–The Big Lie about tax reform. One day the eyes will open.

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

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.

Here is a perfect example of how the Big Lie has replaced fact and common sense in our world.

First a bit of background:

In 1777, the original 13 colonies created from thin air, the Articles of Confederation.

These colonies were not physical entities. No one could see, smell, taste, feel or hear a colony. They were legal entities, represented by certain locations of land, water and air.

Nor were the Articles of Confederation a physical entity. They was created from thin air as a legal entity, represented by papers and ink, but the laws themselves had no physical substance.

In 1776 a legal entity known as “The United States of America” arbitrarily was created from thin air, to replace the 13 colonies. Like the colonies they replaced, the United States is not a physical entity. It is whatever existing law says it is.

You may see a hill, taste a river, feel a building, smell a lake or hear a seashore, but you cannot see, taste, feel, smell or hear the United States. The U.S. is just a collection of laws, as are all nations, all cities and all counties.

In 1787 the Articles of Confederation were replaced by the Constitution. The physical pages of the Articles continue to exist, but the laws, being non-physical, no longer do.

Instead, the laws of the Constitution (created from thin air, and having no physical existence) now apply.

Among those laws are laws that created the U.S. dollar. The dollar was arbitrarily defined as representing “371 grains and 4 sixteenths part of a grain of pure or 416 grains (27.0 g) of standard silver.”

Though the U.S. dollar continues to exist as a legal entity, its measure has changed many times. Like the nation and its cities, counties and states, and indeed like Congress and the Presidency, the dollar has no physical presence. You cannot see, smell, taste, feel or hear any of them.

That building in Washington, DC known as “Congress,” is not Congress. It is a building. And if ever it is torn down, or otherwise destroyed, Congress will continue to exist. The same could be said of the Supreme Court building.

Similarly, Barack Obama is not the Presidency, which itself is a legal entity.

Even a dollar bill is not a dollar. It is a piece of paper that represents the legal entity known a “dollar.” Tear it in half and the Treasury (also a legal entity) will send you another piece of paper.

Give that paper dollar bill to your bank, to be deposited in your checking account (a legal entity), and your bank will increase the numbers in your account. You no longer will have the paper dollar bill, but you still will own the dollar.

We have gone through this explanation to demonstrate two facts:

1. Our government, and all its agencies, and all it sovereign currency, were created out of thin air, and are legal, not physical entities. They are, in size and description, whatever our laws say they are.

2. The U.S. dollar, as our sovereign currency, exists in whatever amount our sovereign government arbitrarily chooses.

Thus, our government is said to be “Monetarily Sovereign” It is sovereign over the dollar.

It has the legal ability to create as many dollars as it wishes. It never can run short of dollars, unless it wishes to. It never needs to ask anyone for dollars, not you, not me, not China.

Compare this with monetarily non-sovereign entities (cities, counties, states, businesses, you and me), that have no sovereign currency, and can run short of dollars.

Those are the facts. But the Big Lie says our Monetarily Sovereign government, somehow can run short of the currency it originally created out of thin air.

Obama + tax reform = political firestorm
John Harwood

Without intending to, the Obama administration has just conducted an experiment in tax reform and deficit reduction.
The conclusion: very, very difficult.

Tax “reform” and deficit reduction are based on the Big Lie. They begin with the false assumption that federal financing is like personal financing, and that the federal government is not sovereign over the dollar.

When you begin with a false assumption, everything that follows is false.

The White House plan (was) to tax capital gains on new deposits in so-called 529 college savings plans. Just 3 percent of American families own such plans.

But the amount of money in them has mushroomed to $9.9-billion in 2011, from $1.3 billion in 2001 after the Bush tax cuts made those gains tax free.

At this point you may ask why a government, that from the very beginning, has had the unlimited ability to create its own sovereign currency from thin air, needs to collect taxes.

That is a perfectly logical, seemingly obvious, question, that not one American in a million bothers to ask. Since the U.S. government is the absolute sovereign over the dollar, why does it need to ask you and me for dollars?

The answer: It doesn’t need to.

And because the federal government (unlike state and local governments) never can run short of dollars, why is the federal deficit a burden that should be reduced?

Answer: It isn’t. In fact, a federal deficit, which adds dollars to the economy, is necessary for growing the economy.

As it proposed some $320 billion in new spending as part of Obama’s push for “middle-class economics,” the White House called on Congress to raise $1 billion over 10 years by taxing those 529 gains.

The tacit (and false) assumption is that to spend more, the government must tax more, i.e. to send more dollars into the economy, it must take more dollars from the economy.

House Speaker John Boehner blasted the plan as a blow to middle class families trying to save for college. He had a point: A majority of families with 529 plans earn less than $150,000 per year.

Just a slight digression: This demonstrates that Barack Obama is not a liberal, but rather a conservative dressed in liberal clothing. He is the same Barack Obama who increased the most regressive tax in America (FICA), instituted the committee that suggested the damaging “fiscal cliff” sequester, and repeatedly has proposed his “Grand Bargain” which included cuts to Social Security.

As a result, Obama dropped the 529 plan, which a White House official called “a distraction” from the president’s larger budget goals.

The episode previews the difficulty of achieving tax reform, even though so many politicians say they favor it.

The outcry against a plan to eliminate the mortgage interest deduction or the deduction for charitable giving would dwarf the reaction to 529 tax hikes.

It also shows the difficulty of additional deficit reduction.

Obama has not dropped his planned middle- class spending increases. And though Boehner has ruled out any tax hikes, he hasn’t ruled out the middle-class spending increases, either.

Look through every past newspaper, every past telecast, every past speech by any politician, and you will be hard pressed to find any mention of Monetary Sovereignty.

The “need” to reduce the federal deficit is assumed as fact, just as geocentrism was assumed as fact before Galileo.

Most Americans understand that the dollar is a creation of laws. And most Americans understand that laws are not physical and can be created in unlimited quantities.

And most Americans understand that there are no dollar bills in their checking accounts, which themselves are not physical but rather legal entities.

And most Americans understand that the vast majority of dollars are electronic, not pieces of paper.

Yet, they seem to have difficulty understanding that those non-physical dollars, arbitrarily created from thin air, are not limited for the creator of those dollars, the U.S. government.

The reason: They have been told the Big Lie so often — by politicians, by news media and by mainstream economists and teachers of economics — what should be obvious has been obscured.

And what is the purpose of the Big Lie? It helps the rich limit the dollars owned by the rest (the so-called 99%), thereby widening the Gap between the rich and the 99%.

If ever the 99% understood Monetary Sovereignty, they would demand that the government cut taxes and increase spending to narrow that Gap.

One day . . . one day . . . the eyes will open.

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.


21 thoughts on “–The Big Lie about tax reform. One day the eyes will open.

  1. Since only the Fed spends new dollars and money cannot exist without that, how come it is only about 3% of the money supply? Does the money supply accumulate every year so that 3% is sufficient to keep up with growth/inflation?
    I’ve yet to see an explanation for such a difference.
    I know banks create money by issuing mortgages etc and the Fed has no control over the money supply but why is it growing so fast compared to inflation? Is it because borrowers take interest only loans so they stay on the books? So fewer loans get extinguished to counter the growth.And more of us are living on credit – which is the name of the game today.
    Why are intrabank’ games’, derivatives etc not counted in the national accounts?
    You explain well so maybe you can sort these out too!


    1. Federal “debt,” i.e. the number of dollars spent minus the number of dollars returned as taxes, is close to $13 trillion. That is the net number of dollars the federal government has created.</b.

      M2 is the fed's latest number, but M2 is only a fraction of total dollars. It is exceeded by M3 (no longer measured), L and Credit Market Instruments, the later totaling almost $60 trillion.

      So the federal government accounts for a bit more than 20% of all dollars in existence.

      Of course, in one sense, the federal government creates zero dollars. It merely sends instructions to banks to create dollars by increasing the balances in checking accounts. Thus, banks create all the dollars, partly as a result of federal instructions, and mostly as a result of the banks own volition.

      As for your next question, inflation is not equal to money supply. It’s far more complex than that. See the explanation at: The economics of chaos. What we know for sure. The value of money (inflation) formula.

      Not sure I understand the final question.


    2. derivatives etc not counted in the national accounts?

      A financial derivative’s value comes from the price of an underlying item, such as an asset or index. Therefore, no principal amount is advanced to be repaid and no investment income accrues, unlike debt instruments.


  2. “When you begin with a false assumption, everything that follows is false.”

    Unfortunately, that is not the case. Ex falso quodlibet. From the false, everything follows (including the truth).
    Ref: Wikipediia, Principle of Explosion


    1. If dollars were physical, for instance like gold, it would be possible for the federal government to run short, and indeed it did during the Nixon administration. That is why Nixon divorced dollars from gold.

      Being non-physical, and so being nothing but numbers, it is impossible for the federal government ever to run short of dollars. It creates them at the touch of a computer key.


      Since the government cannot run short of dollars, it never can be unable to pay any bill. Even if federal taxes were zero, the federal government could continue spending dollars, forever.

      That is called MONETARY SOVEREIGNTY.

      Those who worry about the federal deficit and debt are ignorant of Monetary Sovereignty.

      The rest of the post is to demonstrate that many things are non-physical, so the non-physicality of dollars should not come as a shock.

      Got it?


    2. Agree that gold did bind government money creation. But I thought Nixon closed the window after more money had been created relative to gold. When nations tried to repatriate gold storedirectly here during WWII, we had issues.

      I don’t disagree that monetary sovereigns can create unlimited money units, that’s a given. Where we disagree is whether that action comes with or without repercussions. I think there are, you dont.

      I think Greecenter will show us the answer.


      1. LMAO,

        “I don’t disagree that monetary sovereigns can create unlimited money units, that’s a given. Where we disagree is whether that action comes with or without repercussions. I think there are, you dont.”

        First, I am glad you argree with the first sentence. Many people do not,

        Second, please explain why you say that Rodger says that there are no repercussions to creating unlimited money. Rodger has said many times that the limit to federal deficit spending is an inflation that cannot be cured with interest rate control.

        Here is one such entry (near the bottom).

        Our President does not say “We can have free Community College for all, but if we don’t have offsetting taxes there could be inflation”. If he said that, there could be an intelligent debate on what creates inflation. We could debate supply and demand, savings rates, wages, excess capacity in the economy, interest rates, trade deficits, etc. There are good arguments that inflation will not take hold until wages increase first, since one person’s spending is another person’s income. And it would take much larger deficits before wages increase.

        But the wealthy do not want those debates, because the end results of the debates will lead to the shrinking of the gap.


      2. Ian,

        You just repeated what I said with extra words. If you think inflation is something to worry about sometime in the future, and that it could be cured with rate hikes – than we are in disagreement.

        Inflation doesn’t occur because of some misterious condition. Every action has a direct reaction. We’ve had constant inflation for years on in, and here we talking about how it could be cured. Well, what happened the last 40 years? Inflation was 4% while incomes didn’t change. What ever happened to the rates? Oh wait, those got lowered to artificially boost the economy.

        Since I know there is no free lunch, liberal theories are nothing more than a dog chasing it’s tail. Print money, make a few people happy, screw another group slowly so that they can’t figure out what’s happening, print some more, etc…. the chosen ones laugh to the bank, lowers weepers..


        1. LMAO, “…inflation is something to worry about sometime in the future, and that it could be cured with rate hikes”

          If it can’t, then the limits of deficit spending have been reached. I did not say rate hikes would always cure inflation. Increased taxes could choke off inflation at that point. It didn’t happen in Argentina because it couldn’t collect the taxes.

          ”Inflation was 4% while incomes didn’t change”

          Really? Maybe the median income didn’t change much, but average incomes have soared when you include the very wealthy. And MS supporters are trying to close the gap.

          “Since I know there is no free lunch”.

          You just know that as a fact. I know the opposite. Did you read Rodger’s post?


  3. Here is a graph of inflation for the past 20 years (blue line). Looks to me like inflation has averaged about 2.5%, which is exactly what the Fed wants it to be.

    monetary sovereignty

    The red line shows changes in federal net spending, which as you plainly can see, has no relationship to inflation.

    So there go two of your hypotheses based not on facts, but on your intuition.

    You can see a more complete explanation, here.

    And as for the slogan, “No free lunch,” it’s just a slogan, not science. Science doesn’t run on slogans. See: this..

    But at least you’ve given up on the idea that federal deficits and debt are “unsustainable,” and no have fallen back on the Monetary Sovereignty deniers claim that Federal Deficits = Inflation.

    Sorry, but the formula for inflation is far more complicated than that. See: This.

    Aw heck, I know this won’t sway your cemented intuition one bit. You won’t even bother to read the articles to learn facts. But perhaps other readers, who actually are interested in learning facts, will.

    That is why I bother to answer.


    1. So you are saying that if inflation goes up by 2.5% a year for 40 years and incomes don’t go up, we are all good. We are just dreaming up the fact the middle class’s purchasing power has been destroyed?

      With a 2.5% inflation rate, it would cost you $269 what cost $100, 40 years before. Yup, inflation targeting works wonders..


  4. You answered so quickly, you just proved my point about you not even bothering to look at facts.

    “So you are saying that if inflation goes up by 2.5% a year for 40 years and incomes don’t go up, we are all good.”

    Really, where do you get that utter nonsense?

    I didn’t say I agreed with the Fed’s target. The point is that the Fed controls inflation, and inflation does not = deficits.

    As for us being “all good,” what have I repeatedly said about the Gap? What do you think the whole purpose of this blog is?

    Again, I answer because many people have been brainwashed like you, and though you don’t wish to learn, some others may.


  5. There may be a fear of everyone wanting the moon if politicians and economists begin bravely accepting MS. On the other hand there may also be a fear of being rejected as a “nut job” if you start to mention MS.

    We’re still in the Dark Ages. The chains that hold us in place are not physical, rather they consist of poor information and misunderstanding. Like money, the chains are unreal and legally constructed.


    1. The “fear” that everyone will want the moon is the stated excuse.

      The real fear is that everyone will get the moon, and the Gap dramatically will be narrowed, and the rich won’t be as rich.

      It’s all about the Gap.


      1. When you say “won’t be as rich” do you mean relatively, i.e., compared to everyone else’s increased status; or “actually” in that their purchasing power will be reduced? I can understand the former not the latter.


          1. So the rich can’t stand NOT being hotshots relatively speaking. They want to be able to look down their noses and feel better about themselves since their being “better” (actually better off, big difference!) is predicated on legally sponging and taking from the 99%.

            Prior to World War 1, the rapid growth of industrialization and unions saw the advent, and increasing status, of an emerging middle class. Contrary to what the history books have told us about the origin of WWI and the assassination of the Arch Duke, there is another theory that all wars are not only attractive to finance, but also represent an out and out manifestation of the resistance of the 1% to the increasing well-being of the working class and their demands for a voice in their affairs.

            This relates directly to the need for a gap as a means of suppressing the 99%, their wages, their unions and their independence. The 1% further enjoys the introduction of job/worker/union eliminating technology and more profit to boot!! The only workers they really want are the ones who have the high skills needed to operate the new machinery, that is, until they can find a way to eliminate them with even better machinery.


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