Lies, damned lies, and Treasury Direct Kids

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

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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:

  1. “Is it possible for the federal government to run out of U.S. dollars?”
  2. “Why does the government borrow dollars if it has the unlimited ability to create dollars?”
  3. “Has the government ever been unable to pay off its loans?”
  4. “Why did President Nixon take us off the gold standard?”
  5. “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
Monetary Sovereignty

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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.

MONETARY SOVEREIGNTY

9 thoughts on “Lies, damned lies, and Treasury Direct Kids

  1. [1] “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.” ~ RMM

    The Fed creates new dollars when it pays interest on T-securities. The amount of interest created depends on who you ask. Treasury Direct says it’s now $433 billion per year, much of which is rolled over via the purchase of new T-securities. This is one reason why the so-called “national debt” keeps growing.

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    [2] “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.” ~RMM

    QUESTION: If the American colonists used dollars to fight its war of independence, why did they have to borrow dollars from France and the Netherlands?

    ANSWER: They didn’t, since they did not use dollars. The colonists needed arms and materiel from France and the Netherlands. To get those items, the colonists agreed to repay those nations in the form of goods and property from the colonies. The latter were collected in America as taxes. Since there was technically no “U.S. government” at that time, there were no U.S. dollars.

    I maintain that the “U.S. dollar” did not truly become a true national currency until the U.S. Civil War.

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    [3] “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.” ~ RMM

    Dollars are not even that. A dollar is a 100% mental concept (i.e. non-physical) that is represented by a number on a balance sheet. The number on the sheet is not a dollar. It is not even a number. It is a mark or a symbol. In a sports game a point is strictly a mental concept, represented by symbols on a scoreboard. The symbol is not a point. Scoreboard “contain” no points.

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    [4] “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.” ~ RMM

    I have always disagreed with RMM about this. I say that “gold standards” never imposed any real limitation on any government’s creation of money. “Gold standards” were pretenses — i.e. gimmicks that politicians used whenever politicians wanted to claim that there was “no money” for things that ordinary people wanted. (This allowed them to widen the gap.) Various governments went on and off their “gold standards” at will. During the world wars, the U.S. “gold standard” imposed no limit on the U.S. government’s ability to create limitless dollars for war. Moreover it is absurd to posit that any national government would actually base its fiscal policies on the monetary value of gold, which is determined by volatile trading exchanges.

    All “gold standards” or “silver standards” are frauds designed to fool the public.

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    [5] “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.”
    ~ RMM

    Really? The government could not create non-physical dollars unless the government had physical silver? I disagree. Again this was a gimmick, like the “debt ceiling” charades in Congress. Even if it had not been a gimmick, the federal government could create more dollars out of thin air by arbitrarily changing the dollar value of silver (or dollar value of gold or whatever).

    Suppose that gold was trading at ten dollars an ounce in 1780. And suppose the U.S. government owned or controlled half a ton of physical gold. In that case, if the “gold standard” had been real, the U.S. government would have been limited to creating 160,000 dollars.

    If anyone thinks that actually happened, I have a bridge to sell you.

    Like

  2. Actually, I agree with all you say.

    Perhaps the key sentence was, “These laws limited the government’s ability to create new dollars.”

    Since the government creates the laws and interprets the laws and enforces the laws, it can do anything it wishes, any time it wishes.

    So the laws are limiting — until they aren’t.

    It’s like a jaywalking law that is selectively enforced. So is jaywalking prohibited? Yes, except when it’s not.

    Like

    1. “So the laws are limiting — until they aren’t.” ~ RMM

      I propose that an authentic “law” must be universally inviolable, such as the law of planetary bodies in orbit.

      If a “law” can be arbitrarily broken, then I propose that it is not a law, but is simply one person’s will imposed on another. It is a whim that is enforced capriciously, like the “gold standard.” When we pretend that a whim is a law, I call it a gimmick.

      Semantics aside, I mentioned the “gold standard” because it deceives people into thinking that money is (or was, or should be) “backed” by gold. From this delusion comes the further delusion that all “true” money is physical and limited, since gold is physical and limited. This delusion in turn sustains the ever-widening gap between the rich and the rest.

      So when Rodger says that the gold standard limited the creation of dollars, I cry, “No it didn’t! The gold standard was a gimmick!” because I don’t want people to regress to the delusion that money must be “backed” by gold or silver. This delusion is a trap.

      Of course, no money has ever been “backed” by gold or silver. All money throughout history has been backed by the faith and credit of the populace. Money is “backed” by human habit, custom, and convention, whether or not there is a “gold standard.”

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      If I may change topics, I am irked by the way that most people contradict themselves. This collective self-contradiction is the true source of the gap. People say that money is worthless unless it is “backed” by gold, and yet they refuse to throw away their “worthless” money.

      They say the U.S. government is “printing” too many dollars out of thin air, and yet they claim that the U.S. government is “bankrupt” and has a “debt crisis.”

      They know that the U.S. government creates infinite money for wars and for Wall Street bailouts, but when you call for universal Medicare, they say, “How will you pay for it?”

      They know that money is digital, and yet they insist that money is physical. (Each year the U.S. government creates about 4 trillion dollars. If that amount existed as hundred-dollar bills, the paper would weigh 44,000 TONS. The $20 trillion “national debt” would weigh 220,000 TONS in hundred-dollar bills.)

      Such contradictions create cognitive dissonance, which is swept under the rug of hate. Hatred of Muslims or Mexicans or Blacks or refugees, or of people who don’t want to be vaccinated, or…whatever. All these are self-distractions.

      Thus, I say again that average people are enslaved because they want to be enslaved. A few people are exceptions, but they are crushed by the mob.

      Like

    1. Nice commentary, but the author makes four critical errors.

      He (or she) falsely claims that…

      [1] All money is created by bankers as loans. Therefore
      [2] All money in existence is owed to bankers. Therefore
      [3] All money that comprises the so-called “national debt” is what we all owe the banks. Therefore
      [4] If the U.S. government created all money, we would have “debt free” money.

      Let’s correct these errors.

      [1] Some money is created by bankers as loans. However the U.S. government also creates money, and is not loans. A Social Security Benefit is not a loan. The U.S. government borrows none of its spending money from anyone. The government creates its money out of thin air.

      [2] The so-called “national debt” is simply money that people have deposited in savings accounts at the Federal Reserve. Since that money is deposited, it is lent to the Fed. (Hence the misleading term “national debt.”) No individual person will ever have to pay a single penny on that money. Not ever. And the deposits have no effect on the U.S. government’s ability to create money.

      [3] You cannot understand money until you first understand the nature of a debt and a credit.

      A credit is a claim to ownership of something. A debt is an acknowledgement of the claim. Thus, for every credit there is a debt. For every debt there is a credit. It is not possible to have one without the other, just as it is not possible to have a negative without a positive.

      A debt and a credit may or may not involve a monetary loan. A bus ticket in my hand is a credit for one bus ride (i.e. it is a claim to one ride). If the bus company acknowledges my claim and my credit, then the bus company is in debt to me for one ride. When I give my ticket in exchange for a ride, the account is zeroed out on both sides. I no longer have a claim (i.e. a credit) to one ride, and the bus company no longer has a debt to me for one ride. No monetary loan was involved.
      Likewise a dollar created by the U.S. government is a debt and a credit. However that dollar (like the bus ticket) it is not a loan. If you have a dollar bill in your hand, then you have a credit for one dollar’s worth of “faith and credit of the United States.” Your credit (your claim) means that someone owes you a debt of one dollar. That is, someone acknowledges your credit and your claim. Who owes you? Everyone who acknowledges that your dollar is worth a dollar. Again, no monetary loan is involved.

      If a bank lends you a dollar, then the bank has a credit of one dollar, plus whatever interest rate you agree to. The bank’s credit is a claim to ownership. You owe the bank one dollar, meaning you acknowledge the bank’s claim to ownership of one dollar from you, plus interest.

      Therefore all money is debt, but not all debts involve monetary loans.

      ADDENDUM

      On the subject of money, the delusion that all money is created by banks as loans is the most persistent delusion of all. Once you fall into this black hole, no one can pull you out of it. Only you can pull yourself out of it. But first you must want to do so.

      Until then, you remain hopelessly cement-headed. It is not possible for anyone (ANYONE) to reach you.

      Like

      1. Yeah, I saw that some of his/her claim’s were wrong and I even detected some right-wing influence in the writing; but overall how the author explains the concept of money being a mental unit like a kilogram, a pound, or a mile is very good.

        Like

        1. I was not clear, and for that I apologize. I said the author made some critical errors, but I did not intend that to mean that the article is worthless.

          On the contrary, the article explains what (for me) is the single most important concept about money, which is that money is not physical.

          This topic opens the door to a deeper topic that Rodger has sometimes written about, namely that no force in the universe is stronger than belief. Our collective beliefs can liberate us or imprison us. They can reduce us to termites, or take us to the stars.

          Like

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