“Free minds, free markets,” and free lies.

Reason.com, a mouthpiece for the Libertarian Party, bills itself as “free minds, free markets.” More accurately, it should be called “closed minds, closed markets, and free lies.”

Here is the latest post from Eric Boehm, Reason.com’s economic policy reporter. As expected with Libertarian economic “thought,” it is loaded with wrong inferences, misunderstandings, and/or outright lies. 

November’s $249 Billion Federal Budget Deficit Set a Record. Now, Congress Is Preparing To Spend Even More.
The government spent $501 billion in November but collected just $252 billion in revenue, meaning that about 50 cents of every dollar spent were borrowed.
ERIC BOEHM | 12.16.2022 1:00 PM

The article comes with the photo and caption shown above.

Boehm doesn’t realize that his photo undermines his claim that “about 50 cents of every dollar spent were borrowed.”

The photo shows someone (presumably representing the government) creating dollars from thin air using a copy machine. This immediately demonstrates the senselessness of the Libertarian economic claims because it illustrates why the federal government has no need to borrow dollars. 

In fact, the government does create dollars from thin air simply by pressing computer keys, so it never borrows dollars.

Boehm claims that T-bills, T-notes, and T-bonds represent borrowed money. Completely false. They represent dollars deposited into privately held accounts, similar to safe deposit boxes. The government never touches the contents of those accounts.

The dollars are the property of the depositors, not of the government, and remain inviolate until the accounts mature when the contents are returned to the owners. The dollars never are borrowed or used by the government or by anyone else.

Though those dollars often incorrectly are termed federal “debt,” the government does not owe the money any more than a bank owes the contents of a safe deposit box.

As the St. Louis Federal Reserve Bank has said:

“The U.S. government can never become insolvent, i.e., unable to pay its bills . . . the government is not dependent on credit markets to remain operational.

“Not dependent on credit markets” is government-speak for, “does not borrow.”

Further, even if the T-securities were debt, the federal government pays all its debt by creating new dollars ad hoc. It does this by the simple expedient of passing laws and pressing computer keys, both of which it has the infinite ability to do.

Debt never is a burden on the U.S. government or on taxpayers.

As for those taxes you are forced to pay, they are destroyed upon receipt by the Treasury. You take dollars from your checking account — dollars that are part of the M2 money supply measure — and when they reach the Treasury, they cease to be part of any money supply measure.

There is no measure of the Treasury’s money holdings because the Treasury has infinite money. Thus, your tax dollars disappear, effectively destroyed.

So much for all that talk about falling deficits.

The federal government ran a $249 billion deficit during the month of November—that’s the largest total ever posted for that month, and a staggering $56 billion increase over the deficit from November 2021.

The economy is measured by Gross Domestic Product (GDP). The formula for GDP is:

GDP = Federal Spending + Non-federal spending + Net Exports

Thus, by simple algebra, federal spending always grows the economy. Boehm may not realize that he is complaining about economic growth.

Nearly 50 cents of every dollar spent were borrowed and added to the national debt. That’s utterly unsustainable.

“Unsustainable” is the favorite word of deficit liars, who never explain why any size deficit cannot be sustained.

 

The gross federal “debt” (deposits) totaled $51 billion in 1940. It now totals about $30 trillion, nearly a 600-fold increase, and here we are, sustaining.

For over 80 years, the debt whiners have claimed the debt is “unsustainable.” Year after year after year, they have been proven wrong, and still, they learn nothing. Truly pitiful.

And now Congress is gearing up to spend even more.

Though the final details of a lame-duck session omnibus bill won’t be known until next week (likely not until just before lawmakers are asked to vote on it), it’s a near certainty that the final agreement will add to this year’s budget deficit and the ballooning national debt.

Translation: The final agreement will add to the budget deficit which will grow GDP.

Congress passed a short-term spending deal on Thursday night to avert a government shutdown and give lawmakers another week to hammer out a more comprehensive deal to fund the government through the end of the current fiscal year.

Where did the dollars to fund the government come from? The government merely created them from thin air by creating laws and pressing computer keys, something they can do forever.

That larger omnibus bill could include billions of dollars in additional military and humanitarian aid for Ukraine, as well as emergency funds for hurricane relief, The Washington Post reports.

The final price tag is likely to be about $1.7 trillion, according to Politico.

That will be $1.7 trillion added to Gross Domestic Product.

Depending on what else ends up in the final version of the end-of-year omnibus, the package will add between $240 billion and $585 billion to this year’s budget deficit, according to an analysis by the Committee for a Responsible Federal Budget (CRFB), a nonprofit that advocates for balancing the books.

It says much about your lack of economics knowledge when you resort to the CRFB for your ideas. Here is what happens when the government balances the books:

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.

Balancing the books is a good idea for monetarily non-sovereign entities like cities, counties, states, euro nations, businesses, and individuals. They do not have the unlimited ability to create their own sovereign currencies.

In fact, they have no sovereign currencies.

But the U.S. government is Monetarily Sovereign. It can create infinite dollars and the legal ability to make those dollars worth anything it chooses. 

Over the 10-year budget window used by the Congressional Budget Office and other number crunchers to assess the federal budget, the damage could exceed $5 trillion.

Translation: Exchange the words “economic growth“ for the term “damage” and you will see the truth.

“Not only would these policies increase deficits, but they would also worsen inflation,” the CRFB warns in its analysis.

“With inflation surging and debt approaching record levels, policymakers should avoid passing costly end-of-year policy changes.”

As always, the CRFB spouts nonsense. Inflation is not caused by or “worsened” by federal deficits. All inflations through history have been caused by shortages of important goods and services.

If federal deficits “worsened inflation,” one would expect the peaks and valleys of the above graph to correspond. They do not. 

Inflations are not caused by federal spending. Today’s inflation was caused by COVID-related shortages of oil, food, shipping, lumber, computer chips, labor et al.

For much of the past year, the Biden administration has been touting falling deficit figures as evidence that the economy was picking up and, implicitly, as a signal that government spending could increase without adding to the nation’s tenuous fiscal situation.

If true, that would be incredibly uninformed by the Biden administration.

Mathematically, it is not possible for falling deficit figures to be evidence of growing Gross Domestic Product. That would be like falling food supplies being evidence of growing nutrition.

That was always misleading, as the falling deficit was entirely the result of one-time, emergency COVID-19 spending coming off the books.

The underlying figures showed all along that the deficit situation was continuing to worsen, and that President Joe Biden’s policies were adding trillions of dollars to the deficit over the long term.

Wait, Mr. Boehm. You say emergency COVID-19 spending came off the books, yet now we have inflation. What happened to your claim that increased federal spending causes inflation?

November’s spending and revenue figures should put an end to these silly games. We’re only two months into the fiscal year, but the federal government is now on pace to run a deficit of about $1.9 trillion, which would be the largest nonpandemic budget deficit ever and a huge increase from the $1.38 trillion deficit in the fiscal year that ended on September 30.

That spending has helped reduce the likelihood of a recession, which by the way, is defined as two consecutive quarters of reduced GDP — a reduction which is exactly what you want to do.

A major driver of November’s rapidly expanding deficit was something else that fiscal hawks have been warning about for a while: higher borrowing costs created by higher interest rates.

The Wall Street Journal notes that the federal government spent 53 percent more on borrowing costs last month than it did in November 2021.

The higher borrowing costs were foolishly and arbitrarily created by the Fed. They do nothing to prevent/cure inflation. They do nothing to cure the shortages that cause inflation.

In fact, higher interest rates exacerbate the shortages and thus, exacerbate inflation. In essence, the Fed is applying leeches to cure anemia.

Higher borrowing costs are not the result of federal deficits. They are the result of Fed ignorance.

The best time to stop borrowing heavily was yesterday (or several years ago), but the second-best time would be today. Instead, Congress is likely to make this problem even worse—again—by continuing to spend like there’s no tomorrow.

SUMMARY

The entire Boehm article is based on commonly held myths. The facts are:

1. Federal deficits are necessary for economic growth. (That is simple mathematics.)
2. The U.S. federal government never borrows dollars. (Why would it, given its infinite ability to create dollars).
3. Reduced federal spending causes recessions and depressions. (Again, this is simple mathematics.)
4. Inflations are caused by shortages of key goods and services, not by federal spending. (As demonstrated by history).
5. Inflations are cured by federal spending to acquire and distribute the scarce goods and services. (Again, as demonstrated by history.)
6. Increasing interest rates does not help prevent or cure inflations.
7. Increasing interest rates exacerbates the shortages that cause inflations. (That is why raising interest rates is recessionary.) 

Oh, and applying leeches does not cure anemia.

Rodger Malcolm Mitchell
Monetary Sovereignty

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

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY