Federal Spending: The myths and the facts.

It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders.

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An article printed in the 2/10/20 Chicago Tribune, by Andrew Taylor, of the Associated Press, demonstrates the disinformation you are being given about our economy.

In this post, we’ll parse the article and comment on each section.

Skepticism and doubts over Trump’s budget plan for ’21
By Andrew Taylor, Associated Press
WASHINGTON — Confronted with trillion-dollar-plus deficits, President Donald Trump is offering a budget plan that rehashes previously rejected spending cuts while leaving Social Security and Medicare benefits untouched.

Trump’s fiscal 2021 budget plan, expected to be released Monday, isn’t likely to generate a serious Washington dialogue about what to do, if anything this election year, about entrenched fiscal problems that have deficits surging despite a healthy economy.

Comment: The federal deficits are economic surpluses; they are dollar additions that are necessary to make the economy grow. Without deficit spending, the economy would not grow, and in fact, it would fall into recession and depression.

The so-called “entrenched fiscal problems” are a widely promulgated myth. The only fiscal problems the U.S. has are the misstatements about the federal deficits and debts.

It was being released on the eve of the New Hampshire primary, a move that minimizes attention.

A blueprint written as if Trump could enact it without congressional approval, the budget proposal relies on rosy economic projections and fanciful claims of future cuts to domestic programs to show that it is possible to bend the deficit curve in the right direction.

As is typical for the Republican party, the spending cuts (which are unnecessary and harmful) would negatively impact programs that benefit lower- and middle-income Americans.

Ironically, these are the GOP base-voters. But they have been so brainwashed by the media, the politicians, and the university economists, that they unintentionally vote against their own best interests.

Why?  They think they are voting against “them” (the poorest and the immigrants), whom they have been taught to hate.

It’s a hatred-seeded vote that boomerangs on the voters.

The reality is that no one — Trump, the Democratic-controlled House or the GOP-held Senate — has any interest in tackling a chronic budget gap that forces the government to borrow 22 cents of every dollar it spends.

Trump’s reelection campaign, meanwhile, is focused on the economy and the historically low jobless rate while ignoring the government’s budget.

The so-called “budget gap” (i.e. the federal deficit) grows the economy. The politicians know this, but pay lip service to claims that federal deficits (economic surpluses) should be avoided as harmful or “unsustainable.”

This disinformation allows the GOP to justify cutting benefits for the non-rich, while increasing benefits to the rich.

The federal government is Monetarily Sovereign, meaning it has the unlimited ability to create U.S. dollars. Therefore, the federal government does not need to borrow, and indeed, does not borrow.

What erroneously is termed “borrowing” actually is the acceptance of deposits into Treasury Security accounts (T-bills, T-notes, T-bonds). The purpose of these securities is not to obtain spending dollars for the federal government (which has unlimited access to dollars) but rather to:

1. Provide a safe place to stash unused dollars, which helps stabilize the dollar, and
2. To assist the Fed in controlling interest rates.

These T-securities are paid off every day simply by returning the dollars that were deposited in the accounts. This is no burden on the government or on future taxpayers.

It doesn’t occur to the author, Andrew Taylor, that the “historically low jobless rate,” is in fact related to massive federal deficit spending, which provides dollars to American business, directly and via increased consumer spending.

On Capitol Hill, House Democrats have seen their number of deficit-conscious “Blue Dogs” shrink while the roster of lawmakers favoring costly “Medicare for All” and “Green New Deal” proposals has swelled.

Tea party Republicans have abandoned the cause that defined, at least in part, their successful takeover of the House a decade ago.

Trump has succumbed to the Washington temptation to deliver spending increases and tax cuts first and then deal — or not — with their effect on the deficit.

Trump and key administration figures such as Treasury Secretary Steven Mnuchin had promised that Trump’s signature cuts to corporate and individual tax rates would pay for themselves; instead the deficit spiked by more than $300 billion over 2017 to 2019, to nearly $1 trillion.

The “Blue Dog” Democrats and the Tea Party Republicans were misguided and/or deliberately lying about the effects of federal deficits (which grow the economy) and deficit cuts (which lead to recessions and depressions).

Trump has not “succumbed” to anything. He knows that his re-election chances increase if the economy grows, and the economy can grow only if the money supply grows.

That’s the reason why Trump pushes record federal deficits.

Treasury Secretary Steven Mnuchin is a first-class fabulist. “Pay for themselves” means that tax cuts would actually increase tax collections. If that were true, the tax cuts would not be stimulative. Tax collections remove growth dollars from the economy.

Sadly, “Green New Deal” proposals, to save the world for our grandchildren, are being demeaned by the false belief the federal government can’t afford to pay for them and/or taxpayers will pay.

So the weather grows hotter, while air and water become more polluted, all because of a pernicious myth.

Trump has also signed two broader budget deals worked out by Democrats and Republicans to get rid of spending cuts left over from a failed 2011 budget accord.

The result has been eye-popping spending levels for defense — to about $750 billion this year — and comparable gains for domestic programs favored by Democrats.

The White House hasn’t done much to draw attention to this year’s budget release, though Trump has revealed initiatives of interest to key 2020 battleground states, such as an increase to $250 million to restore Florida’s Everglades and a move to finally abandon a multibillion-dollar, never used, nuclear waste dump that’s political poison in Nevada.

It’s all politics. They talk deficit reduction, to con the voters, but they enact deficit increases to grow the economy, especially in battleground states.

Then they shed crocodile tears about the size of the federal debt.

The White House also leaked word of a $25 billion proposal for “Revitalizing Rural America“ with grants for broadband internet access and other traditional infrastructure projects such as roads and bridges.

The Trump budget also promises a $3 billion increase — to $25 billion — for NASA in hopes of returning astronauts to the moon and on to Mars.

It also is likely to reprise his small-bore infrastructure initiative — proposed in prior years to provide just $200 billion in new federal contributions — while proposing a modest parental leave plan.

The voters love deficit reduction — for other people.

But they love deficit spending in their own back yard for the Internet, roads, bridges, and the always magical return trip to the moon.

Trump took to Twitter on Saturday to promise voters that his budget “will not be touching your Social Security or Medicare” in keeping with his long-standing 2016 campaign promise.

Trump had made a bit of a stir last month at a meeting of global economic elites in Davos, Switzerland, when he told a CNBC interviewer that “at some point” he would consider curbs to popular benefit programs like Medicare and Social Security.

Trump has proposed modest adjustments to eligibility for Social Security disability benefits and he’s proposed cuts to Medicare providers such as hospitals, but the real cost driver of Medicare and Social Security is the ongoing retirement surge of the baby boom-generation and health care costs that continue to outpace inflation.

This is part of the traditional “Talk big cuts, wait for the reaction, then enact small cuts” scam.

The purpose of the scam is to enure voters to a hated idea. Then when actual, smaller cuts are made, the people actually are relieved. “They were talking about stealing a billion from me. But out of compassion, they only stole a few million.”

There is no reason for any cuts. Cuts are harmful to the economy. But the rich who run America, love cuts to programs that benefit the poor.

Now that you’ve seen the myths and the commentary, here is a reminder about the truth:

I. Reduced federal debt growth leads to recessions. Increased federal debt growth cures recessions.

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II. Depressions come on the heels of federal surpluses, because federal surpluses take growth dollars out of the economy.

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.

III. A growing economy requires a growing supply of money. Federal deficits grow the money supply and the economy.

By definition, a large economy has a larger money supply than does a small economy.

The graph below shows the essentially parallel paths of GDP (blue line) vs. perhaps the most comprehensive measure of the money supply, Domestic Non-Financial Debt (red line):

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell

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The most important problems in economics involve:

1. Monetary Sovereignty describes money creation and destruction.
2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

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 Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and 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 the rest.

MONETARY SOVEREIGNTY