It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders
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THE TRUTH:
HUNGER IN AMERICA: 2016 UNITED STATES HUNGER AND POVERTY FACTS
People 65 and older had a supplemental poverty rate of 13.7 percent, equating to 6.5 million people in poverty. Excluding Social Security from income would more than triple the poverty rate for this group, resulting in a poverty rate of 49.7 percent.
THE BIG LIE:
U.S. News & World Report, Nov 18, 2015: “Our system of taxing the young to pay for the old needs reform to reflect 21st century realities.
“America’s principal health and retirement programs for the elderly, Social Security and Medicare, are placing a massive fiscal burden on its youngest generations and crippling the country with debts that cannot be paid.”
THE TRUTH:
First, Social Security places no fiscal burden on anyone. Contrary to popular myth, FICA does not pay for Social Security benefits. Even if FICA collections were zero, the federal government could continue paying SS benefits, forever.
Second, the country cannot be “crippled by debts that cannot be paid.” Federal financing is not like personal financing. The federal government, being Monetarily Sovereign, cannot ever run short of its own sovereign currency, the dollar. It can pay any size debt instantly.
THE BIG LIE:
While the official national debt sits at a staggering $18 trillion, taking future entitlement spending obligations into account pushes the number beyond the conceivable: $200 trillion.
THE TRUTH:
That $18 trillion is a phony number, designed to impress you. It includes internal debt; the left pocket owes the right pocket.
But more importantly, the so-called “federal debt” actually is nothing more than the total of deposits in T-security accounts at the Federal Reserve Bank.
When you “lend” to the government — i.e. purchase a T-security — you actually open a T-security account at the FRB. You then transfer dollars from your checking account to that T-security account.
To pay off its “debt” to you, the government simply transfers your dollars from your T-security account back to your checking account, similar to transferring dollars from your savings account to your checking account. No new dollars needed.
The “debt,” no matter how large, never is a burden on the federal government, and it’s a safe investment for you.
THE BIG LIE:
The Social Security trust fund is projected to reach insolvency in 19 years, and Medicare will be unable to meet its projected obligations in 15 years.
THE TRUTH:
The federal government, being Monetarily sovereign, and therefore unlike state and local governments, cannot be insolvent, nor can any agency of the federal government.
Congress, the White House, the Supreme Court, the Army, Social Security, Medicare and all other thousand agencies of the federal government cannot become insolvent unless Congress and the President wish it.
For that reason, there is no Social Security “trust fund.” It is a bookkeeping fiction. The federal government does not keep funds in trust; it pays its bills by creating brand new dollars, ad hoc, which it can do endlessly by clicking computer keys.
The purpose of the fictional trust fund is not to save for Social Security benefits. The sole purpose of the fictional trust fund is to make the populace believe (falsely) that benefits must be limited.
Notice there is no trust fund for Congress or the White House. The politicians don’t want limits on themselves.
THE BIG LIE:
Young Americans are stuck paying into programs that, absent reform, will only partially be there for their retirements – if they’re around at all.
THE TRUTH:
This is a scare tactic by the politicians and the media who are bribed by the rich. The purpose is to frighten you into unnecessarily accepting lower benefits and higher taxes.
THE BIG LIE:
To cover the ballooning costs of these programs, workers in 2050 would have to pay nearly a third of their hard-earned income just to cover payroll tax obligations – over twice the rate paid today.
This and other taxes would make it impossible for many workers to save for their own retirements.
THE TRUTH:
Contrary to popular belief, FICA actually pays for nothing. Your tax payments to the federal government are destroyed upon receipt. They instantly cease to be part of the money supply.
The article is correct, however, when it says, “This and other taxes would make it impossible for many workers to save for their own retirements.” That is happening now.
THE BIG LIE:
Some seniors believe that they are entitled to their Social Security and Medicare benefits since they paid into these programs throughout their working careers.
THE TRUTH:
FICA does not fund Social Security. All it does is take dollars from your salary.
The federal government pays for Social Security benefits the same way it pays for the President’s salary, an Army tank, or a Supreme Court justice’s robe: The government creates brand new dollars, ad hoc. Tax collections have nothing to do with the bill-paying process.
Seniors, indeed all Americans, have been lied to for 80 years.
THE BIG LIE:
Due to a series of unfunded promises, current Social Security payments do not have the chance to accrue interest, as they are immediately paid out to retirees – our payments are simply too generous.
THE TRUTH:
This is one of the most nonsensical statements among a litany of nonsensical statements.
Social Security payments (FICA) cannot accrue interest Not only are they destroyed upon receipt, but even it they weren’t, who would pay the government interest on its receipts?
And, only the rich think Social Security payments are “too generous.” The elderly, who have no other source of income, and are forced to live on Social Security, will tell you otherwise.
The statement reveals the true goal of the Big Lie: To widen the Gap by starving the “99%.”
THE BIG LIE:
These entitlement programs function not only as wealth transfers from the young to the old, but from the poor to the wealthy.
It is true that Social Security accounts for the majority of cash income for 65 percent of seniors, but this claim ignores the reality that today’s seniors have an average of 47 times the wealth of households headed by adults under the age of 35.
THE TRUTH:
This was a tacit admission that FICA should be eliminated. It serves no purpose. One might as well tell workers to set 6.2% of their wages on fire.
Wealth is not being transferred. It is being destroyed by FICA.
Your leaders want you to believe that the elderly are rich, are taking money from the young, and don’t really need Social Security. In this way, they hope to trick the young into voting for reduced benefits — sort of a “divide and conquer” scheme.
THE BIG LIE:
It should be celebrated that seniors are living longer and accruing more wealth, but a country cannot sustain such a system when only three workers support each retiree, a support that will fail if nothing is done.
THE TRUTH:
The federal government can “sustain” any amount of spending. Workers do not support retirees; the government does.
And this support cannot “fail” unless Congress and the President make it fail (which they might do, if the rich bribe them enough).
THE BIG LIE:
Our entitlement programs, due to demographic changes, have morphed into massive, unfunded promises. It is time for politicians and retirees to stop placing massive fiscal obligations on young Americans.
Old-age health and retirement benefit reform is no longer an option – it is a necessity.
THE TRUTH:
Anytime a politician talks about “reform,” hang on to your wallet, unless you are rich. “Reform” always seems to mean: Take from the poor and give to the rich.
All federal spending is “massively unfunded,” in that the payment dollars do not exist in advance. This is how the federal government runs deficits (which actually benefit the economy by adding dollars).
The federal government creates dollars by the very process of paying bills.
To pay Social Security benefits, the federal government sends to your bank instructions (not dollars), in the form of a check or a wire, instructing your bank to click a few computer keys to increase the balance in your checking account.
Only when your bank does as instructed are the dollars created to pay your benefits.
Why do the media, the politicians, and economists like Laurence Kotlikoff, an economics professor at Boston University, continually tell the BIG LIE?
They all are paid by the rich to lie. The primary goal of the rich is to widen the Gap between the rich and the rest. It is the Gap that makes them rich. Without the Gap, no one would be rich, and the wider the Gap, the richer they are.
(Is a person having $1,000 rich? Yes, if everyone else has only $1.)
So the rich bribe the media (via advertising and ownership), the politicians (via campaign contributions and promises of lucrative employment), and the university economists (via contributions to the universities), to tell you THE BIG LIE, which briefly is this: Federal taxes fund federal spending.)
To quote Professor Kotlikoff: “Social Security is a big insurance company which has been engaged in fraudulent accounting. They have problems paying people.”
That is 100% false. The federal government is nothing like an insurance company. An insurance company is a monetarily NON-sovereign, private, FOR-profit entity, which does not have the unlimited ability to create dollars.
Contrary to Kotlikoff, the federal government has no “problems paying people,” none at all. Never has. Never will (unless Congress wills it).
THE BIG LIE:
Here is Kotlikoff’s Social Security plan:
Freeze the system in place. Pay off everything the system owes over time to the people who are in it. It would pay off all their accrued benefits, but no one would accrue any [new] benefits under the old system.
Under (my) proposal, everyone would put 8 percent of their pay into a personal account.
The government would match contributions of low earners, to make things progressive.
And then all these contributions would be invested in a global market weighted index of stocks and bonds and real estate.
So it’s going to be done by a computer, so Wall Street doesn’t touch the money or get a penny out of this system.
THE TRUTH
“No one would accrue any [new] benefits.” Instead, you will give the government a gigantic 8% of your paycheck. Then the government will invest all those trillions into some “weighted index.”
Which one? Who knows? Sounds great?
Currently, you unnecessarily pay 6.2%, and you receive a guaranteed, recession-proof payout when you retire.
With the Kitlikoff, “make-the-rich-richer-and-everyone-else-poorer” plan, you pay more into a fund that is guaranteed by nothing and relies on the vagaries of the stock and bond market, so it could tank at any time — just the kind of thing you don’t want for your retirement.
Not so good for you, but it’s a great plan for the rich, who already hold tons of securities. Imagine what will happen to those securities on the day the bill is passed and trillions of dollars flood into the markets.
Then, when the rich sell, and the market drops, you’ll be stuck with the losses.
One only can wonder how much the rich pay Kotlikoff for that bit of advice.
AND NOW A FEW QUESTIONS FOR YOU INTELLIGENT READERS:
Have you ever wondered why:
- FICA is collected only on salaries, not on other forms of income?
- FICA is collected only on the first hundred thousand dollars of those salaries?
- The tax rate for salaries is at the highest level, while long term capital gains are taxed much lower?
- There are so many tax loopholes available to the rich that are unavailable to the rest?
- Social Security benefits are taxed at all?
- For tax purposes, borrowing is not considered income, but interest is tax deductible?
- Travel to a job is not tax deductible, but travel for a job is?
Those are just a few examples of the rich bribing the politicians to widen the Gap by benefitting the rich while punishing the rest. The tax code was written by the rich.
And, why would anyone choose to believe the lie that Social Security (and Medicare) are running short of dollars — a lie that is harmful to the non-rich who accept it — when the facts show the beneficial truth that the federal government can pay for these programs, forever?
Why would any intelligent person prefer to believe those stories promulgated by the rich, that the sky is falling, the government is collapsing, and horrible things are about to happen to Social Security, when the evidence proves the opposite?
Not only could the government pay for Social Security without FICA, but it could pay higher benefits that begin at a younger age.
Are there people so pessimistic about life, they prefer to believe bad news rather than accepting the truth of good news?
Remember this: It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders
Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
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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 benefitting 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.
MONETARY SOVEREIGNTY
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#Monetary Sovereignty - Mitchell 
Venezueka is a monetary sovereign. Im sure there is no need for them to charge taxes either. With 45% devaluarions here and there, why bothet?
Oh yeah thats true, they need a funding currency to import. Why wonder why the “strong bolivar” is not one of them.
Save the excuses, anyone that still cant see that your theory is a hoax needs to have their heads checked.
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What exactly are you claiming about Monetary Sovereignty? What part is the “hoax”?
(Specifics, please. I won’t publish comments like, “It’s all bad” or “Everyone but me is stupid.”)
As for Venezuela, the value of a currency = Demand/Supply. The Demand for Venezuela’s money is low because people don’t trust it. So they don’t want to be paid in bolivars. This greatly limits Venezuela’s ability to use bolivars to pay external bills.
The U.S. dollar is the most trusted currency on earth, so it would be able to maximize its use of Monetary Sovereignty if it chose to.
Unfortunately, those who would benefit most prefer sarcasm to thinking, and so vote against their own best interests.
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Rodger,
Is it too hard to see that the reason Venezuela’s currency is not trusted is because their government is quick to print it without regard for its value?
Why do you think its not as trusted as the us? Isnt maduro trying to build a socialist utopia?
Your theory is flawed because venezuela proves it. The fact that nothing is free also proves it.
Why would anyone in venezuela invest their hard earned money to have the government appropriate it either by force or devaluation? Why would any person work harder when everyone receives an “equal” share?
By wanting to do good “more like politically correct” by providing equally for everyone, you are removing thr incentives to produce. Money cannot sustain an economy, goods and services do.
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Liberalism is not Socialism. Learn the difference.
The U.S. federal government runs a deficit nearly every year of its existence. The Fed struggles to get inflation up to 2%. Why do you accept U.S. dollars?
Do Social Security and Medicare remove your incentive to produce? If so, the solution is simple. Refuse to accept Social Security and Medicare. Then you’ll have all the incentive you want.
Or better yet, vote for a candidate who promises to do away with social programs.
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Rodger,
There is no difference between socialism and “liberalism”. Its actually funny that you call yourselves liberals when you are the biggest proponents of force.
We did not have the social programs we have today 100 years ago. But that doesnt make us “not socialist”. It makes us socialist, just less so than most of the world.
In a world of morons, we are the least moronic. Nonetheless, go and compare the growth rate of today to that 50 years ago and you will realize what socialism can do.
With respect to the 2% inflation item, how can the fed push up inflation in a world awash in debt? Its like pushing on a string. Look back to see what inflation looks like, dont look at the present.
You see all that inflation from the 70s all through the 2000s, all of that were productivity gains that should have gone to the poor and middle class. Their savings should have reflected that.
You and the “liberals” confuse this to mean that the government can print all it wants up until there is inflation. Let me remind you that Brazil, Venezuela and a few other nations publicly waged a war on the us currency because their currency “was too strong”. Many of those politicians are either no longer in their positions or are facing extreme inflation rates.
The us wont do what you propose anyway, thank god for our constitution. If not for it, we would be another venezuela, burning in ruins.
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“There is no difference between socialism and “liberalism”. ”
Perfect: This demonstrates you do not understand economics.
Socialism is government OWNERSHIP. If the government owned the hospitals, that would be socialist. Medicare and Social Security are progressive, not socialist.
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“The demand for Venezuela’s money is low because people don’t trust it. So they don’t want to be paid in bolivars. This greatly limits Venezuela’s ability to use bolivars to pay external bills.” ~ RMM
The *domestic* demand is overheated, which is one reason for Venezuela’s inflation problem.
The *foreign* demand is non-existent. So it is with most nations’ currencies, which are only accepted as payment within the nations’ borders.
All nations buy imports. No nation is totally self-sufficient. If a nation has a trade surplus, then the nation can get foreign currencies with which to buy imports. But if a nation has a trade deficit, and its currency is not accepted outside its borders, then the nation must borrow foreign currencies in order to buy imports. This very quickly leads to indebtedness and mass privatization, as national assets are sold in order to obtain foreign currencies to pay debts. We see this in Greece.
None of this applies to the USA, since the US dollar is directly or indirectly accepted worldwide. The US government can create enough dollars to buy anything in the world, and is limited only by people’s willingness to sell. The U.S. government can also create enough dollars to indebt anyone in the world, and is limited only by its victims’ willingness to take a loan.
As for Venezuela, it gets foreign currencies by selling oil. Venezuela would not need foreign currencies if Venezuela was 100% self-sufficient. However achieving this is far easier said than done.
So it is with all nations.
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Perfect,
Its not that domestic demand is overheated, its that supply is not there. How could it be? Why dont you try importing into venezuela without having the government enforce loses onto you.
I know im wasting my time, both rmm and eh know this. They just chose to ignore.
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That’s a good summary RMM. I haven’t understood where Mainstream economists say currency comes from [I have avoided studying it, lucky for me]
It seems they fall into a logical trap if they say the governments borrows its money from banks, yet if so how do we pay taxes if bank money is supposed to be used to pay taxes and fund the economy when bank money has to sum to zero? Do you know how they explain that away?
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They intentionally confuse federal government (Monetarily Sovereign) financing with state & local government (monetarily non-sovereign) financing.
State and local governments do borrow from banks, just as you and I do, and taxes paid to state and local governments are not destroyed, but deposited into banks.
Monetarily non-sovereign entities need income to fund spending. Monetarily Sovereign entities need no income, but create dollars ad hoc, by spending.
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Really? They just ignore or don’t accept the truth about monetary sovereignty? Is as simple as that? So that is all we basically has to overturn
I have spoken to Bill Mitchell and he said it wouldn’t change in his lifetime. Progress is that slow. It’s like a theology.
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Yes, exactly like a theology. Look how many years since Darwin, and even today, much of the right wing has doubts about Evolution.
Recently, I read of a brand new museum devoted to proving Noah’s ark really did carry two of every animal species. People contributed millions of dollars to build it.
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No Kangaroos or Koalas though?
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And you either call out names or completely ignore those you cant refute. Keep your head under the sand, its good for you and shows how bright you are.
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“Really? They just ignore or don’t accept the truth about monetary sovereignty? Is as simple as that?”
Yes it is as simple as that. They deny what everyone sees with his own eyes. And everyone believes the denial. It is a case of the emperor’s new clothes. All lies that sustain inequality are cases of the emperor’s new clothes.
For example, everyone knows that the US government can “print” limitless dollars. (Everyone knows that the emperor has no clothes.) And yet everyone believes that the U.S. government is “bankrupt” and “insolvent.” (Everyone marvels at the naked emperor new clothes nonetheless.)
Where does currency come from? The liars (i.e. toady economists) say it comes from taxes. Where does tax money come from? It is borrowed from banks. This, claim the liars, is why we have a (fake) “national debt crisis.”
It’s madness, but that’s society for you. All human societies are insane. They only differ in the form and depth of their insanity.
It is the insanity that maintains the Gap between rich and poor.
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“The Demand for Venezuela’s money is low because people don’t trust it. So they don’t want to be paid in bolivars. This greatly limits Venezuela’s ability to use bolivars to pay external bills.”
“The US government can create enough dollars to buy anything in the world, and is limited only by people’s willingness to sell.”
BINGO…THERE IT IS!!!!
Just let it sink in…..
The issue here is confidence in the money. Folks in Venezuela are forced to use the “Bolivar” regardless of their confidence in it.
Foreigners on the other hand do not have to use or accept Bolivar’s and as has been shown they are not.
Why..because as Rodger has said, they have no confidence in it. It has become “funny” money.
MS and MMT Folks, along with others have often mocked folks especially “gold bugs” for saying a money needs to be “backed” by something. For gold bugs it is a commodity like gold or silver (gold bugs=Gold).
In any case Venezuela shows why they say that and why money needs to be backed by something tangible.
I am not a gold bug and I am not arguing right now one way or the other for a return of gold as money or any type of gold standard but I am trying to point out the principle that without some type of backing money can easily turn into “funny money” and people can easily loose confidence in it. Consider if I ask to borrow money from you. Depending on how trust worthy you think I am, you might lend me money based just on my IOU, but if you don’t know me or trust me you would probably feel better about lending me money if there was something of value backing it (depending on the size of the loan) maybe my house or car etc.
In the US we are in a unique position. As Rodger has said the US dollar has been the most trusted currency in the word and we never at least as the U.S experienced hyperinflation.
So what is backing the US dollar?
It is backed by the good faith and credit of the government,
Basically what that means is, however imperfect it has been, our currency is backed by our own self imposed limits and rules on our currency’s use along with the productivity of the US people (our products/services and resources). In addition, we are in a unique position being the worlds reserve currency.
Although we have run deficits, have had inflationary periods in which the purchasing power of the dollar has declined, our self imposed rules and limits along with being the reserve currency of the world, has helped us maintain the dollars stability and people around the world have maintained their confidence in the dollar.
Theoretically yes, the government could create enough dollars to buy anything in the world but what would happen if it actually did buy “anything” or “everything” in the world… how long would it be until people would lose confidence in the US dollar and it would become funny money?
The problem with MS is there does not seem to be any limits or rules, there does not seem to be anything backing the currency. Except possibly for the 10 rules of prosperity and for when inflation kicks in ( I believe MS also has said something about they would limit money supply or inflation to a certain growth rate) but by MS’s own admission they do not know at what point inflation would kick in..so again there is no real rules or limits to a currencies use or spending.
Without any limits or rules…or am I wrong are there rules, limits, if so then please enlighten us and I stand corrected??…How long until the currency becomes funny money, until people lose confidence, just like Venezuela?
Yes, the government could provide medicare for all or provide free school etc and individually these programs may not cause people to lose confidence in the dollar/currency but again at what point will people start losing confidence.
MS does have the 10 steps to prosperity but is this suppose to be a limit/rule because outside of these 10 steps for MS anything that seems like a good idea that needs funding MS seems to be ok with it. Many times MS has argued for spending money on things that sound good just because the government can pay for it and has criticized others for calling on spending limits or concerns over the debt etc because the government can pay theoretically for anything.
So again at what point do people lose confidence in their currency, at what point does it become funny money, especially if there are no real limits to government spending, because the government can pay for anything?
This does not even get into other economic considerations, regarding production..the notion of a free lunch, spending on destructive uses like unnecessary wars etc..stuff that Danny brought up….to be more clear here without dragging this on …think of MS objections to the MMT’s job guarantee proposal (why doesn’t the government just give people jobs because well it can pay for anything?)..this does not bring up those type of considerations.
Anyway if people agree or not I hope this made sense…but with what I consider problems with MS, this is one of the biggest, one that MS never talks about but now it is out there!
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The limit is stated in the “Rules.” See the bottom of: What will be the purpose of economics in an AI+ world?” and other places.
A better description is at A reminder about why Modern Monetary Theory (MMT) is wrong about inflation, Jan 2, 2012
Just curious: Why are you more concerned about inflation than about recession, depression, poverty, the disappearance of the middle class, and the Gap?
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QUESTION: At what point do people lose confidence in their currency, and at what point does it become funny money, especially if there are no real limits to government spending, because the government can pay for anything?
ANSWER: There are only two possible ways that people lose confidence in their currency. One is when there is hyperinflation. The other way is when people’s government and society collapse, or is replaced or destroyed. The same confidence that makes money work is what makes government and society work. A dollar is worth a dollar because everyone agrees that it is worth a dollar.
Thus, all money is “funny money” (no exceptions). It is “backed” by the full faith and credit of whoever regards it as legal tender for everyday transactions.
If you insist that money must be “backed” by something tangible, all right…it is “backed” by humans that are tangible, just as the points on a sports scoreboard are “backed” by humans who agree that the points mean something.
I myself do not mock people who say that money must be “backed” by gold. I merely dismiss them as liars or fools.
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@ Rodger- comments from the comment section in a previous post…
“The dollars in your checking account are part of the money supply. (M2) When you send those dollars to the federal government they no longer are part of the money supply. Thus, they are destroyed.”
I am not necessarily disagreeing with your description of what occurs just the conclusion you draw from it.
You are correct that the dollars I send to the federal government are not counted as part of the money supply, they are set aside HOWEVER setting aside money is not the same as destroying money.
In order for something to be destroyed it has to no longer exist or be altered in such a way that it is no longer used for its intended purpose.
Tax money may not be counted as part of the money supply but it does not mean it is destroyed.
When I send money to the government as noted is not counted as part of the money supply BUT it still remains in the government’s accounts.
The money is available to offset spending. It is not like it literally disappears (the reason, if it was allowed to be counted as part of the money supply think about the chaos it would create)!!.
Further if what you are saying is true then the deficits would equal total spending but they don’t. Right now spending is around 4 trillion yet the deficit is only @500 billion, for you to be right the deficit would have to be about 4 trillion.
In any case as far as saying taxes destroys money because it is not counted as part of the money supply, that simply is not correct but as I mentioned in the other comment section I think we are probably going to have to disagree on this since I don’t think we are going to convince each other otherwise.
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Why would a Monetarily Sovereign government “set aside” dollars, when it has the unlimited ability to create dollars, ad hoc, by paying bills?
State and local governments, which are monetarily non-sovereign, do set aside dollars. That is one of the differences between Monetary Sovereignty and monetary non-sovereignty.
To understand, keep asking yourself, “What are the differences between federal finances and state & local finances?” Then you will get it.
Deficits don’t equal total spending because Deficits are defined as: Spending – Tax collections.
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@ Rodger…here is the only limit in the rules…
“The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.”
I am not even 100% sure what this is suppose to mean? In any case my comment still stand…one of the problems with this is that you don’t know when that will occur and when it does occur it will probably be too late, the damage will be done.
Also there are other considerations, that as far as I can tell (I stand corrected if I am wrong) are not even discussed…if you are going to use interest rates to control inflation, how will you know how much to raise them without crashing the economy especially if you don’t know when inflation will occur in the first place. Raising interest rates at the wrong time and too high could be like slamming on your brakes going 120 down the highway! Look what happened the last time the feds tried to raise interest rates!
@ Rodger…
“Just curious: Why are you more concerned about inflation than about recession, depression, poverty, the disappearance of the middle class, and the Gap?”
Actually right now I am more concerned about the war on cash around the world and especially with what is happening in India. The war on cash right now is more of a threat than any of these.
Inflation was mentioned as part of talking about why Venezuela is a mess. Inflation, the loss of purchasing power and along with other policies that took place in Venezuela like price control, nationalization of business, poor trade policies etc..led to shortages in goods and a loss of confidence in the countries money which in turn led to hyperinflation and turned the country into a basket case.
So when you say that the government can pay for anything and then don’t offer any constraints on that spending…yes, I do get a little nervous on where things could head and inflation is part of that but not all.
When I say inflation is a part but not all.. as an example…should we have a war with Russia because well..we can afford it and it will boost GDP?? Obviously I know you are not suggesting that but well there are concerns on where the line would be drawn on spending and at what point excess spending could create.
Regardless inflation itself even if it does not pose a threat of hyperinflation or turning us into Venezuela, is still a concern. Just to be clear I am not concerned we are going to have hyperinflation in the US any time soon unless our policies radically change…
Also I would not say that I am more concerned about inflation over the other things you mentioned but I would say inflation is a contributor to those things.
Obviously if everything goes up by the same amount… wages, productivity along with inflation ect.. then there is no problem.
However if inflation goes up and wages don’t keep pace then even if inflation goes up by 1% or 2%, over a number of years 30/40/50 years it can eat away at purchasing power.
You add into the mix low or no savings…rates on saving is what less than 1% and this is why or at least it is a contributor to why over the last 50-60 years..poverty, the disappearance of the middle class and the gap has all grown..check your geni ratio over the past 50 years and compare it to before.
As an illustration, I don’t remember the exact numbers but to have the same purchasing power today as in the mid 1960’s you would have to make at least $80,000 + yet the average (I am using the generic term average rather than mean etc..) salary today is only around $50,000 (I think that is right give or take a thousand or two) and it has barely gone up in the past 10-15 years. In addition if you add in what should be productivity gains and we should have an increase in purchasing power not a decrease.
In any case I hope this makes sense because again I am writing late at night…at least for me.
Finally @ Elizabeth…
“There are only two possible ways that people lose confidence in their currency. One is when there is hyperinflation. ”
Unfortunately at that point it is too late the damage was done. As mentioned in Venezuela government policies led to shortages which led to a greater demand for money. The shortages and inflation in turn led to a lack of confidence in the money which then led to hyperinflation. The point is they were loosing confidence while hyperinflation was occurring not after…by the time it occurred it was too late.
Also @ Elizabeth..
“I myself do not mock people who say that money must be “backed” by gold. I merely dismiss them as liars or fools.”
That is your opinion and I hate to say this but by dismissing them out of hand without even trying to understand their point, which is what you are doing makes you just as foolish as they are.
A gold standard is not perfect and as I said I am not suggesting we go back to one (I am not a gold bug) but what if Venezuela did have a gold standard. What if people and foreigners could exchange their Bolviars for gold which is actually worth something. What if the government not wanting to see an outflow of gold was forced to change their policies (on the other hand they could do like the US did in the 1970’s…cry foul, cry like a little kid and take their ball and go home…like the US did by closing the gold exchange window) to actually correct the situation. What if even if did not change their policies the gold was actually worth something so it could then be traded for goods and services.
I’m pretty sure under those conditions, things would not be as much of a mess and the foreigners who are not accepting Bolviars because they lost confidence in the money would accept gold and would trade for the goods and services the people need. Do you think things might not be so bad…
Maybe there are flaws in the argument and your not buying it, is fine but to dismiss them as fools and liars makes you just as hard headed as you claim those who do not accept MS are!
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One of the Fed’s primary jobs is to control inflation by controlling interest rates. Every week, you must have read about the Fed debating whether or not to raise rates.
The Fed’s goal is a 2% annual rate of inflation, so when inflation begins to approach that rate, the fed increase interest rates by a tiny amount.
If inflation continues to increase, the Fed repeatedly increases rates. They can do this incrementally instantaneously, every quarter or every month or every day. They have complete control.
The average inflation for the past 60 years has been about 2%. During that time we have had deficits, surpluses, recessions, wars and extreme fluctuations in oil prices.
How do you think inflation has managed to average 2% all these years? It’s not an accident. The Fed has controlled it.
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@ Rodger…
“Why would a Monetarily Sovereign government “set aside” dollars, when it has the unlimited ability to create dollars, ad hoc, by paying bills?’
Maybe it is late but I don’t understand the question…”why would a Monetarily Sovereign government “set aside” dollars, when it has the unlimited ability to create dollars, ad hoc, by paying bills?'” ??
Maybe because it is already taxing and receiving that money…lets switch that around why would a Monetarily Sovereign government, take money out of the economy and destroy that money only to re-create it?
@ Roger …
“To understand, keep asking yourself, “What are the differences between federal finances and state & local finances?” Then you will get it.”
I actually will not get it because there is nothing to get….you are drawing a wrong conclusion…
@ Rodger..
“Deficits don’t equal total spending because Deficits are defined as: Spending – Tax collections.”
Except following your logic…the government does not collect the tax money as you said it gets destroyed when it is received so how can you then say deficits =spending-taxes collections when taxes are destroyed upon receipt…….Again maybe it is late that does not make any sense!!
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Why would a Monetarily Sovereign government, take money out of the economy and destroy that money only to re-create it?
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Good heavens, Smerls, that is the whole point of this blog. The federal government does not need to tax. THE FEDERAL GOVERNMENT DOES NOT NEED TO TAX. THE FEDERAL GOVERNMENT DOES NOT NEED TO TAX.
Yikes!!
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THE DEFINITION OF DEFICITS IS: TAXES RECEIVED – SPENDING. This is a definition. It has nothing to do with what the government does with the money.
Someone in the Treasury Department keeps a list of the dollars received. They also keep a list of the dollars spent. Then they subtract one from the other to get that thing called a “Deficit.
This has nothing to do with what happens to the dollars after they are received.
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