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It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders..
Readers of this blog know that unlike state and local governments, the U.S. federal government is Monetarily Sovereign.
A key feature of a Monetarily Sovereign government is that taxes do not fund its spending. Unlike state and local governments, the U.S. government creates its sovereign currency, the dollar, ad hoc, by spending.
Paying creditors is how the federal government creates dollars.
Thus, even if the federal government did not collect a single dollar in taxes, it could continue spending — even dramatically increase spending — forever.
“The Big Lie” is the lie that federal finances are like state and local finances, and like your personal finances. You and your state and local governments need income in order to spend. These governments need to tax and in many cases, need to borrow.
The federal government needs no income. It creates unlimited dollars simply by spending. Here are examples of The Big Lie, from today’s Chicago Tribune:
What Trump’s budget blueprint gets right
A forced reassessment of never-ending programs
We’re grateful to White House budget director Mick Mulvaney for reminding everyone of the ultimate source of every dollar. “We’re trying to focus on both the recipients of the money and the folks who give us the money in the first place,” he said Thursday.
There are no “folks who give” (the federal government money to spend). While you do pay taxes, the government neither needs nor uses those tax dollars.
Upon receipt by the federal government, your taxes disappear from the money supply. Unlike what commonly is believed, and unlike the way state and local governments operate, your federal tax dollars are not saved for future spending.
Your federal tax dollars effectively are destroyed upon arrival.
Among the agencies that would be zeroed out are the Corporation for Public Broadcasting (which got $445 million last year), the Appalachian Regional Commission ($146 million), the National Endowment for the Arts ($148 million) and the National Endowment for the Humanities ($148 million).
The plan would cut the Environmental Protection Agency by $2.6 billion, the Agriculture Department by $4.7 billion and the State Department by nearly $11 billion
One phrase that was not heard much from opponents of the plan was “$20 trillion in federal debt.” But that’s what decades of chronic overspending have created. Just servicing that debt will cost taxpayers $270 billion this year — which is $270 billion that can’t be spent on other functions, such as the ones President Donald Trump proposes to cut.
The misnamed “federal debt” is not what you may think. This “debt” actually is the total of deposits in T-security (T-bills, T-notes, T-bonds) accounts at the Federal Reserve Bank. The so-called “debt” is just federal bank account deposits.
When you want to invest in a T-security, you instruct the Federal Reserve Bank to credit your T-security account, and simultaneously to debit your personal checking account at your local bank. In essence, paying the “debt” involves a transfer of your dollars from your checking account to your T-security account.
The entire federal debt easily could be paid off tomorrow.
Paying off the federal debt is no burden on you, on me or on the federal government. Taxpayers are not involved in any aspect of the federal debt. Paying the “debt” is just a transfer of existing dollars.
What about that $270 billion in interest payments? When the federal government pays any bill, including interest, it creates the necessary dollars, ad hoc. Here’s how: It sends instructions (not dollars) to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account.
At the moment the creditor’s bank does as instructed, new dollars are created and added to the money supply. No tax dollars are involved. The federal government has the unlimited power to send such instructions to banks. It never can run short of instructions, and the banks always will obey those instructions.
These new dollars stimulate the economy; they grow Gross Domestic Product (GDP), the formula for which is:
GDP = Federal Spending + Non-federal Spending + Net Exports
As you can see, federal spending for interest payments on the so-called “debt,” stimulate GDP growth. Rather than being a concern, the “debt” (deposits) facilitates economic growth.
When the Tribune refers to interest as “$270 billion that can’t be spent on other functions” that is a perfect expression of The Big Lie.
Not only is the federal government unlimited in what it can spend on other functions, but that $270 billion adds dollars to the private economy, which it spends on other functions.
The $270 billion in interest payments is a benefit to the economy, not a cost.
And as for those millions and billions being cut from agencies, not only are important agencies being hamstrung, but those cuts are dollars the economy never will see. Those cuts will not contribute to economic growth.
Is it really so outrageous to think public broadcasting can support itself in the age of Netflix? Is that $148 million for the NEA indispensable, given that Americans donated $17 billion last year — more than 100 times as much — to support the arts?
If Appalachia still depends on special assistance from Washington, what does that say about the effectiveness of the 52-year-old Appalachian Regional Commission?
If Trump thinks the EPA can function with less money, shouldn’t the agency and its defenders be asked to prove its value?
Utter nonsense. Any agency can “support itself” with less money. No amount of money is “indispensable.” The questions are, however:
- What is the economic purpose of the cuts?
- What will the cuts do to the effectiveness of the agency?
- Why not give the agency more dollars, rather than fewer?
Those questions have not been addressed by the politicians or the media, whose sole goal seems to be to reduce GDP, i.e. reduce economic growth, by cutting federal spending.
Plenty of local and state organizations count on federal funding, and they warn that some states and cities wouldn’t make it up if it went missing. But there are a couple of reasons for that. One is that these programs are not as high a priority to those states and localities as competing ones are.
States are monetarily non-sovereign. They need income, and that comes from taxes, from borrowing, and from the federal government. Federal spending on state projects saves taxpayers money.
Federal spending saves you tax money.
And now (ta da), the Chicago Tribune tacitly admits it has been telling the Big Lie all along:
(The) states, unlike the feds, can’t run enormous deficits every year.
That’s right, folks. State finances are not like federal finances. The federal government CAN run enormous deficits every year — and it can do it forever. Not only that, but federal deficit spending adds dollars to the economy and grows the economy.
So, Chicago Tribune and Mick Mulvaney and President Trump and Congress, what exactly is the problem you wish to solve by cutting federal spending?
The Trump administration’s proposals will force lawmakers and citizens to reconsider not only the benefits of all the targeted outlays but also the cost of continuing them.
Our leaders have gotten used to operating as though Washington could live beyond its means forever. If this blueprint destroys that illusion, it will have done a great service.
But wait. The Tribune just admitted the feds, unlike the states, can run enormous deficits every year. That being true (and it is), why is there “an illusion” for Washington to live “beyond its means”?
The federal government creates dollars by spending dollars. It has no “means” to live beyond. There is no “cost” of continuing federal spending.
Finally, you might ask, why do the Tribune and the politicians repeatedly tell The Big Lie (even though occasionally they stumble over themselves as the Tribune just did)?
The reason: That is what the very rich want. Most federal spending benefits the not-rich, the so-called 99%. The rich don’t like that; they want the Gap between the rich and the rest to widen.
So the rich bribe the politicians (via campaign contributions and promises of lucrative employment later); they bribe the media (via ownership and advertising revenue); and they bribe the economists (via university contributions and “think tank” employment) to tell the populace The Big Lie that the federal government would have to raise taxes if it continues to spend.
But, there is absolutely no reason to cut federal spending on important services. The federal government could and should implement the Ten Steps to Prosperity (see below).
The federal government has the power to narrow the Gap between the rich and the rest while enriching and growing the economy if it simply stopped telling The Big Lie.
Rodger Malcolm Mitchell
The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.
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 A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Guaranteed Income)) 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 EVERYONE Five 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 FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce 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 business 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.