–What is the purpose of the Congressional Budget Office?

Twitter: @rodgermitchell; Search #monetarysovereignty
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Mitchell’s laws:
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The more federal budgets are cut and taxes increased, the weaker an economy becomes. .
Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
●Austerity is the government’s method for widening
the gap between rich and poor.
●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.
●Everything in economics devolves to motive,
and the motive is the Gap.

What is the purpose of the Congressional Budget Office (CBO)?

According to the CBO itself: “Each year, the agency’s economists and budget analysts produce dozens of reports and hundreds of cost estimates for proposed legislation.”

So, you may believe the CBO analyzes current and future taxes and spending plans, to help Congress determine current and future deficits.

And you would be right — but wrong.

I just read an article speculating that the Republicans will play games with the Congressional Budget Office (CBO) in an effort to appear conservative while spending more than is disclosed.

Here are a few excerpts:

Will The GOP Turn The CBO Into A Fantasy League?
By Howard Hill
(a former investment banker who created a number of groundbreaking deal structures and analytic techniques on Wall Street, and later helped manage a $100 billion portfolio. His book Finance Monsters was recently published.)
December 23, 2014

News that Doug Elmendorf will not be appointed to another term as head of the Congressional Budget Office bodes ill for future budget policy discussions.

The CBO is the official non-partisan scorekeeper for all things budgetary. The soon-to-be outgoing chief of that crucial office is held in high esteem by both parties for his fair-minded neutrality.

The CBO’s analysis of the likely 10-year effects of the Affordable Care Act is a prime example. Democrats seized on the overall deficit savings from Obamacare that came from several cost-control measures in the Act and new taxes on “Cadillac” employer-provided insurance plans.

For their part, Republicans got political talking points from the estimate that the workforce would shrink when middle-aged workers left jobs they held on to as the only way to maintain their health insurance.

No matter. The (D)s could trumpet the deficit cutting, and the (R)s could say it cost jobs.

Even current “rules” of CBO analyses are subject to partisan gaming. For example, when a bill increases deficits too much to be acceptable in the CBO’s standard 10-year analysis, the bills are often changed to make the expensive (but popular) aspects of the bill expire early.

With a wink and a nudge, the bill’s sponsors figure that Congress will extend the popular but expensive features when they are up for expiration.

Another example was the automatic sunsetting of the tax cuts put into place in 2001 and 2003. When they were originally set to expire in 2010, the country was still suffering the after-effects of the 2008 recession, so most of the cuts stayed in place. In political speak, not extending all the cuts was labeled “raising taxes.”

The latter example is especially significant if the new head of the CBO uses the dynamic scoring that radicals like Rep. Paul Ryan (R-WI) want.

According to the supply-side devotees that want the new method of scoring, tax cuts always spur additional economic growth, effectively growing our way out of the revenue shortfalls that are inevitable when tax rates are cut.

Some of the trillion and a half dollars added to the national debt by the tax cuts comes back to the Treasury by virtue of the extra growth in the economy and employment.

The CBO estimated that our national debt from that relatively modest tax cut would grow by only $1.1 to $1.3 trillion with those positive feedback effects from the tax cuts.

Translation: Rather than projecting taxes and spending from current levels, “dynamic scoring” assumes that tax cuts cause increased personal income, which in turn causes increased spending, which actually increase tax receipts.

It used to be called the “Laffer curve.” The purpose is to cut taxes on the rich while demonstrating future fiscal prudence: Lower taxes and a reduced deficit.

As (Republican) Governor Sam Brownback said when he pushed Kansas to make drastic tax cuts, he was using the state as his “laboratory” — and he even hired supply-side guru Art Laffer to advise.

Kansas is bordered by four states with very similar economies. They didn’t duplicate his tax cuts. What better real-world experiment could we have?

Since the Brownback/Laffer policies were put into place, the Kansas economy grew slower and unemployment dropped less than in any of the bordering states.

This year, Kansas will probably finish depleting its rainy day fund, let its roads fall apart even more, close schools all over the state, and raid specific purpose funds to give them to the general fund.

That’s to plug the $279 million gap in this year’s budget that’s still left after last year’s budget cuts.

And the problem being pushed into next year is already expected to be more than twice as big ($648 million).

So maybe the incoming head of the CBO analysis should use this real data from the real world, where tax cuts seem to make an economy grow slower than no tax cuts.

Now that’s a plan! More unemployment, slower growth, and bigger deficits.

Howard Hill may or may not be a great investment banker, but clearly he doesn’t know squat about economics, specifically Monetary Sovereignty.

He doesn’t understand that:
1. The federal government is Monetarily Sovereign, never can run short of its sovereign currency, the dollar, and neither needs nor uses tax dollars to fund its spending.

2. Federal deficits not only are not a problem, but increased federal deficits are necessary to grow the U.S. economy. That is why deficit cuts inhibit economic growth.

3. The federal debt is nothing more than bank deposits — the total of deposits in T-security accounts at the Federal Reserve Bank — and could be “paid off” simply by transferring the dollars in these accounts to the T-security owners’ checking accounts.

4. Kansas is monetarily non-sovereign, so it does need and use tax dollars to fund its spending. Using the Kansas experience as an example for the U.S. is like using a house on the moon as an example for a house on the sun.

In short, the politicians (at the behest of the rich) have made sure the Congressional Budget Office is unable to provide accurate predictions about current and future deficits, and even if the CBO could perform this task, the results would be useless.

The entire CBO mission is a charade, created by Congress and President Richard Nixon on July 12, 1974, as part of the Congressional Budget and Impoundment Control Act.

Ironically, three years earlier, President Nixon had invalidated the future CBO’s mission, when he took the U.S. off its gold standard, and made the government Monetarily Sovereign.

Not only was the CBO unable to predict deficits, but predicting deficits became a useless exercise.

Federal spending is not limited by taxes, deficits or by debt. It is limited only by an inflation that cannot be controlled with interest rate increases.

Because the CBO cannot predict deficits, and deficits do not limit spending or tax reduction, the CBO’s contribution to American economics merely is to track dollars coming in and dollars going out — much like your checkbook balance — a job that could be handled by a 3rd grade class.

Why the charade? The politicians have brainwashed the public into believing federal finances are like personal finances. For most people, their current spending is based on their current wealth plus predictions of their future income.

If your current wealth is $5,000, and you believe that next year you’ll earn $50,000, you would be unlikely to buy a $200 thousand car and a $10 million airplan. But if instead you had $5,000 and knew you were going to earn $20 million next year, you just might buy that airplane.

Federal finances are different. The federal government’s wealth is infinite (It creates dollars at will) and it’s future earnings also are infinite (Next year it again will create dollars at will). The federal government not only could buy that $10 million airplane, but a whole fleet of them — at $100 million each.

The CBO is a useless agency — actually a harmful agency — because it gives false meaning to the meaningless deficit.

The CBO however, does have one value: It employs people, thereby stimulating the economy.

Rodger Malcolm Mitchell
Monetary Sovereignty

Ten 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. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (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. (Refer to this.)
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)

10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)

The Ten Steps will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.

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.
1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)
2. All deficit spending grows the supply of dollars
3. The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
4. The limit to non-federal deficit spending is the ability to borrow.

Monetary Sovereignty

Monetary Sovereignty

Vertical gray bars mark recessions.

As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.


15 thoughts on “–What is the purpose of the Congressional Budget Office?

  1. Rodger, a little off topic perhaps, but if all federal spending is offset by federal taxes and money invested in Treasury secuities, is it not true that only privately loaned bank money remains in circulation and thus only bank money can be inflationary? And even if not so, isn’t the much higher volume of private lending relative to federal spending more likely to be inflationary in full productive times than federal spending? People seem to fear inflation from federal spending but not from private lending.


    1. Jim-

      You are conflating two distinct things:

      Money in private bank deposit accounts


      Money in public bank deposit accounts

      You are correct in that, the number of dollars in private bank deposit accounts does not change when the Govt deficit spends (to the extent that the TSY securities are not “bought” by banks themselves). Because both taxes and TSY securities “purchases” reduce private bank deposits.

      However, deficit spending by the Govt does increase dollars in public bank deposit accounts at the Fed. So it can be inflationary, especially since the very nature of “buying” TSY securities is to SAVE not spend those dollars. And its spending that causes inflation. The supply of dollars does not cause inflation, only spending.


    2. Oops, I need a correction to my comment:

      “So it can be inflationary, especially since the very nature of “buying” TSY securities is to SAVE not spend those dollars.”

      Should read:

      “So it can be inflationary, even though the very nature of “buying” TSY securities is to SAVE not spend those dollars.”

      And the reason why is that the recipients of Govt spending (mainly middle class) are much more likely to spend that income than the people who are “buying” TSYies, who are by definition saving their dollars.


  2. Money held in bank accounts (including T-security accounts at the FRB) is part of the money supply, so is part of the Supply/Demand determinant of inflation.

    Federal deficit spending accounts for the only permanent increase in the money supply. Private lending must be paid back, which destroys it.

    You are correct that people tend to ignore the effects of private lending.


  3. Great Post Rodger and Happy Holidays to you and your family, great work in 2014 fighting the good fight!!!

    The CBO is also terribly misleading in how they treat interest spending by the Govt. They continually run out the ridiculous mainstream economic idea that deficits actually cause higher interest rates because of “crowding out”. Its so ridiculous, for example:




    1. Auburn, thank you for the two references. Very well written and informative. Last week you made some excellent counter arguments to Franko and Norman over at MNE. I’m still trying to figure out their new “key indicator” of the American economy-TOP LINE GOVERNMENT SPENDING. What? The notion of top line govt spending alone just does not go far enough to explain why the overall economy is rebounding at an upward but still insufficient pace.. Maybe you or Rodger could further enlighten. Seems those two are leaving a lot out of the “equation.” I’m just not buying Matt and Mike’s claims. They did not provide any elaboration on the idea that made any sense. Tom Hickey’s comment pretty much nailed it, as usual. But he’s too nice too call them out for such crass overgeneralization. Seems to mostly involve ego on Matt and Mike’s part, way more than fact or reality.

      Best wishes to you and Rodger! for the coming year.


      1. “The economy always requires deficit spending from some agent to offset the tendency to not spend income (demand leakages). Looks like it’s been the high cost energy sector doing the deficit spending (new bank loans, new bonds, new equity, etc.) to support the modest growth we’ve had, picking up the slack as govt deficit spending receded. And now it looks like the energy related deficit spending is falling as the price of oil falls. Not good for GDP!”-Warren Mosler, Dec.29, 2014

        best explanation, coincides exactly w/ Hickey’s words from last week.


  4. Rodger,
    You state that public money doesn’t have to be paid back, but money from private lending does. I can see why the banking system doesn’t want interference (competition) from the Fed’s unlimited funding ability. This is the old saw of private sector being unable to compete with the USA government. Is there a lot of truth in this? Would not your interest and principle free Ten Steps (especially #9, federal ownership of all banks) put the banks out of business? They won’t go down without a fight and they’ll fight as dirty as necessary with every lie, threat and epithet they can make up.

    Since the banks are a huge part of the institutionalized, legalized robbery going on, is this not a big, big problem/road block for the common acceptance & realization of MS?

    I have to keep going back to how we escape this mess. Either by non-violent transition or calamitous evolution by Revolution.


    1. Everything you say is correct.

      Sadly, the rich will not go down without a fight against everything that narrows the gap.

      Consider Step #1: Eliminate FICA. This step alone would provide a huge boost to the economy, particularly the middle income groups.

      But, the rich love FICA. It costs them next to nothing, and it widens the GAP.

      If you can think of one idea that will boost the economy and narrow the Gap, while not engaging the rich in a battle, I'd love to know about it.

      #6 (Eliminate corporate taxes) comes closest, but the rich are locked into the "deficit danger" excuse for cutting benefits, so they have a hard time justifying this one, too (though they do promote "loopholes.")

      I like "loopholes," though I wish there were more of them that applied to the middle and lower income groups.


  5. Is there much distinction between the Central Budget Office and the Senate Budget Committee? I read Stephanie Kelton has accepted the position as chief economist for the committee.
    Room for hope, maybe??


  6. Good article, but I have to disagree with your black and white conclusion that the CBO “is a useless agency.” In fact, they provide at least one very valuable service, at least for now: they produce a measure of something called the Output Gap. While not perfect, this is a good effort to measure the difference between what the country COULD produce given its people, skills, infrastructure, etc. vs. what is actually produced, per year. So, the CBO tells us that until very recently, there has been a trillion dollar/year Output Gap since the crash of 2008. That means $6T lost to date in potential productivity due to unemployment and underemployment. Of course, what is not measured is the permanent loss of skill levels, the damage to new careers from the historically high levels of youth unemployment, and the loss of national competitiveness.


    1. Scott, the theory is good, but the practice is bad. The “measure” (if one may call it that) is based on a GDP trend line, with differences from that trend line being the “Output Gap.”

      Sadly, trend lines in economics have a very poor predictive record.

      Consider a nation run by the Tea Party, which believes in austerity and “small government.” What will be the trend of that nation’s GDP.

      Now suddenly, the Tea Party is tossed out of office, and the nation is run by people who understand Monetary Sovereignty. The GDP trend line will change. How would one describe the “Output Gap” in any given year?

      Is it really a “gap,” or is it a change in the trend? How would one know except in retrospect?


      1. There’s this definition too:
        Output gap
        The GDP gap or the output gap is the difference between actual GDP or actual output and potential GDP. The calculation for the output gap is Y–Y* where Y is actual output and Y* is potential output.
        Reference: en.wikipedia.org/wiki/Output_gap


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