It takes only two things to keep people in chains:
The ignorance of the oppressed
And the treachery of their leaders
Quotes: Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
Ben Bernanke, “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets.”
Alan Greenspan (Re. Social Security solvency): “There’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”
The CRFB (Committee for a Responsible Federal Budget) was formed in 1983. For the past 38 years, they have been telling the same old story, namely that the federal deficit and debt are too high — really, really, really too high.
But while that myth . . . uh, story, remains the same-old, same-old, year after year, there is another story they conveniently have omitted: What does it mean for the deficit and debt to be high — really, really high? Why should we care?
- Does it mean the federal government is running short of dollars?
- Does it mean the federal government will be unable to pay its debts?
- Does it mean your taxes need to rise?
- Does it mean the economy will suffer because of the federal debt?
- Does it mean the federal debt will cause hyperinflation?
- Does it mean no one will want to buy Treasury securities?
You might think that after 38 years, the CRFB would be ready, willing, and able to provide data to answer such questions. But amazingly, during those 38 painfully wrong years, the CRFB never even attempts to answer.
They just keep repeating the myth that the deficit and debt are too high. The CRFB seems to believe that if they repeat a lie often enough, they can get people to believe it.
Here are excerpts from the sorry and ongoing saga of CRFB, the paid mouthpiece for the rich:
Welcome to the woeful world of free-lunch economics
By Maya MacGuineas. Opinion Contributor — 04/13/18
Congress and the president have been on quite the borrowing binge over the past few months — from multiple rounds of tax cuts to smashing through the budget caps. Meanwhile, talk of paying for these budget-busting policies has just about disappeared.
Immediately, MacGuineas jumps into the phony “paying for” theme. Why is it phony? Because the federal government, unlike state and local governments, uniquely is Monetarily Sovereign.
Being Monetarily Sovereign, the federal government created the very first dollars out of thin air, by creating laws out of thin air. And ever since that time, 240 years ago, the federal government has continued to create dollars out of thin air.
U.S. dollars are not physical things. They are balance sheet notations, and the federal government owns the balance sheets.
Monetarily non-sovereign, state and local government can’t do this. Nor can businesses. Nor can the euro nations. Nor can you and I. The public’s confusion between Monetary Sovereignty and monetary non-sovereignty, is what helps the CRFB promulgate its myth.
But, in fact, as both former Fed Chairmen Alan Greenspan and Ben Bernanke admit, the federal government, uniquely cannot run short of its own sovereign currency, the dollar (which answers questions #1, and #2, above).
Given that the federal government has the unlimited ability to create its own sovereign currency, it neither needs nor uses tax dollars to pay its bills.
In fact, even if all federal tax collections fell to $0, the federal government could continue to spend dollars, forever, simply by creating more dollars (which answers question #3, above).
So, why does the federal government levy taxes? Federal taxation mostly is a relic of our gold and silver standards — those years when the federal government voluntarily surrendered its unlimited ability to create dollars.
Taxation also is an economic control device to reduce certain activities — for instance sin taxes on cigarettes, gasoline, and liquor. Unlike state & local taxation, federal taxation does not fund its spending.
Finally, the rich, who own the federal politicians, do not want you to know that federal spending is not limited by debt or dollar supply.
Continuing the CRFB article: Instead of the sensible conversation that starts with: “If something is worth doing it is worth paying for,” we have been hearing from our leaders: “Don’t worry, this will pay for itself,” and, “This is too important to have to pay for.”
Welcome to the world of free-lunch economics.
By “pay for itself,” many of our leaders try to make you believe something like: “Increased deficits will cause increased income, which will cause increased tax collections, which in turn, will reduce deficits, leading to lower tax collections.”
The CRFB is right. The whole notion that increased deficits can cause reduced deficits is nutty. The idea leads to a ridiculous endless circle, in which high deficits would beget low deficits, which presumably would again beget high deficits.
Thus, it logically and mathematically is impossible for deficit spending ever to “pay for itself” — impossible and wholly unnecessary for a Monetarily Sovereign government.
More to the point, however, the CRFB never acknowledges that increased deficits actually result in economic growth.
Deficit spending grows the economy by putting dollars into consumers’ pockets, which is why when deficit growth decreases we have recessions, and when we have recessions, deficit growth cures them.
The CRFB never mentions this fact, though that answers question #4, above. The economy does not suffer because of federal debt; it thrives.
Continuing the CRFB article: Just this week, we learned that budget deficits are now projected to be $12.4 trillion over the next 10 years — an increase of $2.3 trillion since 10 months ago.
The milestones of trillion-dollar deficits about to return and become permanent, the debt reaching the size of the economy in just over a decade, and annual interest payments increasing by $600 billion over the decade are signs this new school of economics is not putting us on a smart path.
Why are “trillion-dollar deficits” a problem? The CRFB never tells you, principally because they aren’t a problem — not for the federal government and not for taxpayers. No, your grandchildren never will pay the U.S. federal debt, just as you have not paid the debt accumulated for the past seventy years.
(Deficits are a problem for monetarily non-sovereign state and local governments, and for you and me, but the CRFB doesn’t want you to understand the difference.)
And as for question #5 above, do not believe the scaremongers, who tell you deficit spending will cause a Zimbabwe, Weimar Germany hyperinflation (which the U.S. never has had in all its 240-year history).
This graph shows the huge increase in federal debt compared to our modest increase in inflation.
(Aside: Hyperinflations historically have not been caused by deficit spending. They are caused by shortages. Zimbabwe’s was a shortage of food. Germany’s was a shortage of gold. Deficit spending often has been a government’s bad response to hyperinflation, not a cause.)
Continuing the CRFB article: In just a little over a decade, our debt could be the highest it has even been compared to the overall economy. The current record was set just after World War II. The difference here, though is there is no world war. No recession. No depression. Unemployment is low. Growth is strong.
There is no need for stimulus and no rationale to rack up such a huge tab during stable times and already historic levels of debt.
Apparently, Ms. MacGuineas doesn’t realize that she has just admitted the truth:
“The highest debt it has even been” and “historic levels of debt” have brought us “no recession, no depression, low unemployment and strong growth.”
So Ms. MacGuineas, please remind us again why you wish to reduce the debt.
Continuing the CRFB article: Instead, at this point in the business cycle, we should be running surpluses (remember that quaint concept?) to be prepared for the next emergency. But there is zero talk of changing course.
Not only are federal surpluses a “quaint concept,” but they are an economically suicidal concept. 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.
Why have federal surpluses repeatedly led to economic failures? Because federal surpluses require either higher taxes and/or lower federal spending. In short, federal surpluses take dollars out of consumers’ pockets, which depresses the economy.
It’s really a simple and straightforward concept, which the CRFB wishes to obfuscate. Don’t fall for it.
Continuing the CRFB article: Sure, there is the empty idea of voting on a balanced budget amendment. If people were serious, this would be a reasonable idea for discussion.
Many details would need to be worked out, like escape hatches for recessions and emergencies, and balancing restraints on spending and revenue.
If a balanced budget was a “reasonable idea,” why would it need “escape hatches for recessions and emergencies?”
Hers is a tacit admission that a balanced budget cannot grow the economy, and whenever a balanced budget causes economic stagnation (which it always has), we need to “escape” from the balanced budget.
Escape how? By running federal deficits — by pumping dollars into the economy — and the bigger the deficits, the faster the recovery.
Continuing the CRFB article: Our fiscal hole is now so large that balance is a long, long way off, and it is better to focus on more credible goals. But come on, in this context, the balanced budget amendment is a total joke.
Here, we agree with MacGuineas. The balanced budget amendment is a total joke, because it would cause the greatest depression in American history, with no way out, no “escape hatch.”
Continuing the CRFB article: Voting to require balancing the budget without putting out a budget that does indeed balance is still looking for that free lunch.
MacGuineas never explains “free lunch,” but we’ll try to help her. A “free lunch” is what the rich receive whenever deficit reduction plans are put forth. The rich always make sure to escape the pain, while the poor and middle-income groups suffer.
Continuing the CRFB article: Our debt is projected to increase by almost 20 percentage points over the next 10 years. Spending on health, retirement and interest alone will double in dollars, and entitlement reform is long overdue.
During the next 13 years, our nation’s major trust funds for highways, Medicare hospital insurance and Social Security will run out of full funding. If Congress had addressed this problem 10 years ago, revenue and benefit changes would have been much smaller.
And here, the CRFB reveals its true motive: On behalf of the rich, the CRFB wants to cut Medicare, Social Security, and all other social programs (aka “entitlement reform”).
Using the lie of unaffordability, the rich want to widen the income/wealth/power Gap between the rich and the rest.
(The Gap is what makes the rich, rich. Without the Gap, no one would be rich; we all would be the same. The wider the Gap, the richer they are.)
Continuing the CRFB article: Even today, changes can be phased in. But if we wait a few more years, the choices are much more difficult. Instead, this fiscal situation has been made dramatically worse by the large, irresponsible, unpaid-for tax cuts.
Taxes are “paid for” by taxpayers. But, who pays for tax cuts? Answer: The federal government which, being Monetarily Sovereign, neither needs nor uses tax dollars.
Continuing the CRFB article: Free-lunch economics appears poised to do major damage to our economy, slowing growth, increasing the chances of some type of crisis and starving the nation of the resources and flexibility to meet new challenges — from the threat of recession to grappling with artificial intelligence and the future of work.
Let’s examine the above nonsense paragraph. MacGuineas claims deficit spending “slows economic growth.” But how does pumping more dollars into the economy — the thing the government does to cure recessions — slow economic growth? It doesn’t.
And how does adding dollars to the economy “starve the nation of resources and flexibility to meet new challenges”? It’s all ridiculous.
Finally, if one wishes to “grapple with artificial intelligence (AI),” we must provide a source of income for people who have lost income to AI. Federal deficit spending, not tax increases, are needed.
Continuing the CRFB article: Policymakers have dug themselves into quite the hole. Our historic and unsustainable debt cannot be fixed with more tweaks and gimmicks.
What is “unsustainable” about the debt? It consists of deposits plus interest. The deposits are paid off with dollars already in the accounts, and the interest is paid by a government that has the unlimited ability to create dollars.
So, “unsustainable,” a word the CRFB often uses to describe the deficit and debt, is a lie, a Big Lie.
And then finally MacGuineas repeats the real purpose of the CRFB:
Continuing the CRFB article: It will take a big deal including new discretionary spending caps, a real plan to fix our entitlement programs and changes to bring in more revenues. Fairy dust, wishful thinking and free-lunch economics won’t get us there.
The real purpose of the CRFB is to facilitate cutting “entitlement” programs — Medicare, Social Security, Medicaid, aids to the poor, aids to education.
The CRFB wants to cut the programs that help narrow the Gap between the rich and the rest. That is the fundamental purpose of the CRFB.
Let’s end with a mention of question #6: Does it (a large debt) mean no one will want to buy Treasury securities?
As we already have discussed, the federal government does not need to sell T-securities — at least not to fund spending. And even if the federal government did need to sell T-securities, and in the remote possibility that no one wanted to buy them, the Federal Reserve has the power to buy them — in fact, it already has, many times.
An excerpt from a December 22, 2010, Wall Street Journal article by Jon Hilsenrath, gives you one example:
“Back in March 2009, Mr. Ben Bernanke told CBS News’s Scott Pelley that the Fed was printing money to fund an earlier bond-buying program.
“It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank.
“So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.
“It’s much more akin to printing money than it is to borrowing.”
The Federal Reserve, an agency of the federal government, the bank where other federal agencies maintain accounts, has the unlimited ability to “use the computer to mark up the size of the account that they have with the Fed.”
That is how the federal government creates dollars. It uses the computer to mark up accounts. It can do this endlessly if it chooses.
So think about it. If you could use your computer to create unlimited dollars simply by marking up your bank account, at any time, and in any amount you chose, would you worry about debt? Would you need to borrow? Would you need to ask anyone for dollars?
Of course not. And that is why the CRFB is a fountain of lies — lies that hurt America, just to widen the Gap between the rich and the rest.
- The federal government is not running short of dollars.
- The federal government always will be able to pay its debts.
- Your taxes do not need to rise.
- The economy will not suffer. because of the debt.
- The debt will not cause hyperinflation.
- It does not mean no one will want to buy Treasury securities.
Continuing the CRFB article: Maya MacGuineas is the president of the Committee for a Responsible Federal Budget and head of the Campaign to Fix the Debt.
MacGuineas should be ashamed of damaging America by telling such monstrous lies, but apparently, a nice salary can be convincing.
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-lesses.
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.
6 thoughts on “The CRFB myth machine keeps on rolling”
To add more weight and clarity to why the fed gov issues debt when deficit spending you could mention that there is a law that requires the fed gov to MATCH deficit spending with Treasury issuance.
But for that law it need not be done and could be repealed at anytime.
You may have covered this in an earlier blog. I do not know as I have not read them all and am new to this and have been reading your blog posts for only the last 18 months or less.
I looked for your books on Kindle but was unable to find them and so ordered a hard copy instead. I am quite happy to pay for a pdf version just for the convenience if you sell them separately.
You are correct about the law. The Treasury cannot overdraw its account at the Fed, so must “borrow.” The law is an anachronism from days when dollars were backed by metal.
Sorry, no pdf version, but thanks for your comments.
Many of the laws that govern Treasury operations are not necessary from a fiscal standpoint but are necessary from a monetary policy standpoint. As I stated in an earlier comment post, if the Treasury continuously deficits spends, it injects excess reserves into the banking system forcing FFR to 0. If the Fed determines it wants a positive FFR, then it needs a mechanism to remove excess reserves, which it does through the selling of Treasury securities to banks.
In order to maintain a stable FFR, there needs to be close coordination of fiscal and monetary operations between the Treasury and the Fed. In fact they meet every day to plan the flow of reserves in and out of the TT&LAs and TGA. Part of the reason for these laws is to assure that coordination occurs.
The anachronistic part of the law may be the fact that the Treasury must sell securities to private sector first and cannot sell directly to the Fed. That necessitates an intermediate step of the Fed buying treasuries from the private sector. No apparent reason for that aspect of the law, but it does create the illusion that the Treasury is “borrowing” money from the private sector.
According to existing practice, you are correct.
Keep in mind that no laws are necessary to a government that makes the laws at will. You are describing bookkeeping. The government owns the books. It can put any number in any column it wishes. It is sovereign. The money is fiat, and the interest rates are fiat.
In a couple of posts, I’ve equated the Fed with the Bank and players in a Monopoly game. The Bank and players can decide to give any player any amount of Monopoly dollars, and charge any amount of interest. The Bank and players are Monetarily Sovereign. The rules are what they want them to be.
The laws regarding the government’s internal bookkeeping serve the Fed and Congress and not the other way around.
The articles concerning federal bookkeeping make it sound as though the government is helpless (Deficits and debt are “unsustainable.” etc.). But the rulemaker is not helpless before the rules.
Completely agree, the rules could easily be changed to have the Fed pay whatever interest they choose on reserves, which would directly drive FFR and avoid the whole buying and selling of treasuries (although that may not sit so well with all the Milton Friedman acolytes out there).
Forbes Magazine spreads the B.S. that the deficit and debt are too high, but this is a good article, anyway.