It takes only two things to keep people in chains:
The ignorance of the oppressed
and the treachery of their leaders.
THE WEEK Magazine, January 19, 2018, contained an article titled, The national debt, explained, by The Week Staff. The article is filled with ignorance and treachery.
Here are excerpts and commentary.
The U.S. debt is $20.5 trillion and rising. Should Americans be worried? Here’s everything you need to know:
Why does the U.S. owe so much?
Immediately, we come to the first bit of ignorance: The question, “Why does the U.S. owe so much?”
That question, preceded by the question, “Should Americans be worried,” implies there is something negative about the federal debt.
But the so-called “debt” is nothing more than the total of deposits in T-security accounts, similar to bank savings accounts.
When you supposedly “lend” (misleading word) to the federal government, you instruct your bank to take dollars from your checking account and deposit them in your T-security account. You can do this online with a system called “TreasuryDirect.“
Quoting from the TreasuryDirect website:
In your TreasuryDirect account, you can purchase and hold Treasury bills, notes, bonds, Floating Rate Notes, Treasury Inflation-Protected Securities (TIPS), and savings bonds, and it’s available to you 24 hours a day, 7 days a week.
Contrary to popular wisdom, the federal government does not spend the dollars that are in your T-security account. The dollars stay in your T-security account until your securities mature, at which time your T-account is debited and your checking account is credited.
Thus, your T-security account is not paid off by taxes.
And again, contrary to what you have been told, your grandchildren will not pay the debt. The debt is paid by the dollars that already are in T-security accounts.
Returning to the article:
Apart from a four-year stretch during the economic boom of the late 1990s, the federal government has run a budget deficit every year since 1970. In 2017, the shortfall was $666 billion.
The national debt is now slightly larger than the size of the entire U.S. economy, equal to 106 percent of the country’s gross domestic product (GDP).
If the author believes there is something wrong with a debt greater than GDP, let’s consider that to be Ignorance.
Years ago, pundits claimed that a Debt/GDP ratio above 100% would spell doom for the economy. Yet here we are.
The debt has nothing to do with GDP. The debt (deposits in T-security accounts) is not paid by GDP. They are two separate, unrelated numbers.
Overall, the Congressional Budget Office (CBO) expects the national debt to surpass $30 trillion by 2028, as Medicare and Social Security costs soar to cover aging baby boomers.
Outgoing Federal Reserve Chair Janet Yellen has warned that the country’s growing debt load could eventually become unsustainable. “It’s the type of thing that should keep people awake at night,” she told Congress in November.
This is major Treachery. Surely the Federal Reserve Chair knows better.
Back in 1940, and repeatedly thereafter, the media called the debt a “ticking time bomb.” (See: “From ‘ticking time bomb’ to ‘looming collapse.'”) It was $40 Billion then.
Today, 78 years later it is $15 Trillion — a 37,500% increase — and that “time bomb” still hasn’t exploded.
Janet Yellen should be ashamed.
Why is it a problem?
Like any credit card user, the government must pay interest on its debt. For much of the past decade that hasn’t been a major problem, because of historically low interest rates.
An example of Ignorance.
It hasn’t “been a major problem,” but not because interest rates are low. Rather it’s because the Federal government (unlike state & local governments, businesses, you & me) is Monetarily Sovereign. It is sovereign over the dollar.
When America began, its government created laws from thin air, and some of those laws created the U.S. dollar, also from thin air. Today, the federal government continues to create laws and dollars from thin air.
To pay an invoice, the federal government sends instructions (not dollars) to the creditor’s bank, instructing the bank to increase the numbers in the creditor’s checking account.
At the moment the bank does as instructed, brand new dollars are created, ad hoc. So long as the government doesn’t run short of instructions, it won’t run short of dollars.
The federal government simply cannot run short of dollars, unless it wants to.
For the government, paying any amount of interest requires nothing more than clicking a computer key.
Net interest payments on the debt represented 6.8 percent of the federal budget in 2017, or $276.2 billion, compared with more than 15 percent in the mid-1990s.
But with the Fed unwinding its post-recession stimulus campaign, interest rates are expected to rise steadily in the coming years.
As a result, the CBO estimates, the cost of servicing the national debt is expected to nearly triple by 2027 — leaving the government paying more on interest payments than on national defense.
Ignorance: Perhaps this is supposed to worry you. But why would you be worried about a government with the unlimited ability to create dollars, paying more in interest than on national defense?
It’s a meaningless comparison (interest vs. defense) and a meaningless concern. The federal government can create unlimited dollars for interest and for defense.
Is everyone worried?
No. Economists point out that debt can be used to fund important investments, such as stimulating the economy during a recession or fighting unavoidable wars.
The nation’s debt is also wildly different from a household’s budget, because the government can print its own money and has a theoretically infinite life span to pay off its obligations.
Some theorists even argue that deficits and the debt are mostly irrelevant. One emerging school of thought, known as Modern Monetary Theory, argues that inflation is the only obstacle standing in the way of the government creating and spending as much money as it wants.
“The national debt is not a national crisis,” says economist Stephanie Kelton, a former adviser to Sen. Bernie Sanders. “The fact that 21 percent of all children in the United States live in poverty — that’s a crisis.”
The above may be the only true paragraphs in the entire article, yet they are buried amidst the deceptions.
Who owns the debt?
About three-quarters is held by investors in the form of Treasury securities sold by the government to raise money.
Ignorance. The federal government, which has the unlimited ability to create its own sovereign currency, the dollar, has no need to “raise money.”
The rest is intragovernmental debt that comes from Washington borrowing against government trust funds, such as Social Security and Medicare.
Ignorance. A “trust fund” involves a grantor and a recipient. The grantor adds money or other assets to the fund, for later payment to the recipient. Once in the fund, the assets no longer belong to the grantor and don’t yet belong to the recipient.
The notion of a “trust fund” established by a Monetarily Sovereign nation, is senseless. Of what purpose is the fund, if the grantor has the unlimited ability to create assets, at any time and in any amount?
And if trust fund assets no longer belong to the grantor or to the recipient, to whom do the funds in a Social Security or Medicare “trust fund” belong?
In fact, there are no Social Security or Medicare trust funds. They are bookkeeping fictions, having zero purpose other than to deceive.
And the federal government has no need to borrow dollars, and indeed, does not borrow. It creates dollars, ad hoc, by paying bills.
Americans own most of the public debt, which means they benefit from the interest paid on it. That includes corporations, state and local governments, and individual investors, many of whom hold Treasury bonds in their retirement funds.
Foreign investors own about 30 percent of the nation’s total debt, or about $6.3 trillion. America’s biggest foreign creditor is China, which holds about 5 percent of the total debt, followed closely by Japan.
This could become a problem if the U.S. ever damaged its credit rating, but for now American debt is still considered one of the world’s safest assets.
This is a combination of Ignorance and Treachery. On August 5, 2011, Standard & Poors (S&P) reduced America’s credit rating from AAA (outstanding) to AA+ (excellent) on August 5, 2011.
Ignorance: Two companies, Microsoft and Johnson & Johnson, have a credit rating of AAA — higher than the American government!
Think of it. The U.S., being Monetarily Sovereign, pays its debts with its own sovereign currency, of which it has the unlimited ability to create.
Microsoft and Johnson & Johnson are monetarily non-sovereign, and though they use dollars to pay their bills, they do not have the unlimited ability to create dollars.
So how can their credit rating be higher than that of the U.S.?
More ignorance: If the U.S ever failed to pay its debts, the dollar would lose value, which would send Microsoft and Johnson & Johnson into financial shock — probably bankruptcy.
So why did S&P lower America’s credit rating? This is where the Treachery comes in. Congress has created the “debt ceiling,” an artificial limit to the amount of money the government can pay for existing obligations.
That limit is based on a lie, the “Big Lie,” that federal taxes pay for federal spending. (While state and local government taxes do pay for state and local government spending, federal taxes do not pay for federal spending.)
Even if all federal tax collections fell to $0, the federal government could continue spending, forever.
Congress is well aware of this, but continues its pretense that dollars are limited, to keep you from asking for benefits. The rich want to limit your benefits so as to widen the Gap between them and you. The wider the Gap, the richer they are.
The debt limit is one of America’s biggest con jobs. Neither prudent nor wise, it’s economically harmful.
Has the U.S. always been in debt?
President Andrew Jackson briefly paid off the national debt in 1835, partly with proceeds from lands seized from Native American tribes.
Treachery: The author hides the fact that this caused a depression.
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.
Otherwise, the U.S. has been in hock for nearly every year of its existence, beginning with the bill for the Revolutionary War.
The debt peaked after World War II, ballooning to 119 percent the size of the GDP in 1946, but it swiftly shrank during the postwar economic boom. The debt load bottomed out at about 24 percent of GDP in 1974, and has been rising ever since.
But it was after the Great Recession in 2007 that the debt really began to explode. Tax revenues cratered while the government spent heavily trying to stave off economic collapse, including George W. Bush’s $700 billion bank bailout, known as TARP, and Barack Obama’s $787 billion economic stimulus package.
Probably, Ignorance: Apparently, the author doesn’t realize that while debt reduction leads to depressions and recessions, those depressions and recessions are cured by debt increases.
What can be done to pay it off?
Theoretically, paying down the debt is simply a matter of spending less and collecting more in taxes. But voters don’t like spending cuts or tax increases, so politicians who want to be re-elected avoid them.
Give this a Treacherous Ignorance grade.
It is tantamount to asking, “What can be done to completely destroy the U.S. economy?” The debt is $15 Trillion. Does any sane person really want to remove $15 trillion from the American economy?
Does any sane person want to remove even $1 Trillion, or any amount from the American economy? Surely the most stupid idea in this entire article, and that is saying something.
Depending on whether they’re in power or out, both Democrats and Republicans are conveniently inconsistent in their views on the debt. During the 2008 presidential campaign, Obama chided Bush for “unpatriotic” deficit spending on the Iraq War and tax cuts, which helped increase the total debt by 101 percent during the Bush years.
But Obama increased the debt by 68 percent during his own presidency, arguing that deficit spending was necessary to rescue the economy.
Likewise, Republicans who warned that Obama was spending away the country’s future have now embraced deficits, arguing that their $1.5 trillion tax plan will pay for itself by generating economic growth — a contention that most economists say is unrealistic.
Rep. Mark Walker (R-N.C.) says his party sees the dangers of debt as “a great talking point when you have an administration that’s Democrat-led. It’s a little different now that Republicans have both houses and the administration.”
The above is 100% Treachery. Both parties are well aware that federal deficit spending grows the economy, and federal surpluses shrink the economy.
And if any tax cut were to “pay for itself” by decreasing the federal deficit, that tax cut would cause a recession or a depression.
Other countries’ debt
In sheer dollars, the U.S. is the most indebted country in the world, followed by Japan ($11 trillion) and China ($5 trillion).
But in relation to the size of its economy, Japan’s debt is the biggest in the world by far. Japan’s debt is more than 240 percent the size of its economy, with Greece carrying the world’s second-largest debt load at 180 percent.
Probably Ignorance: The authors fail to mention the difference between a Monetarily Sovereign nation (the U.S., China, Japan) and a monetarily non-sovereign nation (Greece and all other euro-using nations).
While a Monetarily Sovereign government can pay any bill denominated in its sovereign currency, a monetarily non-sovereign government has no sovereign currency, so can run short of whatever currency it uses.
The THIS WEEK article is a damaging blend of Ignorance and Treachery, that serves only to promulgate the Big Lie.
It’s a disgrace, but a typical disgrace, for you will see articles like this every day, from many sources, both right and left.
Rodger Malcolm Mitchell
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
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.