    Whatever widens the gap is patriotic. Whatever narrows the gap is treasonous.

    Whatever widens the gap is common sense. Whatever narrows the gap is crazy and a “conspiracy theory.”

    THAT SAID, it is important to keep pointing out (as Rodger does) that it is impossible for federal spending to be financially wasteful. Once the public understands this, the public will have a better understanding of ethical / social waste.

    Put another way, if we (falsely) claim that the rich are stealing from us by not paying taxes, then we merely encourage hopelessness and resentment. However, if we make the masses understand that there is infinite money, then the masses cry out, “Where’s my share?!!!”

    ——————————————————————————

    OFF TOPIC…

    We live in a right-wing paradise.

    Because of austerity and the gratuitous depression, states are providing less funding for schools on a per-student-basis than they did before the depression began in 2008.

    Now credit unions are offering classroom supply loans to desperate teachers trying to buy erasers and paper. It’s an invitation to K-12 teachers to go into personal debt to do their jobs.

    Predatory lenders have captured soldiers and students. Now they are targeting K-12 teachers. At present it’s only credit unions with very low interest rates. However this will soon change.

    God bless America!

    http://www.silverstatecu.com/personal-and-vehicle-loans/educational-employee-loans/classroom-supply-loan.aspx

    Like

    1. ” . . . they simply deposit the money in a bank, or use it to gamble in the markets, then that money is ethically and socially wasted, since it does not create jobs, nor boost the real economy . . . “

      That is the “first use” myth — the myth that money stops after its first use.

      What happens to the Koch’s money after they deposit in a bank or gamble in the markets? Who gets the money after it is deposited or gambled?

      What happens to the money that on first use, benefits only a few? If the government gave you, and only you, $1 trillion, the entire economy would benefit.

      Like

      1. Money only has any real meaning when its exchanged for something. If the Govt gave me $1 trillion, as long as I never spend any money, it would be like it never existed.

        Like

      2. In all due fairness, I was making a different type of point about what money is for. Let me rephrase, my original comment so that its no longer controversial.

        “…….If the Govt gave me $1 trillion in cash and I never spent any of it or put it into a bank, then it would be like it never existed.”

        I guess you’re right. Even if I never bought anything, if the $1 trillion just sits in my bank account, then the bank could take those reserves and either lend them or spend them.

        Like

      3. Rodger refers to what he calls the first use myth: “the myth that money stops after its first use.”

        RODGER’S CLAIM: Any government issuance of the $1 trillion would benefit the economy.

        MY CLAIM: The benefit would vary according to how the $1 trillion is used. If I convert the $1 trillion into currency, and I burn it all, then the $1 trillion does not benefit the economy.

        I say that some uses of $1 trillion are more beneficial to the economy than others. A trillion dollars is like a trillion gallons of gasoline. We can dump it in the ocean, or we can use it to run vehicles. The former yields less benefit to the economy than does the latter. If we give $1 trillion to develop a germ weapon that will wipe out mankind, would this benefit the economy?

        RMM writes, “If the government gave you, and only you, $1 trillion, the entire economy would benefit.”

        This is overly simplistic. Again, the amount of benefit to the economy would depend on where the $1 trillion goes, and how it is used.

        Also, it seems that Rodger does not agree with me that the financial economy is separate from the real economy. Perhaps Rodger agrees with the corporate media that if the stock market is doing well, then the overall economy is doing well.

        On these topics we are not in alignment.

        Like

        1. I agree that how money is used over time determines its benefit to the economy over time. I just don’t like focus on its first use.

          As for burning currency, that’s an unlikely first use, but it doesn’t destroy the money. The money supply would not change.

          Money has no physical form. If somehow someone could discover the serial numbers, they would learn the money still existed.

          As for developing that germ weapon, a great many people would get rich, and the world’s economy would grow, until some time in the future, when that germ weapon actually was developed and used.

          For all you know, that may be happening today, and the scientists are receiving dollars which are growing the economy — right now.

          No question that mankind has the ability to wipe itself out by any number of methods. Global warming, funded by a growing economy, might be doing it..

          Anyway, a growing economy requires a growing money supply, and adding money to an economy stimulates the economy — sometimes fast; sometimes slowly, but inevitably.

          Like

  4. Can you explain this chart than. Notice what happened in 1835 to total Federal debt (Jackson paid off the debt) and at the same time, note what happened to real GDP during the same and subsequent years. As my brother says, something smells like fire around here.

    Like

      1. If I understand @sucesofinanciero’s point, paying off the federal debt does not adversely impact the GDP. The chart he references seems to show that’s true. Your reference (#3) implies that significantly reducing the federal debt leads to a depression. I can honestly say I don’t follow the mechanics of how that happens, and would it continue to happen if the US Treasury created most all of the money supply and spent it directly into the economy without “borrowing”?

        This all comes back to the point that I have difficulty understanding why the US needs to “borrow” (or appear to borrow) Federal Reserve money, when, as a monetarily sovereign nation, the US Treasury can create ALL of the money supply and spend it directly into the economy? Is this related to the disagreement among monetary reformers; some believe that the NATURE of money is debt?

        Finally, I’m of the (unsubstantiated) opinion, that the interest paid on the Federal debt disproportionately goes to the Rentier class (1%), thus widening the wealth/income gap.

        Like

        1. The US issues T-bonds for two reasons and two reasons only, to control interest rates and to allow non-banks and nations to deposit their money at the worlds largest and safest bank, the Fed.

          Yes, technically CONGRESS cant create bank deposits or reserves right now given the current institutional arrangements. but the GOVT (including the Fed) can create reserves, still not bank deposits (which are private currencies).

          This can all be demonstrated by QE. Operationally, QE is functionally equivalent to the Congress simply creating reserves and spending them. But when you simply create reserves with no commensurate reserve drain (issue T-bonds) then the interest rate goes to zero. Aggregate reserve management is the method by which the Govt currently controls interest rates.

          Now the Govt could just issue reserves and not T-bonds and control the interest rate through paying interest on reserves (like the Fed currently does .25%), but then the rest of the economy has no access to the Fed.

          Like

        2. @sucesofinanciero, I sorry I couldn’t read the entire post on your blog. The first premise dissuaded me from reading further. I’m of the belief that, even if money WAS a commodity in the past (arguable), I firmly believe that in today’s reality, money is merely an information system. I also believe that this understanding is coincident with human ingenuity and technological progress to the point where physical and security needs for all humans can be met. This moves us from the neo-Malthusian mindset of “not enough to go around” (scarcity and austerity), to a new reality of “Enough for everyone’s needs, but not enough for everyone’s greed” (M. Gandhi).

          This is more philosophical, than related directly to monetary issues. But if we only compartmentalize economic and monetary theories without relating them, philosophically, to the “general Welfare”, of what use are they, except, perhaps, to maintain the status quo – greater wealth and income disparity.

          Like

        3. I agree with what Auburn Parks wrote. I would add, in essence, Congress created a Central Bank that is a hybrid Govt Agency and an interface with private commercial (global) banks. The Treasury can *legally* issue Treasury Notes and Bonds (like Lincoln’s Greenbacks, which were explicitly called “not money, but circulated as money” to pay soldiers). Treasury can also issue coins, through the Mint.

          Per law, the Treasury and Central Bank essentially (through intermediaries) do a *swap* of Notes. Treasury Notes go one way. Federal Reserve Notes go the other way. Fed gets an account balance of T-Notes (on it’s own ledger). Treasury gets an account balance of FR Notes (on it’s ledger and the Fed’s ledger). Now Treasury has “money” to spend.

          So what happens to all the interest the Fed earns on those T-Notes. The Fed pays back around 100% of it’s net profits after expenses to the Treasury, which equals over 90% of the Fed’s gross profits. So everything the Treasury pays to the Fed goes back to Treasury. WHICH DOES NOT EVER NEED THAT MONEY.

          It’s just a circular process to keep the books straight and satisfy the rules, as they exist.

          The question of if money = debt was answered in a long essay by Innes in the 30s. Here’s a nutshell. Money is always an ASSET of one party and a LIABILITY of another party, two counter-parties. This is true for millenia. It has been described in account books in languages archeologists don’t understand (but can grasp that the markings are acct balance statements).

          Ergo, money is “Debt” (Liability is more accurate) AND Asset, simultaneously. This does NOT mean that money must arise from a Bank Loan. That’s only one example of liability. Dollars that the world and US citizens have as net private financial assets are by definition a liability of the US Govt, the Treasury.

          OUR savings_or_assets = Govt’s liability_or_debt. That’s the relationship on a balance sheet. When the Govt gives $1000 to Raytheon or to some soldier or to some grocery store (food stamps) or some elderly person (soc sec), there is (usually) no “loan” to pay back that the govt is coming to collect. Student loans are an exception, and a fiscal travesty. Even Saddam Hussein, with an economy and mil budget a fraction of the USA, had the power to pay for education for Iraqis through college, Baghdad University Here in the USA, we turn students over to private loan sharks called Sallie Mae.

          Like

        4. Auburn and Gary,

          To show that it’s a “lack of money” issue, you both need to explain to show why the lack of money was not an issue before 2008. You need to explain why the actions taken after 2008 have not worked, the expansion of the Fed’s balance sheet as well as government spending have not resolve the issue.

          I don’t see how you could show that.

          Like

    1. Two words: land bubble. Inflated asset prices, vast over printing of money by state banks, massive amounts of private debt. Result? A six year long depression. Thanks, Andy.

      Like

      1. Steve, could you explain your comments? What state banks? The only state bank in the US is the Bank of North Dakota. Do you mean national banks? What six year long depression? Who’s Andy? Thanks.

        Like

        1. I was referring to the USA of the late 1830’s and early 1840’s. I meant the inimitable Seventh President of the United States, Andrew Jackson.

          Like

  5. sucesofinanciero,

    Pretty nice paper. Mostly correct, but wrong in a couple key areas:

    1. You said, “. . . supply and demand is an economic model of price determination in a market.”
    Correct.

    Then you said, ” . . . inflation is an event that leads to price increases. What is the event? An increase in the amount of money and/or credit.”
    Wrong. You forgot about demand. In fact, most inflations are demand-based, not money supply based (See: https://mythfighter.com/2010/04/06/more-thoughts-on-inflation/ )

    2. You said, “the government sends instructions to make payments.”
    Correct. That is how the federal government creates dollars — by instructing banks to increase balances in checking accounts.

    And you said, “So it (Congress)passes a bill to send a trillion dollar check to each American family.
    Which creates money. Those checks are instructions.

    Then you said, ” . . . Congress essentially handed over their ability to create money.”

    Those three sentences are in conflict. The federal government creates money by sending instructions, and has not “handed over” its ability to create money. That said, banks create about 80% of the money supply by lending and Congress creates about 20% by spending.

    3. You said, “The reason it doesn’t matter (whether taxes are destroyed) is because the population is forgoing purchasing power equal to the taxes paid, while the government is gaining it.
    Wrong: The government gains nothing. The government has the unlimited ability to send instructions to banks, so what could the government gain?

    Federal taxes and taxpayers do not fund federal spending. Federal taxes are destroyed upon receipt.

    (This is different from state and local taxes, which are not destroyed, and which DO fund state and local spending) It’s the fundamental difference between Monetary Sovereignty and monetary non-sovereignty.

    This last is a very important point. Federal taxes could fall to $0, and still the government could spend as always.

    I’m afraid your conclusion is wrong: “This is proof that adding more currency not only not help the economy, it damages it. . . all deficit spending is damaging to the middle class and the economy.
    This false conclusion is based on your false belief that adding dollars causes inflation, but neglects demand.

    How would you grow demand in today’s economy, without adding dollars?

    Like

    1. If you have specific points to make, put them in a comment, so I don’t have to re-read your entire paper, over and over, trying to find changes.

      By the way, this statement is nonsensical: “So over 95% of our money is credit/debt and just about 5% is actual currency.”
      Fact: 100% of money is a form of debt. Currency merely is a printed title to debt, just like a mortgage document.

      Like

      1. I think you are mis-understanding my point. Question: Are these 2 scenarios the same?

        – I give you $100 dollars cash
        – I owe you $100 dollars

        Here is my answer. They are not the same, in one scenario you have full access to $100, it’s completely liquid. On the other scenario you don’t and (here is the major difference) you may never have because I may never pay you. I may default on it.

        Consumers owing banks $5 trillion worth of mortgages is not the same as people having $5 trillion in their pockets. For one, the $5 trillion owed to the banks will be destroyed upon receipt (baring interest), and the banks may actually never receive payment in the first place. A large chunk of the loans will actually default by design. However, $5 trillion on people’s pockets will be spent.

        Going back to my post, 5% of the currency is like the first scenario while 95% is like the second scenario.

        Like

  6. If you give me your note, they are identical, the difference being who is the debtor.

    In the first case, the cash (paper, I assume) says the federal government is the debtor. In the second case, your note says you are the debtor.

    How do you feel about having a deposit in your checking account? Is that “cash”? In that case, your bank is the debtor.

    All of the above is semantic trivia. The big problem with your paper is your belief that taxes pay for federal spending. They do not.

    If taxes federal taxes fell to $0 or rose to $100 trillion, neither event would affect the federal government’s ability to spend — not even by a penny.

    When the media and politicians talk about spending taxpayers money, they are voicing The Big Lie. Taxpayers money is destroyed upon receipt, and has no effect on the federal government’s ability to spend.

    This is a difference between Monetary Sovereignty and monetary non-sovereignty..

    Like

    1. It’s definitely not semantics. For instance, more gold could be lent via paper receipts than actual gold. The same holds true for currency, more credit is extended than actual currency, and it’s clearly fraudulent. Again, there is a difference between fiat currency and credit. If 10% of the people demanded their money, it would not be available. Per the Fed, the money supply is currently $3.6 trillion, yet there is $60 trillion in debt. It’s as if I lend the same gold to 100 people via gold receipts, it’s fraud.

      From the CBO: “Most of the revenues–about 82 percent in 2010–come from the individual income tax and the payroll taxes used to finance Social Security, Medicare, and the federal unemployment insurance program.”

      From the Treasury: “The on-budget deficits require the U.S. Treasury to borrow money to raise cash needed to keep the Government operating. We borrow the money by selling securities like Treasury bills, notes, bonds and savings bonds to the public.”

      From govtrack, the Kucinich bill found here: https://www.govtrack.us/congress/bills/112/hr2990

      Are the CBO and the Treasury lying? Why does the Kucinich bill have provisions giving congress the authority over creating money?

      Like

      1. You think there’s a difference if I issue a $1000 payment (credit) to your checking account from my checking acct, say for lawn maintenance, vs if I withdraw 10 x $100 bills or a stack of quarters and hand them to you in a sack.

        It’s the same thing, but MOST transactions these days are done by account credits (and debits) that amount to transferring money balances around the private banking system.

        When you get your paycheck, the employer’s acct balance is debited and yours is increased. Odds are, when you get $1000 in cash or coins, you will take that to your bank and deposit it. If you keep it in your wallet and spend it, then some other recipient or business will eventually deposit that and it will become a bank balance again.

        Nothing evil there.

        Banks create money (loans) out of account balance spreads, BECAUSE they have the legal right to maintain and uphold account balance records for individuals and companies. Therefore, besides clearing payments, they can credit your account or designee with loan proceeds (a liability of the bank) and hold onto your loan agreement (an asset of the bank).

        That’s not evil, per se. It MAY be considered usurious on several levels, because the interest charged seems to be “as if” they were lending out real capital they own, not merely expanding their balance sheets (more assets, more liabilities, simultaneously).

        One way to reduce this usury is for Uncle Sam to spend MORE than the current 20%, and structure tax laws and incentives so banks will lend less than 80%. MMT has various proposals. Point being, more “deficit spending” means more MONEY in the economy that is not the result of someone taking out a bank loan.

        Since unchecked bank lending CAN lead to a Bubble (intentional inflation, but of prices of assets owned by investors, not growth in wages) beyond anything sustainable by borrowers (see Steve Keen on Minsky and Ponzi Finance), the Govt needs to regulate to hold Finance in check, since Big Finance cannot actually function properly without govt backing … that was a solution a long time ago. The problem is, as usual, they want to HAVE their CAKE of govt backing, but they also want to EAT their CAKE, without sane regulations or limits.

        The Kucinich Bill (I have voted for him) is well-intended but seriously misinformed.

        Like

        1. Gary, I’m still trying to understand re: HR2990. Would passing such legislation be a beneficial change, but just not optimum, or would passing such legislation be, overall, destructive? This question presupposes that such legislation COULD be enacted, and COULD be made to operate as designed – big assumptions.

          My point here is, if the Big Lie includes “National Debt is too big”, why not eliminate the debt in order to move forward? Trying to get a critical mass of people to understand monetary sovereignty is a Sisyphean task. Getting people to understand that there’s no need to “borrow” money. The US can create and control a National Currency that can be spent into the economy, debt free, on physical and social infrastructure. Most people could understand that.

          Your (or others) thoughts.

          Like

      2. Gary,

        I took various accounting courses and have worked in the financial industry – I know what a credit and a debit is. However, I am not referring to the accounting term.

        I am referring to the fractional reserve lending (FRL) kind. As I said above, it’s like lending the same gold over and over. Imagine that I deposit 1 million dollar worth of gold in your bank. Because of FRL, your bank can issue receipts for that gold. This is what the loans would look like on the back of that gold:

        $900,000
        $810,000
        $729,000
        $656,000
        $590,000
        $531,000
        $478,000
        $430,000
        $387,000
        $348,000
        $313,000

        In this case, say your bank lends $900,000 to another bank. That other bank keeps 10% and lends 90%, and so on. I can keep going, but up to that point – roughly $6.2 million worth of loans have been issued on the back of a single million. My problem is not usury, banks should charge an interest – my issue is fraud.

        We have a different view on what you call “unchecked bank lending”. Banks are in the business of risk management, they don’t lend just because. Have you ever wondered why the smaller banks, with less capital did not have any issues during the downturn? Maybe they applied risk management on their decisions? Maybe, just maybe – the big banks did not?

        Than the question becomes – why didn’t the larger banks apply risk management while doing their due diligence prior to 2008?

        My take is this: the larger banks did not apply it because they failed in the 80s and were bailed out. They failed in the 90s and were bailed out. They failed in the 2000s and were bailed out. Every action has an equal and opposite reaction – our regulators played with the free markets – and the result is what it always is – an unintended consequence. So there is no need to keep tab on “unchecked lending”, there is a need to let them fail when they fail to appropriately manage their risk.

        Kucinich – The Fed creates the debt/money in the US, not the congress. Kucinich wants to take that power back. I agree with you it’s mis-guided – just think of what the results would be with the geniuses in government printing all the money (debt free) they want for the unlimited amount of purposes they have. It wouldn’t take too long for the US to collapse after that point. And yes, there would be hyperinflation if that were to happen.

        Like

  7. Yes, the CBO and Treasury are lying. The whole purpose of this blog is to educate people about The Big Lie, to explain it and to explain the motive.

    You said, ” . . . there is a difference between fiat currency and credit. If 10% of the people demanded their money . . . ”
    That is false and nonsensical. Currency is not money; it is evidence of debt. Debt IS money.

    There is only one difference between:

    A dollar bill (evidence of debt of the federal government),
    A bank savings book (evidence of bank debt),
    Your checking account statement (evidence of bank debt)
    A T-security account (evidence of federal debt)
    A loan document (evidence of debt by a private debtor)
    A mortgage document (evidence of debt by a mortgage borrower)

    That difference is the identity of the debtor. Otherwise, all are a form of debt and all are a form of money.

    After (and I mean AFTER) you have read and understand:

    https://mythfighter.com/2011/06/20/why-a-dollar-bill-is-not-a-dollar-and-other-economic-craziness/

    AND

    https://mythfighter.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/

    AND

    https://mythfighter.com/2013/07/27/i-just-thought-you-should-know-lunch-really-can-be-free/

    — after that, I will be glad to help you further. But you first have to make the effort to learn the differences between Monetary Sovereignty and monetary non-sovereignty, and not just engage in argument.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s