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The federal government has been relentless in its efforts to brainwash us about the supposed similarities between federal deficit and debt vs. personal debt.
Here is a typical communication — a letter to me from United States Representative Bob Dold:
OUT OF CONTROL SPENDING
Rodger – As our state digs itself deeper into debt, families throughout Illinois are struggling just to get by. As a small business owner, I’ve had to make the tough decisions needed to meet a budget. But far too many so-called leaders have never had that experience – they’re solution to seemingly every issue is more government and more spending.
If hardworking Americans across the country need to live by a budget each and every day, then the government should have to do the same.
That’s why I’m a strong supporter of a balanced budget amendment to the Constitution, and it’s why I’ve voted for budgets that come into balance.
You’ll notice, that to confuse American voters, Rep. Dold mixes state, business, and pesonal (monetarily non-sovereign) finances in his first paragraph, with federal (Monetarily Sovereign) finances in his second paragraph.
It’s a perfect expression of the Big Lie (i.e. the lie that federal finance is like personal finance, and that federal taxes fund federal spending).
Not satisfied with brainwashing adults, the federal government has created a site called: Treasury Direct Kids.
Here are some of the lies your children will be fed:
Bureau of the Fiscal Service
It takes a lot of money to keep the U.S. Government running and a good deal of it is borrowed money.
That’s where we come in. Our job is to borrow the money needed to operate the federal government and account for that debt.
It’s sad that you must tell your kids their government is lying to them. But it’s one of life’s realities.
The federal government does not need to borrow to “operate the federal government.” In fact, the federal government (unlike state and local governments) does not borrow at all.
The federal government provides you with safe investments in the form of deposits in T-security accounts at the Federal Reserve Bank. These are the world’s most secure bank accounts.
To make your deposit, you instruct your local bank to deduct dollars from your personal checking account and deposit those dollars into your T-security account, which is very much like a savings account.
(The process is similar to taking dollars from your checking account and putting them into your savings account.)
The dollars stay in your T-security account and are not used to “operate the federal government.”
Instead, to pay its bills, the government instructs creditors’ banks to increase the balances in creditors’ checking accounts. When the banks do as instructed, dollars are created. Thus, the government actually creates brand new dollars, every time it pays a bill.
The government pays down its so-called “debt” (deposits) every day, simply by transferring existing dollars from T-security accounts back to the owners’ checking accounts. No new dollars are needed.
Have you ever wanted to buy something, but didn’t have quite enough money? If you’ve borrowed money from friends, family, or anyone else and promised to repay them, then you are “indebted” to pay it back. This is called “debt.”
Debt is money one person, organization, or government owes to another person, organization, or government. Typically, the person who borrows the money has a limited amount of time to pay back that money with interest (an additional amount you pay to use borrowed money).
Again, you see the confusion between personal finances and federal finances.
While debt is money one person, organization, or government owes to another, the federal “debt” is not borrowed and it is not debt in the usual sense. It is deposits.
Rather than being called “debt” it should be called “deposits.”
The Beginning of U.S. Debt
Even before the United States was founded in 1776, debt existed. Paying for the American Revolutionary War (1775 – 1783) was the start of the country’s debt. Some of the founding fathers formed a group and borrowed money from France and the Netherlands to pay for the war.
That was personal debt, not federal debt.
To manage the new country’s money, the Department of Finance was created in 1781. The next year, Government debt was reported to the public for the first time. The U.S. debt in 1783 totaled $43 million.
That year, Congress was given the power to raise taxes to cover the Government’s costs. However, the taxes did not bring in enough money. The debt continued to grow as the Government grew and provided more services to the people.
Question: There were no dollars at all before the United States was founded. So, where did the new citizens get dollars to pay federal taxes?
To create the United States, a group of men first needed to create laws. These laws were arbitrary words, created from thin air.
Laws are not physical things. They are just ideas, written down. You cannot touch or see a law.
Among these laws, created from thin air, were laws that created U.S. dollars, also from thin air. Dollars are just accounting numbers. (Those paper things in your wallet are not in themselves dollars. They are titles to dollars. The dollars themselves are just numbers in balance sheets.
All the government did was create a balance sheet, and into this balance sheet, men wrote an arbitrary number that represented a number of dollars. Because the men completely controlled the balance sheet, they wrote whatever number they wished.
Then they paid people for goods and services with these newly invented dollars. That is how the American people obtained the dollars with which to pay taxes.
The U.S. Treasury Department was created in 1789 to help the country borrow money and manage the debt. Alexander Hamilton was the first Secretary of the Treasury and one of the country’s founding fathers.
By 1789, the federal government no longer could create more dollars from thin air, because it had passed laws arbitrarily stating how much silver each dollar represented. These laws limited the government’s ability to create new dollars.
This silver was collateral for dollars, with the federal government arbitrarily deciding how much collateral each dollar needed.
He felt getting into a reasonable amount of debt would help the country get its feet on the ground. He said, “A national debt, if it is not excessive, will be to us a national blessing.” By 1791, he estimated the federal government’s debt to be $77.1 million. To help raise money, federal bonds were issued by the Government.
The government convinced people to deposit dollars into T-security accounts, which the government used as collateral for obtaining more silver with which to create more dollars.
Through the years, the government has enacted many laws changing the amounts of silver, and then gold, it required itself to have as collateral before creating new dollars. These were arbitrary, self-imposed limits.
That all changed on August 15, 1971, when President Richard Nixon created new laws once again, and thereafter, the government arbitrarily allowed itself to create dollars without having any gold or silver as collateral.
Today, the only collateral for dollars is the full faith and credit of the United States government.
Because the government has an unlimited supply of full faith and credit, it has the unlimited ability to create dollars. And given the unlimited ability to create dollars, the federal government has the unlimited ability to pay any bill, and to service any debt, of any size.
The U.S. government never can run short of its own sovereign currency.
Previously we mentioned the government’s web site, Treasury Direct Kids
This site has a “Contact Us” page that allows you to ask questions about T-securities. Some good questions might be:
- “Is it possible for the federal government to run out of U.S. dollars?”
- “Why does the government borrow dollars if it has the unlimited ability to create dollars?”
- “Has the government ever been unable to pay off its loans?”
- “Why did President Nixon take us off the gold standard?”
- “If the federal government runs a balanced budget, how will the economy grow?”
If you receive answers to any of your questions, be sure to add them to the comments section of this blog.
That should be interesting.
Rodger Malcolm Mitchell
The single most important problems in economics involve the excessive income/wealth/power Gaps between the rich and the rest.
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.
Implementation of The Ten Steps To Prosperity can narrow the Gaps:
Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE AN ANNUAL ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA, AND/OR EVERY STATE, A PER CAPITA ECONOMIC BONUS (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:
Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012
Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONEFive reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefiting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE CORPORATE TAXES
Corporations themselves exist only as legalities. They don’t pay taxes or pay for anything else. They are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the government (the later having no use for those dollars).
Any tax on corporations reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all corporate taxes come around and reappear as deductions from your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and corporate taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.