There is no other way to say this. We (in the U.S.) are headed for a depression because we have an incompetent and untruthful government.
Our fundamental problem is the lack of money in the private sector. The solution is for the federal government, which being Monetarily Sovereign has unlimited money, to pump dollars into the economy.
Sorry, but it isn’t any more complex than that.
Problem: Lack of money. Solution: Add money. How much money? What the economy lost due to the virus.
The economy needs at least $7 Trillion net added from the federal government. But, our Congress is spending far too little and spending way too late. Unless Congress and the President deign to see the light, we have no way to prevent a depression.
Other nations understand this:
Pandemic Insolvency: Why This Economic Crisis will be Different
Bue Rübner Hansen, Mar 29, 2020
A week ago, Denmark’s Social Democratic government announced it would cover 75% of the wages of workers who would otherwise be laid off. I don’t think anyone expected the UK to announce, just a few days later, a policy that would cover 80% of the wages of workers who were about to be sacked.
Why are right-wing governments considering, and in some cases implementing policies they called impossible and undesirable when the left suggested them?
To put it briefly, the sight of governments bailing out not only banks but also consumers and mortgage holders isn’t a sign they have grown soft, but rather a sign of the kind of crisis we are entering.
This crisis is very different from the last, and so it demands a new range of government actions. This is likely to reshape politics and economics across the Global North for years to come.
Both Denmark and the UK are Monetarily Sovereign. They have the unlimited ability to create their own sovereign currency (the krone and the pound).
They are using this ability to try to save their economies.
America’s politicians, the media, and the economists have become so enamored of the Big Lie they have been telling, they may have come to believe it themselves.
The Big Lie is comprised of several myths:
- Federal taxes and federal taxpayers fund federal spending. Wrong.
- The federal deficit is unsustainable. Wrong.
- The federal debt is unsustainable. Wrong.
- Federal deficits cause inflation. Wrong.
While state and local governments can, and often do unintentionally run short of dollars, the U.S. government cannot. It can create unlimited dollars.
For visualization purposes, the example I often give is the Bank in the game of Monopoly™. In any Monopoly game, there usually are about four players competing for Monopoly dollars.
Additionally, there is a Bank that both gives and receives dollars.
The Monopoly™ Bank is similar to the U.S. government in that, by rule, the Monopoly Bank cannot run short of money.
Here is the rule as printed in each Monopoly Game box:
“The Bank never can ‘go broke.’ If the Bank runs out of Monopoly money, the Banker may issue as much as needed by writing on ordinary paper.”
There are times in the game when players must pay money to the Bank and other times when the Bank must pay money to the players.
If you wish to play, and find that the game box doesn’t contain enough official Monopoly money, you don’t need to “write on paper.” You can create a table like this:
The above table indicates that each player has started with 5,000 Monopoly dollars. Notice there is no column for the Bank. None is needed. The Bank has unlimited dollars.
The game begins and immediately Alice is instructed to pay the Bank 100 Monopoly dollars for taxes. The table then looks like this:
Again, since there is no column for the Bank, Alice’s 100 dollars disappear. They effectively are destroyed.
And that is exactly what happens to your U.S. tax dollars when you send them to the U.S. Treasury. Your federal tax dollars are destroyed.
Now some may object that U.S. tax dollars are not destroyed, because the U.S. government keeps a record of them on its balance sheets.
That is a false objection; we could have kept track of the Monopoly Bank’s dollars, and that would have changed nothing.
Like the U.S. federal government, the Monopoly Bank has an infinite number of dollars. If you add Alice’s 100 to the Bank’s infinite dollars, you still have infinite dollars. That is because ∞ + 100 = ∞.
In both the Monopoly Bank and Monetarily Sovereign federal government, all tax dollars are destroyed, and because all tax dollars are destroyed, it is nonsensical to talk about federal taxes or taxpayers funding anything.
The U.S. federal government does not spend tax dollars. It creates new dollars, ad hoc, each time it issues a payment. Those who complain about the poor, or any recipient, “receiving ‘my’ tax dollars,” simply are wrong.
Only the U.S. Treasury receives your federal tax dollars, and it is the Treasury that destroys them.
Why, therefore, does our federal government not eliminate the FICA and income taxes, fund Medicare for All, fund Social Security for All, fund College for All, and do what Denmark and the UK are doing: Pay people what they would have earned had they not been laid off?
1. Public Ignorance about the differences between a Monetarily Sovereign government (federal) and a monetarily non-sovereign government (state/local).
The federal government pretends federal deficits are unaffordable and unsustainable, neither of which is true. The federal government can afford anything and sustain anything.
2. Gap Psychology: The desire of those higher in the socio-economic spectrum to distance themselves from those lower, as a way to become wealthier.
3. Deficit/debt and inflation fear:
A. Negative effects of deficits/debt have been disproved many times on this web site. The federal debt has increased more than 50,000% without negative effects.
On the contrary, it has been insufficient deficits that have led to recessions and depressions, and increased deficits have cured them.
B. Similarly, there has been no historical relationship between federal deficit spending and inflation.
4. The economic and moral concerns about “paying people not to work.” Society already pays people not to work:
A. The military pays a pension to those with 20 years of service. Of course, as with all things military, there have been many changes and complexities added to the program, but in general, a military person can retire in his/her 40s, with about 40% of their salary.
Many (most) of then go to work after, to supplement their pension, and that probably is the key issue. Most people hope to receive raises, i.e. to make more next year than they do this year, so receiving 80% or 90% of this year’s pay usually is not a deterrent to future working.
B. The moral concerns about giving people money they didn’t earn extend only to the middle and poor classes. The rich, who receive more from the government in terms of tax advantages, are given a moral pass, as though being rich makes one more entitled.
Thus for all these reasons, Congress and the President move slowly and reluctantly to provide the economy with sufficient growth funds, and that reluctance leads to recessions, depressions, and articles like the following:
$349B federal small-business paycheck fund runs dry
By Robert Channick
The federal government’s $349 billion program to help small businesses stay afloat during the coronavirus pandemic has run dry, leaving thousands of small business owners whose applications are pending to wait on Congress to replenish the funds.
The Small Business Administration said Thursday it is unable to accept new applications for the Paycheck Protection Program, passed by Congress as part of the $2.2 trillion CARES Act.
The SBA will not be able to issue new loan approvals if the paycheck program and the Economic Injury Disaster Loan Program, another heavily tapped funding resource for small businesses, experience a “lapse in appropriations,” officials warned.
Launched on April 3 as part of the federal coronavirus relief act, the program offers businesses with fewer than 500 employees loans of up to $10 million to cover eight weeks of payroll. The two-year loans, which are backed by the SBA, have a 1% interest rate.
Businesses do not have to pay back the portion of the loan used to cover payroll costs as long as 75% of the proceeds are used to keep paying employees during those eight weeks.
Small businesses are especially vulnerable to the economic disruption wrought by the coronavirus pandemic.
An April 3 study by MetLife and the U.S. Chamber of Commerce found that nearly one in four small businesses have temporarily shut down, and that more than half expect to be closed within weeks.
Providing payroll support — the largest expense for most small businesses — may be a crucial bridge to the end of the coronavirus shutdown and a return to something resembling business as usual.
For a government having access to infinite funds, to penny-pinch small businesses not only is economically outrageous, but callous and cruel.
Large businesses, with large lobbying staffs (and incidentally making large campaign contributions), receive instant attention, while small businesses, the heart of the American economy and the American public, are left to scramble and beg for funds.
This is the right-wing / Libertarian approach to governing.
We repeatedly have said that at least $7 Trillion in federal deficit spending would be needed this year and more next year. We may have understated the need.
Yet we see repeated hand-wringing about an infinitely wealthy government pumping “too much” free money into a needy economy.
It is beyond disgusting, yet it has a hidden purpose: To keep the populace frightened, powerless and beholden to the very rich who run America — to keep the populace desperate and willing to accept miserable work at low pay.
This is the ongoing plan of the very rich.
Will Congress and the President climb down from their golden, guaranteed federal salaries and benefits to aid their impoverished believers? Only when these believers demand it.
This is the perfect time to begin those demands.
Rodger Malcolm Mitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell
THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.
The most important problems in economics involve:
- Monetary Sovereignty describes money creation and destruction.
- 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:
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.
11 thoughts on “The coming depression: The problem and the solution.”
When time stops. What have we done to our children? https://theweek.com/articles/909137/when-time-stops
You’re absolutely spot on about the need to inject more money into the economy. The best way to do that would be a 50% discount to every consumer product from a package of chewing gum to autos and homes.
Then mandate that the FED or any other monetary authority like the US Treasury rebate every cent of the 50% discount back to the merchant giving the discount. This would simultaneously double every working individual’s purchasing power (and the purchasing power of a universal dividend as well) and forever end inflation as normal garden variety inflation is never more than 1-3% and the highest it has ever (temporarily) been was 14.5% during a war and or a huge cost increase like the oil embargo in the 70’s.
You could also prevent anti-social business decision makers from raising their prices higher than normal by taxing any income they may (or may not) garner from doing so at a rate of 100%.
I like your persistence and focus on these matters. Hopefully the present crisis awakens people to the efficacy and necessity of monetary sovereignty and the new monetary paradigm of Abundantly Direct and Reciprocal Monetary Grace as in Gifting.
I’m not sure how the mechanics would work, but it’s an interesting concept. I’m more in the “helicopter money” school.
It would actually be a rather simple debit/credit accounting procedure where retailers would open a sales account labeled total discounts with a debit balance for all sales and the monetary authority would credit them that amount.
It doubles the purchasing power of both “helicopter money” and earned income. Plus, again it will utterly end inflation.
Economists worry about “monetary” inflation which is a misnomer actually because the money is at best a tertiary cause of inflation. It’s actually as you have observed scarcity, a chronic systemic scarcity of money that tempts corporate decision-makers to commit the economic sin of price inflation. Why?
Because they are aware of the chronic system-wide scarcity of demand so that when they perceive more money coming into the economy they inflate in order to attempt to garner more business revenue.
The 50% retail discount/rebate ends the scarcity reality and ironically stabilizes the economy with twice the demand and yet actual price deflation.
I misunderstood to think your suggestion was that the money first would go to the buyer. But, I see you meant the money first would go to the seller. True?
You might wish to examine motivation. That is, if the money goes directly to the seller, what is his price motivation and compared to the buyer’s motivation if the money goes directly to him.
In the latter case, we have mini-versions in case of coupons and credit card rebates. There, I suspect the motivation is to spend.
But in the former case, where the dollars go first to the seller, what is he motivated to do?
I would be interested in your thoughts on this.
My thinking is that the 50% discount is “an offer that the retailers cannot refuse” and hence means you’d get virtually 100% participation in the policy because if they opt out they’d have to get 100% of their best competitive price while their competition only would need to get 50% so it’s a no brainer to opt in.
The universal dividend is a necessary direct gift to the individual and its purchasing power is doubled by the 50% discount. I’m not that concerned with over production so much because doubling purchasing power doesn’t automatically translate into a doubling of economic throughput. In other words everyone is not going to go out and buy twice as many socks and underwear or eat twice as much food as they did before.
The 50% discount/rebate is good for enterprise and for the individual, for management and labor. That means it would be politically integrative of traditionally opposed political constituencies. It’s not so much legitimate business models that are the problem, but the illegitimate business model of finance as money creator and monopolistic paradigm enforcer of Debt Only as the sole form and vehicle for the distribution of credit/money.
And as I said in my other post if anti-social business decision-makers want to inflate or game a universally beneficial system then tax the shit out of them. Also, in my book I suggest a new department of Innovation, Competition, Boycotting and The Bully Pulpit that would encourage the first two economic virtues, help to organize the third against recalcitrant gamers and have its department head get up and expose those who arbitrarily inflating by saying: The new system more than doubled your purchasing power and corporation x, y and z are trying to erode it. What are you going to do about that?
The beauty of the 50% discount policy is that it could be used to finally get us off the dime toward sane ecological/industrial policies. In my book, I suggest a second 50% discount/jubilee policy for all green consumer products and big-ticket items at the point of loan closing. So $40k worth of solar panels would become $20k at retail sale and $10k at loan closing. Likewise, a $300k home with the best energy-efficient options becomes $150k at sale and $75k at loan closing. A $50k electric vehicle becomes $25k at sale and $12.5k at loan closing. Finally, if we don’t have to worry about inflation because of the 50% discount at retail we could also be free to do huge top-down fiscal deficits for infrastructure and the mega projects that will be necessary to survive climate change.
Perhaps your thinking already has gelled on this idea, but if not, let me assist you:
Why 50% rather than some other %?
How long would you maintain this program? Forever? Just to cure recessions?
Only for 100% domestic retailers? What about importers? Exporters? Assemblers? Wholesalers? Distributors? (Think new and used automobiles. Who gets paid?)
Any limits on what can be done with the money? (i.e. buy stock vs. pay salaries? Invest domestically vs. overseas?)
“Why 50% rather than some other %?”
It’s a nice round number that the general populace can understand, and immediately makes up for the erosion of purchasing power the 95% have experienced over the last 40 years. I’m maleable on the percentage (mostly on the upper side, for instance, even if we have “normal” inflation of 1-3% with the regulations I suggest then we just make the discount 51-53% and so no erosion of purchasing power)
“How long would you maintain this program? Forever? Just to cure recessions?”
Basically yes. Eventually, if it started to contribute to excessive consumption or proflicacy concerning price you could call a temporary moratorium on it. The concept behind the new paradigm is grace as in love in action/policy. The natural philosophical concept of grace in all of its universally applicable to life and living aspects is the key concept behind all of the world’s major wisdom traditions, and self actualizing them would be a giant step forward toward the maturation of humanity.
“Only for 100% domestic retailers? What about importers? Exporters? Assemblers? Wholesalers? Distributors? (Think new and used automobiles. Who gets paid?)
There would be no discount to exporters. They would have to hope for the discount/rebate policy to be implemented in whatever country they export to. For the moment importers would enjoy the discount/rebate, but the universal dividend and the cost cutting and tax savings aspect enabled by the discount/rebate would enable us to re-industrialize the nation in the most efficient and ecologically sane way possible.
And that would push export platform countries like China and Germany toward the same policies and the kind of robust subsidiarity a national economy needs….instead of the uber financialized wet nightmare we presently are moving toward.
Business models prior to retail will benefit from the both the additional demand which would translate into greater revenue and the cost savings these policies would bring (for instance, with a sufficient universal dividend and 50% discount/rebate insuring a relatively abundant and dignified income for life all transfer taxes paid by both employees and employers for welfare, unemployment insurance and even social security would become redundant and could be eliminated. You could either phase social security out or give people the option of getting a bulk distribution of what they have paid into it.
I believe that private for-profit banking must be resigned to the dust bin of history. A publicly administered non-profit national banking system would replace it.
Speculation on actually productive purposes and to ensure innovation and competition would still be allowed although firmly regulated (no more derivative nonsense and other purely financialized casino capitalist idiocies like naked shorting of currencies).
There would be no discount for hardcore pornography. The discount would apply to pump prices but could be phased out as the second 50% discount/jubilee policy at note signing for EVs and solar panels etc. reduced much of the market for petroleum.
The non-profit national banking system would still be on the lookout for malinvestment, and again while reasonable speculative leveraging would be possible if it was for actually productive purposes and aligned with the new paradigm concept there would craziness like the present. Let the gamblers/speculators use their own money to invest without leverage.
That way there’s no question about who’s on the hook when a bet goes bad.
You might consider taking the arbitrary or moral considerations out of it. (” . . . actually productive purposes . . . “, ” . . . hardcore pornography,” ” . . . reasonable speculative leveraging . . .” ” . . . actually productive purposes . . .”) Consider what a dictator would do with those options.
Before the crash, GDP was about $22 Trillion. Your program would invest about $10 Trillion a year in federal deficit spending. What about education and healthcare? How would they fit in?
Yes, there’s always the possibility that a demagogue like Trump would corupt such phrases even though by “actualy productive” I meant simply non-financial, but such stupidity is a posibility anyway. There would be no atempt to ban hardcore pornography, but it wouldn’t be subsidized either. The same for alcohol, tobacco products and marijuana. They’re all fine as consumer products, but subsidized, I don’t think so.
The human world is by nature of human self-awareness an ethical world. (Ethical as in ethics is the rational consideration of morals.) Pre-scientific dogmas will remain, but hopefully, they increasingly are looked at as mandalas to facilitate self-actualization of virtues and the many applicable aspects of grace as in love in action/policy.
The discount/rebate policy would reduce the retail cost of premiums for all forms of insurance and the dividend would make paying for those premiums easier. I have no doubt that a publicly administered single-payer system would be cheaper and better than the mess we have now, but paying for it with re-distributive taxation when a fiat monetary system that increases everyone’s income and transforms chronic price inflation into beneficial price deflation is available is stupid IMO.
Having said this it’s obvious that the healthcare and pharmaceutical industries have been exceptionally inflationary price gougers for decades and that truth would be addressed co-equally and co-immediately with that of private for-profit finance’s illegitimate money creation and monopoly paradigm powers. And if they do not “grok” the new paradigm concept of monetary gifting and both do not honestly confront their history of inflation and continue to inflate they are obvious candidates for a national non-profit system.
Higher education has become a large source of inflation ever since the government-guaranteed student loans and that would have to end even if some academics and institutions have to take pay cuts. As tuition is the retail product of education the 50% discount would go a long way toward making education affordable for students, and it would increase academics’ purchasing power even if they needed to take a pay cut.
Deficit just hit $1.1 trillion. That’s a good thing.