oitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders..
One thing that confuses those who are not familiar with Monetary Sovereignty, is the fact that federal tax dollars, rather than being used to fund spending, are destroyed upon receipt.
It may be hard for you to imagine those dollars you work so hard to obtain, are of no use to the federal government and so, are destroyed.
The Treasury either does or does not destroy your tax dollars, and both statements are true, and it doesn’t make any difference.
Now that I’ve confused you, let me try to clarify.
In earlier posts, I’ve compared the federal government to the Bank in the board game, Monopoly®.
Monopoly generally involves four players plus a “Bank.” The Bank, like the federal government, is Monetarily Sovereign. That is, by rule, it never needs to run short of dollars.
To play the game, participants buy and sell Monopoly real estate and charge rent on the properties they buy. The player gaining the most Monopoly dollars wins.
The purpose of the Bank is to provide the money for the game and to sell the real estate properties to the players. Consider the Bank a corollary to the U.S. Treasury.
Imagine that you and three friends wish to play Monopoly, but when you open the box you discover the board, some game tokens, and some instruction cards, but no Monopoly dollars inside.
No problem. You simply take a sheet of paper and draw four columns, one for each player. The Bank then provides each player with a given amount of Monopoly money, say 5,000 Monopoly dollars, by writing the number “5000” at the top of each column.
Thus, the total Monopoly “economy” would consist of 20,000 Monopoly dollars.
As the game is played, the players periodically receive 200 Monopoly dollars from the Bank, for passing one square on the board, called “Go.”
Each time a player receives or pays money, that amount is added to his column.
Where does the Bank get the money? Where does it get the 20,000 start-up dollars, and where does it get the 200 dollars to pay the players for landing on “Go”?
Like the U.S. federal government, the Bank creates dollars out of thin air, simply by writing numbers into each player’s column. The Bank has no source of dollars other than the rules of the game.
The Bank needs neither to borrow nor to tax. It obtains dollars by creating dollars.
Now here comes the interesting part:
At various points in the game, the rules require players to pay money to the Bank, either for properties, for fines or for taxes.
Let’s say a player must pay a $100 tax to the Bank. In that case, 100 is deducted from that player’s column.
But where does the 100 go? The Bank has no column. The 100 simply disappears. In effect, those tax dollars have been destroyed.
Of course, if that bothers players who are accustomed to double-entry accounting, they simply could give the Bank a column of its own, and the 100 tax dollars could be added to the Bank’s column.
But it would make no difference whether of not the Bank has a column. The Bank is not part of the “economy.” And since the Bank has the unlimited ability to create Monopoly dollars from thin air, there is no way to determine how much money the Bank “has” at any moment in time.
Whether or not the Bank has its own column, this would not have any effect on the Bank’s ability to pay players whatever it owes them.
No matter how many dollars are shown in The Bank’s column, The Bank can be said to have zero dollars or infinite dollars.
Thus, when a player sends tax dollars to the Bank, this does not affect how many dollars the Bank has available to spend. Taxes do not fund the Bank’s spending.
Similarly, the U.S. Treasury and the Federal Reserve are not part of the U.S. economy. Just like the Monopoly Bank, the Federal Reserve creates dollars at will by spending dollars into the economy.
Any U.S. dollars in the Treasury’s or Federal Reserve’s “column” are not part of the U.S. economy’s money supply. Only dollars in the economy are part of the money supply.
So, like the Monopoly Bank, the Treasury and Federal Reserve can be said to have zero dollars, or infinite dollars. Either way, the tax dollars you send to the Treasury have no effect on how many dollars the government has available to spend. Taxes do not fund federal spending.
Although the U.S. Treasury and the Federal Resereve do keep accounting records, these records do not measure an ability to pay bills. These records don’t measure what the federal government “has,” because what the government “has” is both irrelevant and unmeasurable.
So take your pick. The U.S. Treasury either does or does not destroy the tax dollars you send it, and in either case, these tax dollars affect nothing. Whether or not the Treasury receives tax dollars, the federal govenment can continue to pay its bills, forever.
If the Treasury’s balance sheet is irrelevant, and federal tax dollars don’t fund federal spending, why do we pay taxes?
- Historical: In the years when the U.S. was on a gold standard, it did not have the unlimited ability to create dollars from thin air. Its dollar creation was limited by its gold hoard. So, it needed to obtain dollars from taxes or from borrowing. Today, that reason no longer exists.
- Control: Taking tax dollars from specific segments of the economy is one method Congress uses to control the economy. This approach has been perverted by business interests, that have bribed Congress to create tax loopholes.
- Gap Psychology: The richest .1% own Congress. They pay Congress to widen the Gap between them and the rest of us. The tax code is designed to do this, as the vast majority of taxes are effectively regressive. At the behest of the rich, Congress levies taxes to widen the Gap and spends money to get votes.
In short, you pay tax dollars to the U.S. Treasury, which neither needs, nor uses those dollars. Though the government tracks dollars in balance sheets, the dollars do not affect the government’s ability to spend.
Think of it this way. When you pay taxes, you write a check. The dollars come out of what is called the M2 money supply measure.
But when the dollars reach the Treasury, they instantly disappear from the M2 money supply measure and are not found in any money supply measure.
In short, they disappear. They effectively are destroyed by joining the Treasury’s infinite money supply. Adding dollars to infinite dollars still yields infinite dollars.
These dollars, which are not spent and are not part of any money supply, no longer exist. They have they been destroyed.
Rodger Malcolm Mitchell
•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money no matter how much it taxes its citizens.
•The more federal budgets are cut and taxes increased, the weaker an economy becomes..
•No nation can tax itself into prosperity, nor grow without money growth.
•Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
•A growing economy requires a growing supply of money (GDP = Federal Spending + Non-federal Spending + Net Exports)
•Deficit spending grows the supply of money
•The limit to federal deficit spending is an inflation that cannot be cured with interest rate control. The limit to non-federal deficit spending is the ability to borrow.
•Until the 99% understand the need for federal deficits, the upper 1% will rule.
•Progressives think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
•The single most important problem in economics is the Gap between the rich and the rest.
•Austerity is the government’s method for widening the Gap between the rich and the rest.
•Until the 99% understand the need for federal deficits, the upper 1% will rule.
•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..
11 thoughts on “Does the U.S. Treasury really destroy your tax dollars? The Monopoly® answer.”
Interesting concept that the Government and the Treasury are not part of the “Economy”, at least regarding the money supply. I have thought of Treasury as a cemetery. Once buried, money never gets out. Its purpose is to just issue spending instructions to the Fed on behalf of the sovereign government.
Because the Treasury has the unlimited ability to create dollars, which it does by sending instructions to creditors’ banks, trying to determine how many dollars the Treasury “has” would be nonsensical.
It “has” either zero dollars or infinite dollars, depending on how you define “has.”
Either way, it can’t be part of the money supply.
Rodger, can you give an explanation as to “why” the rich need and work hard to create a gap between themselves and common working class peoples?
The Gaps are what makes people richer. Without the Gaps, no one would be richer, and the wider the Gaps, the richer they are.
It is a rule of human psychology that we want the Gap below us to widen and the Gap above us to narrow.
Said another way, we wish to distance ourselves from lower income/wealth/power people, while coming closer to the higher income/wealth/power people.
taxes also create a demand for the currency. Or as Randall Wray says: taxes drive money. I notice you leave that out of most of your essays. Otherwise, great work, thank you.
Joe, I’ve discussed it with Randy.
Although he is correct that requiring people to pay taxes with U.S. dollars does create a Demand for dollars, but what is Randy really telling us?
For instance, does increasing taxes increase the Demand for dollars, thereby increasing the Value of dollars?
Is a tax increase then a good method for fighting inflation?
Or do tax cuts reduce the Demand for dollars, thereby causing inflation?
Or, if there were no taxes, would there be zero Demand for dollars, and thus, hyper-inflation?
Or, what is the minimum level of taxes that would create a “suitable” Demand for dollars?
In short, there is some logic to the notion that taxes can require a Demand for dollars, but what is the logical extension of that idea? Where does it take us? What action does it suggest?
How about this reasoning:
1. Inflation increases the Demand for dollars as more are needed for purchasing.
2. Increasing the Demand for dollars increases the Value of dollars
3. Increasing the Value of dollars fights inflation.
4. Therefore, inflation fights inflation.
Another thing that Randy said, in the same vein, was that increases in interest rates are inflationary, because they add to businesses costs.
Yet, the Fed successfully fights inflation by increasing interest rates.
MMT and MS agree on certain fundamentals (i.e. federal taxes don’t fund federal spending), but disagree on many details (Jobs Guarantee).
So then what’s the point of the Federal Reserve, why was it chartered if congress llc and US Inc could do the same?
To manage the banking sector.
Congress and the President created dollars by sending instructions to creditors’ banks, instructing the banks to increase the balances in the creditors’ checking accounts
At the moment the banks obey those instructions, dollars are added to the M1 money supply. The bank then clears those instructions with the Federal Reserve, which in turn clears them through the government’s general fund, which is funded by the Congressional Budgeting Process.
A central bank isn’t absolutely necessary, but without it the process would be a mess.
Increasing businesses costs don’t necessarily mean inflation in a competitive environment. If you’re competitive then you find ways to cut costs with the least harm. Competition has been bought out. Now it’s the conglomerates and cooperation among the wealthy to fix only prices…but not the whole system.
The best future cost cutter is automation, but then MS/MMT must pick up those who have been tossed out to unemployment. People aren’t lazy. This is not a personal problem; it’s an evolutionary systemic problem.
Unfortunately, thanks to the educational system’s antiquity, we are trained to think in personal, specialized ways rather than trends and patterns, i.e., the bigger picture of whole systems science.
This isn’t a slam on MS or any other econ theory, but economics is a specialization that considers only One thing in solving problems, when in fact our problems are solved by understanding- or trying to understand–everything around us. The educational system is still hyper specialized and money is all too often the answer; meanwhile, technology and knowhow are sitting in the wings waiting for money to turn them loose to solve many of our problems.
The system is flipped. Technology should be turning money loose! Science not politics should be in the lead.
You might be right. My suggestion is the Ten Steps to Prosperity. What is yours?
Evolution. Emerge by means of emergency. As long as the system is in cruise control nothing will be done. When the system becomes so out of control that the hospitals, jails, court rooms and park benches are too few to handle the refuse then, standing at the crossroads, a comprehensive system will have to evolve like it or not. It’s human nature that people will not get out of the way of a disaster they can’t see coming. Emergency conditions plus the internet are Nature’s way of allowing us to “see” and make the right moves hopefully before it’s too late. Definitely touch and go at this time.