Finally, a faint ray of hope about the federal deficit

In what may seem to be a strange result, we may be seeing a faint ray of hope about the U.S. federal deficit. Read the following excerpt:

Caring about the budget deficit cost George H.W. Bush the presidency; his successors took note
By DAVID LAUTER, DEC 07, 2018 | 5:10 AM

At the funeral for President George H.W. Bush, former Sen. Alan Simpson recalled his friend’s reaction when Simpson and other allies urged him to go along with a tax increase to shrink the budget deficit.

“OK, go for it, but it will be a real punch in the gut,” Bush said, knowing the political heat he would take.

“When the really tough choices come, it’s the country, not me,” Bush said, according to Simpson. “It’s not about Democrats or Republicans, it’s for our country that I fought for.”

We venerate that “country first” attitude in theory, but in practice, it likely cost Bush the presidency: The tax increase, as Simpson said, sparked a revolt within the Republican party that was “one of the main factors assuring his return to private life.”

A generation later, Bush’s successors, especially his Republican successors, have learned that lesson: Voters say they care about reducing the national debt, but more often than not, they punish politicians who do it.

Bush’s immediate successor, President Clinton, built on the budget he inherited, adding an upper-income tax increase of his own. By the end of Clinton’s term, with the help of an economic boom, the federal budget was in surplus.

And that budget surplus helped cause the recession of 2001. In fact, virtually all recessions are caused by reductions in federal debt growth, while actual reductions in federal debt most often cause depressions.

Recessions (vertical gray bars) come on the heels of federal deficit reductions and are cured by federal deficit increases.

U.S. depressions tend to come on the heels of federal debt reductions.
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.

Bush’s son, President George W. Bush, promptly pushed the government back into deficit with two large tax cuts. The financial crisis at the end of Bush’s presidency caused the deficit to rocket upward.

Republicans objected loudly to the deficit while President Obama was in office, even as he steadily brought it under control in his second term. But the deficit hawks have been mostly silent under President Trump as the red ink has once again spread.

And that is our ray of hope:. The deficit hawks, who tend to be right-wingers, being silent about debt.

No, it isn’t that they have learned why federal deficit spending is necessary for economic growth.

And no, they may not understand that the federal government is Monetarily Sovereign and never can run short of dollars to pay its financial obligations.

But, at least they are keeping their mouths closed for political reasons, and that will make it at least a bit more difficult for them to object to future federal deficits. Maybe.

This past year, the annual deficit hit $779 billion, despite a healthy economy. A big tax cut, combined with spending increases on the military and some domestic programs have pushed it higher.

By the time Trump’s current term ends, the deficit will likely have hit $1 trillion a year.

No one in either party claims that big deficits in healthy economic times are a good idea. But Republicans resist any tax increases, and neither side has much interest in cutting the biggest categories of federal spending — social security, the military, Medicare.

Perhaps “no one in either party claims that big deficits in healthy economic times are a good idea,” but the people who understand economic reality know that deficits grow the economy.

And no, deficits don’t cause Zimbabwe hyperinflations. (All hyperinflations in history have been caused by shortages, most often shortages of food.)

As Sarah Wire reported, Congress and the administration have a budget deadline right before Christmas that could cause a partial government shutdown.

But it’s not the rising deficit that’s at issue but, instead, whether to provide money for Trump’s wall along the Mexican border.

As much as anything else, Bush’s willingness to take political heat for a balanced budget marks him as a political figure from a bygone era.

We can hope Bush’s loss also set the stage for the realization that deficits are necessary for economic growth, and the federal debt is no burden on the federal government or on future taxpayers. (While state and local taxes fund state and local debt, federal taxes do not fund federal debt. That is the meaning of federal Monetary Sovereignty.)

Image result for bernanke and greenspan
It’s our little secret. Don’t tell the people we don’t use their tax dollars.

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.”

Alan Greenspan: “Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. A government cannot become insolvent with respect to obligations in its own currency.”

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.

Rodger Malcolm Mitchell
Monetary Sovereignty
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

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.


3 thoughts on “Finally, a faint ray of hope about the federal deficit

  1. Greenspan whispers to Bernanke, “It’s our little secret. Don’t tell the people we don’t use their tax dollars.”

    So the big pregnant question is: Why not tell the people???


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