Federal Reserve Bank of St. Louis admits federal “debt” is not a real problem

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 Committee for a Responsible Federal Budget (CRFB), that notorious disseminator of economic fabrication, published yet another “Henny Penny, sky is falling” article about the federal debt.

But this time, they inadvertently referenced an article by the St. Louis Federal Reserve Bank that revealed the truth. (Oops!)

First, let’s introduce the Big Lies, after which we’ll get to the Federal Reserve Bank of St. Louis admits federal “debt” is not a real problem admission.

The CRFB article is titled: “Marc Goldwein: Debt Matters Even More After Tax Bill’s Passage,“ DEC 20, 2017
(Marc Goldwein is the Senior Vice President and Senior Policy Director for the Committee for a Responsible Federal Budget.)

His article is filled with charts and graphs “proving” what no one is arguing about: The so-called federal “debt” and the federal deficit are increasing.

Why should we be concerned? Here’s what Goldwein says:

With an aging population and rising health costs, debt is already rising unsustainably.

“Unsustainable” is the CRFB’s favorite word. You’ll see it in most of their articles.

Yet despite my frequent requests for clarification, no one at the CRFB will say what exactly is “unsustainable” about the so-called “debt” (which actually is the total of deposits in T-security accounts, similar to bank savings accounts.)

In 1940, the “debt” was $40 Billion. Then, and continuously since, it has been described as a “ticking time bomb,“ (i.e. unsustainable.) Today, that “unsustainable” debt has risen to $14 TRILLION — a gigantic 36,000% (that’s thirty-six thousand percent) increase, and that old time bomb still is a’tickin’, and the CRFB still is handwringing about its “unsustainability.”

“High and rising levels of debt slow economic growth . . .”

As always, with CRFB statements, there is zero evidence that rising levels of debt “slow economic growth.” Quite the opposite, in fact.

U.S. depressions tend to come on the heels of federal surpluses.
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

Recessions tend to come on the heels of reductions in federal debt/money growth (See graph, below), while debt/money growth has increased when recessions were resolving.

Recessions repeatedly come on the heels of deficit growth reductions, and are cured with deficit growth increases. That’s what took us out of the “Great Depression” and the “Great Recession.”

“High and rising levels of debt reduce fiscal space . . .”

We think by “fiscal space,” Goldwein means that the U.S. government can run short of its own sovereign currency, the U.S. dollar. This is so patently false that he should be ashamed, but I suppose his salary soothes any shame.

That 35,000% growth of the debt is ample proof that the “fiscal space” claim is a fraud.

“High and rising levels of debt erode generational equality.”

High and rising levels of debt are what pay for Social Security, Medicare, Medicaid, aids to education, anti-poverty efforts and all the other social programs that narrow the Gap between the rich and the rest.

It’s the debt Henny Pennys who foster generational inequality.

“High and rising levels of  debt prevent thoughtful policymaking.”

No, actually, its the CRFB’s nonsense that prevents thoughtful policymaking.

“And debt cannot sustainably grow faster than the economy, meaning any tax cuts or spending hikes allocated to today’s votes will ultimately be paid for by younger and future generations.”

Now that the debt has grown 35,000% and reached $14 trillion, we continue to wait for younger generations to pay for it.

That never will happen, because the so-called debt (deposits) are not paid for by taxes.

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O.K., now that we have slogged once again, through the CRFB’s nonsense, we can look at how the Federal Reserve Bank of St. Louis admits federal “debt” is not a real problem.

The admission came in an article titled, What Is the Outlook for the Federal Budget?,
Tuesday, October 10, 2017, published by the St. Louis Federal Reserve Bank, and written by Senior Economist, Fernando Martin.

After a series of graphs and statements about the horrid dangers of rising debt, Martin provides us with a tiny paragraph of truth, almost unnoticeable ending his the thicket of statistics:

“However,” he added that if another big adverse shock hits the U.S. economy, this outlook might change for the worse.

“Even in this case, the U.S. has the advantage of issuing debt in its own currency, so outright default (as in Greece) is not a likely outcome, though inflation might be (as was the case during and immediately after World War II),” he concluded.

Get it? The U.S., being Monetarily Sovereign, has the advantage of issuing debt in its own currency, so it cannot run short of dollars.

THE U.S. FEDERAL GOVERNMENT, UNLIKE STATE & LOCAL GOVERNMENTS, AND UNLIKE YOU AND ME, CANNOT UNINTENTIONALLY RUN SHORT OF DOLLARS.

What are the implications of issuing debt in your own currency, so not running short of dollars? Contrary to the CRFB’s scare articles:

1. No amount of debt is “unsustainable.” (We already have proved that with our 35,000% debt increase, that easily has been sustained.)
2. High and rising levels of debt slow cannot “slow economic growth.” On the contrary, increasing debt is the federal government’s method for stimulating the economy.
3. High and rising levels of debt do not “reduce fiscal space.” Fiscal space is the ability to spend. The federal government has the unlimited ability to spend as Martin acknowledged.
4. High and rising levels of debt do not “erode generational equality.” Quite the opposite. Cutting debt results in cuts to benefits for the middle- and lower-income groups.
5. Federal debt can sustainably grow faster than the economy and has been doing that for many years.
6. High and rising levels of debt are the result of thoughtful policymaking.

And so the entire Henny Penny handwringing is all about inflation, the inflation that “high and rising levels of debt are sure to cause” — except for one minor truth: For the past ten years of extraordinary debt increases, the inflation has averaged below, the Fed’s target of about 2.5%.

Being Monetarily Sovereign, the U.S. government has the unlimited power to fight inflation (i.e increase the value of the dollar) at will.

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In Summary:

Even the St. Louis Federal Reserve Bank has admitted (though reluctantly, because they too spread the “unsustainable debt lie) that federal debt is not a problem — not a problem for the government, not a problem for the economy, and not a problem for taxpayers.

On the contrary, federal deficit spending adds spending dollars to the economy, and so, is necessary for economic growth.

An economy cannot grow without a growing money supply.
GDP = Federal Spending + Non-federal Spending + Net Exports.

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

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The 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 (Economic Bonus)) 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.

MONETARY SOVEREIGNTY