Economics is the science of money.
You may or may not be an economist, but every day, you and your friends discuss government spending, taxes, deficits, debts, interest rates, recessions, depressions, and inflation. You talk about Medicare, Obamacare, Social Security, global warming, military funding, dams, streets and highways, flood and windstorm remediation, poverty, college, crime, rents and home prices, and, of course, politics — all of which are related to economics.
When speaking about our economy, everyone is an expert.
Give this short True/False test to your friends to see whether they truly know what they are talking about. Five correct out of ten is well above average.
Questions — True (T) or False (F):
- A dollar bill is a form of money. ________
- The recent growth of the federal debt is unsustainable. ________
- Unlike the federal government, a state government can run short of U.S. dollars. ________
- Massive federal deficit spending leads to inflation. ________
- Gold is a form of money. ________
- Federal taxes fund federal government spending. ________
- Too little federal deficit growth leads to recessions and depressions. ________
- The huge federal debt will be a burden on future taxpayers. ________
- The federal government cannot afford to pay for Medicare for All, Social Security for All, and College for All.________
- Massive federal deficit spending is socialism. ________
1. False. A dollar bill is a title to a dollar. Just as a car title is not a car, and a house title is not a house, a dollar bill is not a dollar. It is a non-interest-paying bearer instrument, that indicates the bearer owns a dollar.
If you happen to own a bond, and you have a piece of paper in your safe deposit vault, that piece of paper is not in itself, a bond. It is just evidence you own a bond.
The actual dollar (or bond) is merely a number on a balance sheet. Numbers, dollars, and bonds have no physical existence. They all are merely data. One day, the dollar bill may become totally obsolete, and we will pay all our debts online with invisible, non-physical dollars.
Thus, money and bonds are the same thing. All money is a zero-interest form of debt. On the dollar bill are the words, “Federal Reserve note.” “Bill” and “note” are words that connote debt.
If you buy a car on credit, you create a note, i.e., you create money. Borrowing money creates money because all money is debt. When you spend on a credit card, you create money, and when you pay the credit card company, you destroy money.
2. False. The federal government is Monetarily Sovereign. It created the first U.S. dollars out of thin air. It created as many as it wished and gave them the value it wished.
The federal government still has the infinite ability to create U.S. dollars out of thin air. What is known as federal “debt” actually is the total of deposits into Treasury security accounts, similar to bank savings accounts.
Because the federal government has the infinite ability to create dollars, it never touches the dollars in T-security accounts.
That is why the federal government does not borrow; it doesn’t need to. The federal government never can run short of dollars.
Those “debt” dollars remain in the accounts, gathering interest, until the accounts mature, at which time the government merely returns the balance to the account owner.
Why does the government allow people to make deposits into T-security accounts if it doesn’t need or use the money? Two primary reasons:
A. To provide a safe parking place for unused dollars, which helps stabilize the dollar.
B. To help the government control interest rates.
3. True. State and local governments’ finances are like yours and mine: Monetarily NON-sovereign. We are not the issuers of the U.S. dollar and we do not have the infinite ability to create dollars.
We do, however, have some ability to create dollars, which we do by lending and borrowing. When we borrow, for instance, $10,000 from a bank, a mortgage is created. That mortgage is a form of money . So, you receive $10,000 and the bank receives your $10,000 mortgage, which the bank can spend or exchange for dollars.
You and your bank have created $10,000 from thin air.
4. False. Inflation is caused by shortages, most often by scarcities of food or energy (oil). Inflation never is caused by “too much” federal deficit spending.
Example: Zimbabwe’s notorious inflation began when the government took farmland from experienced farmers and gave it to inexperienced people. The predictable result: A food shortage, which led to a hyperinflation.
After causing the hyperinflation, the government could have cured it by importing food and distributing it to the people. Spending money that way would have eliminated the shortages and ended the hyperinflation.
The illusion Zimbabwe’s inflation (or any other inflation) was caused by money “printing” came from the fact that the Zimbabwe government printed larger and larger banknotes, which did nothing to reduce the shortages, and so, did not address the hyperinflation. This currency printing did not cause the inflation: food shortages did.
Note: Monetarily non-sovereign governments (i.e. state & local governments, euro nations) have only limited ability to create money (by borrowing), and to use that money to purchase scarce goods, so they are much less able to cure inflation.
In recent years, U.S. inflations have been caused by oil shortages, and are controlled by federal purchases of oil, and distribution of oil from the Strategic Petroleum Reserve.
For modest and incremental inflation control, the U.S. federal government increases interest rates, which increases the exchange value of the dollar.
5. False. Gold, silver, platinum are not, and never have been, a form of money. As we discussed earlier, money has no physical existence; it is a form of debt. Gold et al, are elements that in the past have been used for barter, not as money.
The money value of a $10 gold coin always is $10, but the barter value may be thousands of dollars. In either case, the coin itself is not money. It either is a title to ten dollars, or it is used for barter.
Further, since all money is a form of debt, and all debt requires collateral, silver and gold have been used as collateral for the type of debt called “money.”
Today, silver and gold no longer are used as collateral for federal money. The collateral for that debt is solely the full faith and credit of the federal government. No federal assets are pledged as collateral for any federal money.
By contrast, when you take out a home mortgage, the collateral for that debt is the house itself, plus your personal full faith and credit.
6. False. Although state and local taxes do fund state and local government spending, federal taxes fund nothing. In fact, unlike state and local government taxes, federal taxes are destroyed upon receipt.
State and local tax dollars are deposited into banks, and therefore remain part of the nation’s money-supply (M1 and M2). By contrast, tax dollars leave the economy, and disappear from any money-supply measure.
Even if the federal government collected zero taxes, it could continue spending, forever. Being Monetarily Sovereign, the federal government has no need for income. That is why the federal government does not borrow. T-bills, T-notes, and T-bonds are not evidence of borrowing. They are evidence only of deposits into T-security accounts.
Unlike state/local governments, the federal government does not levy taxes in order to obtain dollars. The primary purposes of federal taxes are:
A. To control the economy by rewarding activities the federal government wishes to encourage and by punishing the activities the government wishes to discourage, and
B. To make the populace believe the government’s ability to spend is limited by taxes, so that the people will not ask for more benefits.
The federal government is controlled by the very rich. Gap Psychology shows that the rich become richer by widening the Gap between themselves and those below them on any income/wealth/power scale. Most federal spending benefits lower-income groups most, so the rich-controlled government spreads disinformation about program affordability.
C. A third purpose of federal taxes is possible: To narrow the Gap between the rich and the rest. Although some politicians claim this already is one effect of taxes, the rich have been clever enough and influential enough to negate that purpose.
7. True. A growing economy requires a growing supply of money. Federal deficit spending increases the nation’s money supply. One common measure of the economy is Gross Domestic Product, the formula for which is:
Gross Domestic Product = Federal Spending + Nonfederal Spending + Net Exports
All three terms increase the money supply and increase GDP.
Whenever the U.S. misguidedly has tried to reduce the federal “debt,” very bad things have happened.
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.
8. False. Federal taxes have no relationship to federal “debt” (i.e. deposits). Every day, millions of dollars of federal “debt” are paid off simply by returning the money that has been residing in T-security accounts. No tax dollars are involved.
In 1939, the federal debt was $48 billion. This year, the federal debt is $21 trillion — a 44-fold increase in 80 years.
Yet here we are, and none of the scare stories about the “unsustainability” and “unaffordability” of federal debt has come true. For these past 80 years, you repeatedly have been told the federal debt is a “ticking time bomb.” It still is ticking, and no explosion. The slowest “time bomb” in history.
The federal debt is not a danger. Rather, a growing federal debt is absolutely necessary for economic growth.
9. False. The federal government can afford anything. It has an infinite supply of dollars.
Unfortunately, every time any federal spending program is proposed, Congress twists itself into contortions, trying (or pretending to try) to answer the question, “How will you pay for it?”
The correct answer is, “The federal government simply will write a check.” No federal check ever bounces, because the federal government has absolute control over the U.S. dollar, and U.S. banks.
The government created the original U.S. dollars by creating laws from thin air. So long as the government is not limited in its passing of laws, it will not be limited in its money creation.
If they wished, Congress and the President could pay for the Tens Steps to Prosperity (below), merely by pressing a few computer keys. So long as there were no incurable shortages, the economy would grow, poverty would disappear, and there would be no inflation.
If the notion of infinite money sounds too good to be true, that is only because we have been brainwashed by the politicians, the media, and the economists who are controlled by the very rich. They want you to believe that money is in limited supply.
10. False. Socialism is not just government spending. Socialism describes any enterprise OWNED and CONTROLLED by a government.
Although “socialism” often is used as a pejorative by those who dislike government involvement in anything, the nature of all governments is that some aspects are socialistic. A few examples:
Most streets and highways
Most large dams
The Great Lakes and the Mississippi River
The Library of Congress and other public libraries
Subway systems and many public surface transportation systems
State colleges and universities
The White House
The Supreme Court
Most of America’s acreage west of the Mississippi River
The entire military, including Veterans Administration Hospitals
Water and sewage treatment plants
Weather Service, NASA, FBI, CIA, and all other government agencies
The fact that some proposed projects may or may not be socialist is neither good nor bad. There are some things the private sector can do better. There are some things the government can do better. And there are some things that can be done better by a joint effort.
Banking, for instance, is a function that would be much better accomplished by the federal government than by the private sector, because the federal government is not distorted by the profit goal, which has caused repeated cases of bank malfeasance.
Finally, if you happen to know an economics professor or writer, give him/her this quiz and see how he does. That should be interesting.
Rodger Malcolm Mitchell
Monetary Sovereignty Twitter: @rodgermitchell 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:
- Eliminate FICA
- Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
- Social Security for all or a reverse income tax
- Free education (including post-grad) for everyone
- Salary for attending school
- Eliminate federal taxes on business
- Increase the standard income tax deduction, annually.
- Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
- Federal ownership of all banks
- 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.