The federal government, being Monetarily Sovereign has infinite money. It neither needs nor uses tax dollars. It never can run short of dollars.
Contrary to popular wisdom, federal taxpayers do not fund federal spending.
Instead, the government creates new dollars, ad hoc, every time it pays a bill.
The economy does not have infinite money and needs a continual input of dollars to grow.
Gross Domestic Product, (GDP) a measure of spending, also is a measure of growth.
Federal deficit spending provides that continual input, without which we would have recessions and depressions.
Libertarianism is not the most ignorant idea on the planet. Trumpism surely wins the gold medal in that contest.
But Libertarianism’s endless insistence that a gigantic nation should have a small government and that every expenditure always, always, always is too large puts them in the running for at least a bronze or perhaps even a silver medal.
Here is their latest bit of humor masquerading as fiscal prudence.
This latest expense is yet more evidence that sweeping student loan forgiveness will end up doing considerable economic harm. by Emma Camp | 10.14.2022 1:30 PM
While the incredible costs of the Biden administration’s federal student loan forgiveness plan are widely known, yet another expense of the program is stirring controversy: maintaining the online application for loan forgiveness is expected to cost nearly $100 million annually.
This latest expense—not included in the Congressional Budget Office’s recent estimate of the program’s cost to taxpayers—is yet more evidence that sweeping student loan forgiveness will end up doing considerable economic harm.
Why will adding $100 million stimulus dollars do “considerable economic harm”? Ms. Camp never explains why or what that “harm” is.
Federal deficit spending is precisely what the government does to prevent and cure recessions. But Libertarians never acknowledge the facts that stare them in the face.
Contrary to popular wisdom, the Great Depression of 1929 was not caused by the stock market crash. Nor was it caused by bank failures. Nor was it caused by Smoot-Hawley. Nor was it caused by drought. Nor was it caused by speculation.
The Great Recession of 2008 was caused by insufficient deficit spending and years of federal surpluses, which took 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.
Eventually, the Great Depression was cured by more deficit spending. Libertarians are oblivious to those facts.
It doesn’t take a genius to see this.
- All Spending + Net Exports = GDP. GDP is a measure of our economy. It also is a measure of spending.
- Spending relies on dollars. On average, more dollars = more spending. Add dollars to an economy, and GDP will increase.
- Federal deficits add dollars to the economy.
- Therefore, federal deficits increase GDP and prevent/cure recessions and depressions.
In August, President Joe Biden announced a sweeping federal student loan forgiveness plan.
Under the proposal, most borrowers making under $125,000 annually and married couples making less than $250,000 would receive $10,000 each in loan forgiveness.
For borrowers who received a Pell Grant, forgiveness is increased to $20,000.
The program stands to be wildly expensive, with recent estimates from the Congressional Budget Office predicting that its cost will be $400 billion.
Translation: The program will pump 400 billion growth dollars into the economy. (The program would fail to remove 400 billion dollars from the economy.)
However, as the Biden administration gears up to formally release the online application for loan forgiveness, other large costs are also becoming clear.
Documents submitted by the Education Department to the Office of Management and Budget show that the department estimates it will cost $99,900,000 per year to maintain the application and the program’s associated communications through March 2024.
According to the Department of Education, these costs are “related to development of website forms, servicer processing, borrower support, paper form processing and communications related to this effort.”
Translation: The program will also fail to remove an additional 99,900,000 growth dollars annually from the economy.
While the current estimate for application maintenance and support is high, there is reason for concern that the cost will come to exceed that.
For example, the ill-fated HealthCare.gov website was originally estimated to cost $93.7 million—yet it eventually grew to cost taxpayers over $2 billion.
Translation: The HealthCare.gov website pumped 2 billion growth dollars into the economy and cost taxpayers nothing.
The Big Lie in economics is that federal taxes pay for federal spending. While state/local taxes pay for state/local government spending, federal taxes pay for nothing. They are destroyed upon receipt.
All taxes are paid from checking accounts, the dollars which are part of the M2 money supply.
Dollars paid to state/local governments are deposited into banks and remain in the M2 money supply.
But tax dollars paid to the U.S. Treasury disappear from any money supply measure. There is no money supply measure of dollars held by the federal government.
The reason: Unlike state/local governments, the federal government has infinite dollars. It is Monetarily Sovereign. It creates dollars at will.
Former Fed Chairman 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.”
Your federal tax dollars leave the M2 money supply and disappear into the infinity of the Federal government’s unlimited ability to create new dollars. That is how the federal government pays all its bills: By creating new dollars, ad hoc, not by using tax dollars.
Considering that the Biden administration already appears to be lowballing the cost of student loan forgiveness, estimating that federal student loan forgiveness will only cost $240 billion over the next decade, there is reason to worry that it is underestimating the cost of maintaining its application website as well.
Translation: There is reason to believe the program will pump even more than 240 billion growth dollars into the economy over the next decade.
This problem could have been avoided if student loan forgiveness had been enacted through the legislative process rather than by executive fiat.
Translation: The growth dollars wouldn’t have been provided by a Senate hamstrung by Republicans, who hate giving money to anyone but the very rich. So Biden had to do it via executive fiat.
The staggering price the Biden administration places on upkeep for the student loan forgiveness application is yet more evidence of the true, bloated nature of the policy. It should come as no surprise that student loan forgiveness will be riddled with extra costs—costs that will no doubt be pushed onto taxpayers.
Translation: The cost of upkeep is more evidence of the actual benefits of the policy.
Student loan forgiveness will provide additional growth spending that will cost taxpayers nothing but benefit college students and the entire economy.
The federal government is Monetarily Sovereign. It uniquely has the unlimited ability to create U.S. dollars.
Federal deficit spending is necessary to prevent and cure recessions and depressions. It costs federal taxpayers nothing. Federal taxes are destroyed upon receipt by the Treasury. To pay for goods and services, the federal government creates new dollars ad hoc.
Federal deficit spending does not cause inflation, and if used to purchase and disseminate scarce goods and services, federal deficit spending can cure inflation.
Reducing students’ loan costs not only helps the students and America’s educational competitiveness but stimulates the economy,
Rodger Malcolm Mitchell
Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
Government’s Sole Purpose is to Improve and Protect the People’s Lives.