It takes only two things to keep people in chains:
The ignorance of the oppressed
And the treachery of their leaders
All over the country — actually, all over the world — politicians, media commentators, and economists disseminate completely false economic ideas to an innocent public.
Then, having received these false ideas, the public facilitates the dissemination process by telling friends, relatives, students, and strangers.
It happens every day. Do you remember when you thought stomach ulcers primarily were caused by emotional stress? Do you remember when you thought margarine was more healthful than butter? Do you remember when you tried the latest fad diet?
Why did you believe? Because you heard it or read it, so you repeated it.
Each day I am reminded of this phenomenon and today, once again, I was reminded, this time by Terry Savage’s article in the Chicago Tribune.
Terry Savage’s own website says:
“Terry Savage is a nationally recognized expert on personal finance, the economy and the markets. She writes a weekly personal finance column syndicated in major newspapers by Tribune Content Agency.
“She is the author of four best-selling books on personal finance. The Savage Truth on Money was named one of the top ten money books of the year by Amazon.com in its first edition. Her other recent book is: The Savage Number: How Much Money do You Really Need to Retire?
“Terry appears frequently on national television and radio programs, commenting on the financial markets and current economic events. She is featured on WGN Radio and WGN-TV in Chicago, with a weekly personal finance segment. And in days past you saw her often as a money expert on Oprah!”
Yes, Terry is an “expert,” one of a multitude of “experts,” who repeatedly feed you false information, and who when challenged, defend their false positions with false claims and fake statistics.
Today, being in the mood to butt my head against a wall, I wrote to Terry, the following letter concerning her today’s column:
It’s been a long time since we last corresponded, and I see you still have not learned the differences between a Monetarily Sovereign government and a monetarily non-sovereign entity.
Here are some excerpts from your Social Security article, with a few comments:
“We can’t repay our debt. Everyone knows it, and no one is willing to say it. But the United States is awash in debt that can’t possibly be repaid.”
If you’re talking about the federal debt, this is 100% false. The so-called federal debt is the total of deposits in T-security accounts. The government could pay off the entire “debt” if it chose to, simply by returning the dollars that exist in those accounts, back to the account holders.
“Perhaps a spurt of economic growth could put a dent in our massive debt, but at this stage, we are piling on new debt at rates far higher than reasonable expectations of growth.”
Reducing the “debt” (i.e. running a federal surplus) would cause a depression, or at best, a recession.
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.
“And the burden has grown, despite record low interest rates. As rates start rising, or as tax revenues fall during the next recession, the problem will overwhelm us and we will be forced to face the truth. We have made promises we cannot keep.”
This would be true of state and local governments, which are monetarily non-sovereign, but it is not true of a Monetarily Sovereign government, which cannot run short of dollars. It can keep any promise denominated in dollars.
“And we can’t just print money to pay the bills, as that will only result in devaluing our currency. Who would want dollars as they flood the market?”
In 1940, the federal “debt” was $40 Billion. Today the “debt” is $15 Trillion – a 37,500% increase. The government has “printed” all those trillions of dollars, yet everyone still wants them, and inflation has been low, averaging close to the Fed’s target rate of 2.5%.
“The government would have to pay higher interest rates as a bribe to get the world to lend to us to finance our deficits.”
The federal government, unlike state and local governments, does not borrow. Having the unlimited ability to create dollars, why would it need to borrow? The purpose of T-securities is not to obtain spending funds but rather to:
1. Provide a safe, interest-paying “parking place” for dollars, to help stabilize the dollar, and to
2. Help control interest rates.
“And those higher rates would only add to our debt burden. The Congressional Budget Office estimates that a one percentage point increase in interest rates adds $1.6 trillion to our 10-year budget deficit. Higher rates just dig a deeper hole.”
The interest on T-securities is not a burden – not on the government and not on taxpayers. The federal government pays interest by creating dollars, ad hoc. It never can run short of dollars to pay its bills.
“According to the ticking debt clock at http://www.TruthinAccounting.org., the U.S. national debt now stands at slightly more than $21 trillion. And we are in the process of adding another half a trillion dollars to it through the budget deficit predicted for 2018.”
Every year, since 1940, the federal debt has been called a “ticking time bomb” (see: From ticking time bomb to looming collapse), and still no explosion. That’s 78 years of false claims, but the debt Henny Pennys still have learned nothing.
“But the real issue is all the promises we’ve made to pay future benefits like Social Security and military retirement benefits. According to TruthinAccounting,org, adding those promises over the coming 30 years bring the total U.S debt to more than $104 trillion. The mind boggles at the thought.”
Unboggle your mind, Terry. That fearsome $104 Trillion is 7 times the current level. But, thirty years ago, the “debt” was $2 Trillion. Now it is 7.5 times that level, and the economy looks pretty good. What does that tell you?
“That brings us to the Social Security trustees report that was recently released. It hardly made a splash in the headlines. The trustees report says the Social Security trust fund will be exhausted in 2034. It will happen at the height of the baby boomer longevity spurt.”
Total nonsense. There is no “trust fund.” (See: Fake federal trust funds). As even the Peter G. Peterson Foundation admits:
“Although many believe that the existence of trust funds guarantees the sustainability of programs in the future, trust funds are simply accounting mechanisms that are part of the way the federal government keeps its books.
“The actual cash inflows and outflows of the programs are combined with all other federal programs and therefore contribute to federal surpluses and deficits.
“If a program is in surplus, the federal government’s overall deficit balance improves because it uses the additional receipts from the program to fund costs of other programs.
“In effect, the government is conducting transactions with itself but keeping track of inflows and outflows of funds through trust funds.
“Ultimately, trust fund income and outlays are not separate from the rest of the federal budget, and the sustainability of trust fund programs, like Social Security, depends on the overall sustainability of the federal government.”
Terry, everything you wrote about the federal government finances is true of state and local government finances. And it is true of business finances. And it is true of your finances and my finances. We all are monetarily non-sovereign.
But it is not true of the Monetarily Sovereign federal government’s finances.
If you wish to learn the difference, I’ll be glad to teach you.
Rodger Malcolm Mitchell
Rodger Malcolm Mitchell
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: 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.