Well, it’s that time of year again, when the politicians on all sides of the spectrum get together to tell you the Big Lie.
Here’s an example:
[Politico, The Washington Post]
Pelosi says no debt-ceiling hike without budget deal
House Speaker Nancy Pelosi (D-Calif.) said Monday that the House would not raise the debt ceiling unless the move is part of a budget deal.
Treasury Secretary Steven Mnuchin told reporters that Congress will have to raise the debt ceiling before its August recess if there is no budget deal before then. Otherwise, he said, the federal government won’t have enough money to pay all of its bills.
Now, compare the above with the following:
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.
Notice the “slight” difference? Mnuchin said the government will run short of money, while his predecessors and the St. Louis Federal Reserve said it is impossible for the government to run short of money.
In a sense, they both are right. The federal government can run short of dollars with which to pay its bills — but only if it votes to run short of dollars.
If the federal government (Congress) votes to limit federal debt, that is identical with voting not to pay what it owes to creditors.
Here is the convoluted scenario. See if you can follow it.
- Federal finances are different from state and local government finances.The so-called federal “debt” actually is the total of deposits in credit market accounts: Treasury security accounts, i.e. T-bill, T-note, and T-bond accounts.
- These accounts are paid off simply by returning the dollars in those accounts to the account owners. As Bernanke, Greenspan and the St. Louis Fed said, “the government is not dependent on credit markets (i.e. borrowing) to remain operational, so the federal government does not spend the dollars in those credit market accounts.The dollars remain there, gathering interest until each security matures, at which time its dollars are returned to the owners. That is how the federal government “pays off” its debt.
- The federal government pays its bills, not with tax dollars (which are destroyed upon receipt), but rather by creating brand new dollars, ad hoc.
- Even though the government doesn’t use the dollars in T-security accounts, by law, the government must accept deposits in the same amount as the total of federal deficits.This may have made some sense during the times when dollars needed to be backed by gold and silver reserves, but since 1971, when President Nixon took us off the last of the metal standards, the law has made no fiscal sense whatsoever. Yet it persists.
- So the only effect of not raising the debt ceiling is to prevent the federal government from paying for goods and services it already has purchased.
- And because of the invented equivalence between deficits and “debt” (deposits), reducing the debt requires increasing federal taxes while reducing federal spending, which together reduces the nation’s money supply and leads to recessions and depressions.
Imagine that a wealthy woman becomes angry with her husband for buying an expensive car, that they already have been driving.
They easily can afford to pay for the car, but she simply doesn’t want to. So, she puts a ceiling on their checking account, and thereby stiffs the car dealer.
And that is what the debt ceiling is designed to do: Stiff all federal creditors.
Since no sane person wishes to destroy America’s credit, the whole debt-ceiling process becomes a game of “chicken” or “Russian roulette,” to see which political party will blink first.
It has absolutely nothing to do with fiscal prudence, but rather it is, “Give me my way or I will kill both of us.”
And that is the “Big Lie.” Each party, especially when not in power, pretends it is fiscally prudent by demanding that the federal debt be reduced.
But, it is a game based on the public’s ignorance of federal financing. The public has been led to believe that federal “debt” (deposits in T-security accounts) is like personal debt (borrowing to facilitate spending). It is not.
Confusingly, the word “debt” has been used to describe two completely different things. If you were told that deposits in T-security account are at an all-time high,” does that worry you as much as “debt is at an all-time high.”
The first phrase sounds good and the 2nd phrase sounds bad, yet they mean the same.
Lawmakers have until the end of September to hammer out a budget deal, as that’s when funding for several agencies is scheduled to run out.
The Treasury Department can only issue debt up to the limit set by Congress. Since President Trump’s inauguration, total government debt has increased by about $3 trillion, to more than $22 trillion. [Politico, The Washington Post]
The federal government pays its creditors about $4 trillion – $5 trillion a year. Assuming it pays most of this on a 30-day schedule, that would mean in any one month, the federal government would owe creditors about $400 billion.
That $400 billion, not $20 trillion, is the federal government’s true debt at any given moment of time.
Note that this has absolutely nothing to do with tax receipts (which are destroyed) or with incorrectly called “borrowing” (T-security dollars remain in T-security accounts and are not touched.
In summary, the “debt ceiling” is an exercise in ignorance. It uses a harmful plan to achieve a harmful result.
The harmful plan: Exercising a debt ceiling requires the federal government to cheat creditors and hurt America’s credit.
The harmful result: Reducing the federal deficit requires reducing the amount of growth money entering the economy, which always results in recessions and depressions.
Recessions, depressions, hurting creditors and hurting America’s credit: It is stupid from beginning to end, which probably is why politicians love it.
The debt ceiling is the economists’ version of trying to destroy the sun and the moon by sacrificing virgins and children.
After I wrote the above post, I came to a Newsweek article that provides one small demonstration of the harm ignorance can cause:
A bill that would compensate first responders and survivors of the September 11 terrorist attacks who have since fallen ill from the toxins and chemicals they inhaled at the site has been blocked in the Senate by Rand Paul and Mike Lee.
Utah Senator Mike Lee placed a procedural hold on the extension of the 9/11 compensation fund Wednesday, blocking it from coming to a floor vote.
Said Paul. “It has long been my feeling that we need to address our massive debt in this country—we have a $22 trillion debt, [and] we’re adding debt at about a trillion dollars a year—and therefore any new spending that we are approaching, any new program that’s going to have longevity of 70, 80 years, should be offset by cutting spending that’s less valuable.”
Paul spouts the Big Lie. Our “massive debt” is only savings deposits, made by U.S. citizens and foreigners, into T-security accounts. These are no burden on the federal government or on future taxpayers.
They could be paid off tomorrow, simply by returning the dollars in these accounts.
Every depression in U.S. history has been associated with federal debt cuts:
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.
Rodger Malcolm Mitchell
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The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.
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:
3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.