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•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money.
•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.
•The single most important problem in economics is the Gap between rich and poor.
•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.
•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..
You may know of Pete Peterson. He, along with the equally infamous Koch Brothers, is one of those several billionaires who have spent millions — perhaps billions — to prove that those in the upper .1% income/wealth/power group rightfully belong to the Master Class, while the rest of us 99.9% deserve to be in the Servant Class.
Peterson’s toadies and sycophants, otherwise known as the “Committee for a Responsible Federal Budget” and the “Campaign to Fix the Debt” published FISCAL FACTCHECKER: 16 BUDGET MYTHS TO WATCH OUT FOR IN THE 2016 CAMPAIGN
All 16 of the so-called “Budget Myths” are designed to make you believe one short nonsense idea: “Removing money from the economy enriches the economy, while adding money to the economy impoverishes the economy.”
If you can be brainwashed to believe that idea, you are perfect for the Servant Class.
Today’s post will not address all 16 “myths.” You can read them yourself. We’ll examine just the first one, because it summarizes the “thinking” in the others:
Myth #1: We Can Continue Borrowing Without Consequences
One of the most common myths about the national debt is that we can increase it without consequence. Some argue that because the United States borrows in its own currency, it can simply print money to cover its debt.
The “myth” is correct that the federal government (unlike state and local governements) has the unlimited ability to create its own sovereign currency, the dollar. That is known as Monetary Sovereignty.
But, this statement of the first “myth,” uses the misleading word “debt,” a word that can be pejorative or praising, depending on circumstance. For instance, If you were a billion dollars “in debt,” that may be a bad thing. But what if your bank is a billion dollars “in debt”? Is that also a bad thing?
What if your bank boasts that it has a billion dollars in deposits? Bank deposits are bank debts, so your bank’s boasts about deposits actually boasts about its indebtedness. And that is where the Petersonites attempt to confuse you, for federal debt is nothing more than bank deposits.
To “lend” to the federal government, you invest in a T-security — a T-bill, T-note or T-bond. The process is: You instruct your local bank to transfer dollars out of your checking account and send those dollars to be deposited in a T-security account at the Federal Reserve Bank.
A T-security account is like a bank savings account. Money sits in your account while it earns interest.
Then, when the Federal Reserve Bank pays off the “debt,” it does what any bank does to pay off deposits: It transfers existing dollars from your T-security account to your savings account. Aside from interest, the bank does not need to “print money to cover its debt,” as the Petersonites claim.
It transfers existing money. So there are no inflationary implications.
Others point to high-debt nations like Japan to show countries can bear large amounts of debt. Many others suggest that current low interest rates show that the market is not concerned about the debt.
However, none of these arguments stand up to scrutiny. Printing large sums of money might offer a quick x, but as internaonal experience shows, it can lead to hyper-inflation.
That, to put it gently, is a lie.
As we have seen, paying off federal “debt” does not require “printing large sums of money.” Aside from interest, which is relatively minuscule, no money creation is involved.
Further, despite massive deficit spending for the past 230 years, the U.S. never has experienced hyperinflation — not during the massive spending for wars, nor to cure recessions or depressions. The Petersonites issue dire warnings, based on false information about something that never has happened.
Japan is unique for a number of reasons that do not apply to the United States, and it has also faced two decades of economic stagnation along with its high debt.
All nations are unique, but nothing about Japan’s uniqueness answers why it has failed to experience hyperinflation, despite massive deficits (other than: Deficits don’t cause hyperinflation).
Nor does national debt cause economic stagnation. Remember how national debt is accumulated: The nation spends more than it taxes, that is, the nation pumps more money into the economy than it takes out.
The Petersonites would have you believe that adding money to an economy depresses the economy, while removing money from the economy stimulates it. Also, black is white and up is down. George Orwell would love such reasoning.
Low interest rates are a temporary consequence of the struggling global economy and near-term Federal Reserve actions – not a permanent fixture.
That is true, though irrelevant. The Federal Reserve lowers rates, because it believes (wrongly, in my opinion) that low rates are stimulative. This has nothing to do with the subject of the “myth,” the claimed dangers of federal debt. It’s a clever tactic: Toss in a true statement to add credibility to your false statements. (Every liar includes grains of truth.)
In reality, high levels of debt come with many risks and consequences. Over the long run, growing debt crowds out productive private investment, slows income growth, increases interest rates, reduces government flexibil-ity, and increases the risk of a fiscal crisis.
The federal debt increases when the government spends more than it taxes. To reduce the debt, the government taxes more than it spends.
No one can explain how federal spending “crowds out” productive spending. When the federal government buys goods and services, it buys them from the private sector, which then has more dollars for “productive private investment. Many thousands of businesses, employing millions of people, profit from federal purchases. By contrast, taxing, which removes dollars from the economy, “crowds out private investment” by reducing the money available for such investment.
Similarly, federal spending cannot “slow income growth,” though federal taxing does.
The Federal Reserve does increase interest rates when the economy is growing faster, as a defense against inflation. In essence, the Petersonites are preaching against economic growth!
Higher interest rates benefit lenders, and lower rates benefit borrowers. Which is better for you depends on your circumstances at any one time. If you buy a house or a car, you are a borrower who benefits from lower rates. If you own CDs, T-securities, any bank accounts, any bonds or bond funds, you are a lender, who benefits from higher rates — and you also benefit from a growing economy.
The non-partisan Congressional Budget Office (CBO) finds that large and growing debt “would have serious negative consequences for both the economy and the federal budget.” Within 25 years, they estimate rapidly rising debt will increase interest rates by a full percentage point, reduce the size of the economy by 7 percent, and reduce average annual per person income by $6,000 ompared to current baseline projecons.
“Rapidly rising debt . . . “ What is “rapidly” rising? No one knows. Does this mean that rising debt is O.K., so long as it isn’t “rapidly” rising? Again, no one knows. “Rapidly” is one of those caveats, that mean whatever one wishes it to mean — or nothing.
” . . . Increase interest rates by a full percentage point . . . “ Is one percentage point supposed to frighten America? Or is this one percentage point merely the Federal Reserve’s normal response to the economic growth, from which we all benefit?
Finally, how could raising taxes (taking dollars out of the economy) not “have serious negave consequences” for the economy,” while increased federal spending on goods and services, cause those “serious negative consequences”? Talk about backward thinking!
And that is just “myth #1.” The Petersonites present 15 more, equally wrong myths — too much to discuss in one post. I invite you to go to the site, read the myths, and then ask me about any of them.
The entire excercise is to prove to you that federal spending for you must be decreased and federal taxes on you must be increased, so that the Gap between the rich and the rest can widen.
That is how the “Master Class” creates a permanent “Servant Class.”
And where is the majority of that federal spending that “must” be decreased? Social Security. Medicare. Medicaid. Poverty aids like food stamps, public housing — in short, everything that benefits the poor and the middle-income groups — the Servant Class — must be cut.
And where should taxes be increased? In addition to increasing FICA, the ongoing push is for “broadening the tax base,” i.e.taxing the poor and middle more. This usually involves some sort of sales or “use” tax, all of which punish the lower income groups most.
Of course, the Petersonites will tell you military spending must be maintained to protect us against foreign enemies that always, always, always are growing stronger. The Master Class loves the military to protect them, in case the Servant Class tries to rebel. (All over the world, most people are enslaved by their own military, rather than by foreign enemies.)
And taxing of the rich must be reduced, because those in the Master Class are the “makers,” while you in the Servant Class are the “takers.”
In summary, the upper .1% wish to create a Master Class, but can do so only with the acquiescence of a Servant Class. So they brainwash the public with the Big Lie — the lie that federal finances are like personal finances, and that federal debt is “unsustainable” (You’ll see the word “unsustainable” often in Peterson- and Kochsponsored articles). So, your taxes must be increased and your benefits must be cut.
And if you believe this, well maybe the .1% are right. Maybe they do desrve to be the Master Class, and maybe you do deserve to be the Servant Class.
What do you think?
Rodger Malcolm Mitchell
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
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.
THE RECESSION CLOCK
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.