Again, claims the US government can run out of US dollars. Liars or fools? You decide.

Here is an easy way to detect economics bullshit: If someone tells you that U.S. federal government spending — any U.S. federal government spending — is “unsustainable” without explaining why, you can be sure that person is a liar or a fool. No exceptions.

“Unsustainable” long has been the word of choice for those who spread fear about federal deficits, federal debt, Social Security, Medicare, Medicaid, aid to the poor, and everything else the rich don’t like.

But what exactly is “unsustainable” about federal spending? Will the federal government, which created the very first laws out of thin air, and will the laws that created the dollar out of thin air, suddenly be unable to create more dollars out of thin air?

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

When challenged, the liars and fools reluctantly admit, “No, the government can’t run out of dollars, but deficit spending causes inflation.”

We’ve debunked that myth so many times my typing fingers are worn down. See here, here, here, here, and here, and many other places.

The simple and obvious fact is that inflation is not caused by federal deficit spending. And inflation is not caused by interest rates that are too low. The cause of all inflations is scarcities of key goods and services, most notably oil and food.

So the cure for inflation is not to cut federal deficit spending, nor is it to raise interest rates. The treatment for inflation is to cure the scarcities of critical goods and services, most notably energy and food.

How does one cure those inflation-causing scarcities? Federal deficit spending to obtain and provide the scarce goods and services.

Sadly, the Libertarian’s solution to all ills is to claim government spending is “unsustainable.”

Anarchist Movements | Cultural Politics
Libertarianism = Anarchy

Medicare? “Unsustainable.” Social Security? “Unsustainable.” Military spending? “Unsustainable.” Everything the federal government does? “Unsustainable.”

Never mind that we have been “sustaining” huge and growing federal deficit expenditures for more than 80 years, while the economy has grown massively.

When you’re a Libertarian, you hate the government. Period. You are an anarchist.

And here is an example of that, from’s website:

Paul Krugman Says Social Security Is Sustainable. It’s Really Not.
Krugman sees benefit cuts as “a choice” but believes that implementing a massive tax increase on American employers and wo,rkers would be “of course” no big deal.
ERIC BOEHM | 2.23.2023 1Times’sM

For The New York Times’ Paul Krugman, the real crisis facing America’s entitlement programs is that the media isn’t working hard enough to ignore their impending collapse.

“I’ve seen numerous declarations f,rom mainst,ream media that of course Medicare and Social Security can’t be sustained in their present form,” Krugman wrote in a Times op-ed this week. “And not just in the opinion pages.”

Perhaps that’s because the unsustainable trajectories of Social Security and Medicare aren’t a matter of opinion.

They’re factual realities, supported by the most recent annual reports of the programs’ trustees and the independent analysis of the Congressional Budget Office central). Social Security’s main trust fund will hit insolvency somewhere between 2033 and 2035, according to those projeleadingns, while one of the main trust funds in Medicare will be insolvent before the end of this decade.

Have you ever wondered why you never hear worries about the “trust fund” for the military? Or the “trust fund” to support the Supreme Court?

And why no concern about “trust funds” to fund the White House, the Senate or the House of Representatives?

Federal Trust Funds Are Not Real Trust Funds

Here is what the Peter G. Peterson Foundation says about these “trust funds”:

Federal trust funds bear little resemblance to their private-sector counterparts, and therefore the name can be misleading.

A “trust fund” implies a secure source of funding. However, a federal trust fund is simply an accounting mechanism used to track inflows and outflows for specific programs.

In private-sector trust funds, receipts are deposited and assets are held and invested by trustees on behalf of the stated beneficiaries. In federal trust funds, the federal government does not set aside the receipts or invest them in private assets.

Rather, the receipts are recorded as accounting credits in the trust funds and then combined with other receipts that the Treasury collects and spends.

Further, the federal government owns the accounts and can, by changing the law, unilaterally alter the purposes of the accounts and raise or lower collections and expenditures.

Get it? Trust funds aren’t real funds. They are just accounting mechanisms to track inflows and outflows. The federal government owns the books and can change the books at will.

The federal government can change the purposes of the Medicare and Social Security “Trust Funds”; it can add or subtract dollars at will; it can continue to fund Medicare and Social Security in any desired way and in any desired amounts.

The government and its liars and fools wring their hands and claim the trust funds are in danger of insolvency. But no federal agency can become insolvent unless that is what the President and Congress want.

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.”

The federal government literally has the power to change the account books simply by passing a law. All the bleating and worrying about a federal agency becoming insolvent is a lie.

If the federal government wished, it instantly could add a trillion dollars to the Medicare “trust fund,” and eliminate FICA altogether. Keep in mind: The government owns the books.

When insolvency hits, there will be mandatory across-the-board benefit cuts—for Social Security, that’s likely to translate into a roughly 20 percent reduction in promised benefits.

“Mandatory,” until the government decides it isn’t mandatory.

Alan Greenspan: “The United States can pay any debt it has because we can always print the money to do that.”

Nevertheless, Krugman says he’s got a solution that “need not involve benefit cuts.”

His argument boils down to three points. First, Krugman says the CBO’s projections about future costs in Social Security and Medicare might be wrong.

Second, he speculates that they might be wrong because life expectancy won’t continue to increase.

Finally, if those first two things turn out to be at least partially true, then it’s possible that cost growth will be limited to only about 3 percent of gross domestic product (GDP) ov,er the next three decades and we’ll just raise taxes to cover that.

There never is a need to raise federal taxes. There is no funding need for federal taxes at all. The federal government destroys all tax dollars it receives, and creates new spending dollars, ad hoc.

When you pay your taxes, your dollars come from the M2 money supply measure. When they reach the Treasury, they cease to be part of the M2 money supply or any other money supply measure. They literally are destroyed.

When the federal government spends, it sends instructions (not dollars) to the creditors’ banks, instructing the banks to increase the balances in the creditors’ checking accounts.

This creates the new dollars that are added to the M2 money supply.

The banks clear the instructions through the Federal Reserve preserving the tidy, double-entry bookkeeping.

If you remember just one thing from this post, remember that dollars are not physical things. They are legal, bookkeeping entries, and the federal government controls the laws and the books.

If the government wished, it could eliminate all federal trust funds, or add a trillion dollars to each of them, and it all would just be bookkeeping.

Alan Greenspan: “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”

“America has the lowest taxes of any advanced nation; given the political will, of course we could come up with 3 percent more of G.D.P. in revenue,” he writes. “We can keep these programs, which are so deeply embedded in American society, if we want to.

Killing them would be a choice.”

Federal taxes do not fund the federal government. The purpose of federal taxes is to control the economy by taxing what the government wishes to discourage and giving tax breaks to what the government wishes to encourage.

The federal government could eliminate all federal taxes, yet continue to spend forever.

It’s notable that Krugman sees benefit cuts as “a choice” but believes that implementing a massive tax increase on American employers and workers would be “of course” no big deal.

But that hardly addresses the substance of what he gets wrong. Let’s take each of his three arguments in order and show why they’re incorrect.

First, he says the CBO’s projections about future costs for the two programs might be inaccurate because the agency is assuming that health care costs will continue to grow faster than the economy as a whole.

At best, that means postponing insolvency by a few years. The structural imbalance between revenues and outlays means that depletion of the trust funds is a question of “when” and not “if,” as this chart from the Committee for a Responsible Federal Budget makes clear.

The above would be true if the federal government were monetarily non-sovereign, like the states, counties, cities, euro nations, you and me.

We monetarily non-sovereign entities do not have the unlimited ability to create our sovereign currencies. We have no sovereign currencies.

But the U.S. government is absolutely sovereign over the U.S. dollar. It can create as many or as few dollars as it wishes.

It can give those dollars any values it wishes and it can change those values (which it has done many times) at will.

The U.S. dollar is a tool of the U.S. government.

The Libertarians seem ignorant of the difference between Monetary Sovereignty and monetary non-sovereignty, and thus ignorant of economics

Krugman even concedes that despite a decline in the expected rate of growth in future health care costs, those costs are still expected to rise faster than the economy grows.

Combined with the aging of America’s population, this is a demographic and fiscal time bomb. Ignoring that reality is certainly not a sound policy strategy.

Even if healthcare costs were to triple tomorrow, the federal government could fund Medicare while not collecting a single penny in FICA taxes.

Second, he speculates that mortality rates might continue to drop. While that might be good news from an actuarial perspective, it seems both morally horrifying and incredibly risky to base a long-term entitlement program on the assumption that more people will die at a younger age.

Even if every American retired at 50 and lived to age 200, the federal government could fund Medicare for All, and a generous Social Security for All, again while not collecting a penny if FICA taxes.

In fact, Krugman gets this point exactly backward. Instead of banking on a decline in life expectancy, Congress ought to raise the eligibility age for collecting benefits from Social Security and Medicare.

That would create the same demographic benefits on the accounting side even as people live hopefully longer, better lives.

And there you have it. The Libertarian solution for all government problems is to cut benefits, especially those benefits that aid the poor and middle classes.

The Libertarians refuse to accept this vital truth: The sole purpose of any government is to protect and improve the lives of the governed.

How cutting benefits accomplishes that purpose has yet to be explained.

Krugman would no doubt see such a change as an unacceptable benefit cut, but in reality, it would restore Social Security to its proper role as a safety net for the truly needy, not a conveyer belt to transfer wealth from the younger, working population to the older, relatively wealthier retired population.

The so-called “conveyer belt” would only be true if federal taxes funded federal spending. But they don’t.

Federal taxes fund nothing. FICA could and should be eliminated, while Social Security benefits should be increased.

When Social Security launched in 1935, the average life expectancy for Americans was 61. That’s changed, so the program’s parameters should too.

Yes, Social Security parameters should change. Benefits are too low. FICA should be eliminated.

Finally, the blitheness of Krugman’s actual solution—a massive tax increase—ignores all the knock-on effects of that idea.

Keeping Social Security and Medicare whole will require a tax increase in excess of $1 trillion, which would have massive repercussions on wages, the costs of starting a business, and economic growth in general.

It’s far from an ideal solution.

Keeping Social Security and Medicare whole will require no tax increase at all. The programs are not funded by tax dollars, which are destroyed upon receipt. The programs are funded by laws, and Congress controls the laws.

Paraphrasing’s claim, eliminating FICA would have massive positive effects on wages, the costs of starting a business, and economic growth in general.

In all, Krugman’s column amounts to an argument that his addiction to donuts is totally sustainable as long as someone else agrees to keep buying donuts for him (and as long as he ignores the long-term costs to his health).

Maybe the doctors are wrong about the projected consequences of eating too many donuts. Maybe it will turn out that living longer just isn’t all that great anyway.

But if all else fails, at least he’s got someone else willing to pay for his habit—and making any changes would be tantamount to killing a tradition deeply embedded in the Krugman morning routine. We must take that option off the breakfast table.

The above analogy might make some sense for monetarily non-sovereign governments, but it is completely false for the federal government.

Instead of lying to their readers and constituents, America’s thought and political leaders (not just President Joe Biden and Krugman but lawmakers and media commentators on all sides) should start acknowledging that America’s entitlement programs are not sustainable in their current form.

Instead of lying to their readers and constituents, Libertarians (not just should acknowledge the differences between Monetary Sovereignty and monetary non-sovereignty.

Without changes, they will wreck the economy or force many retirees to deal with sudden cuts to benefits they expected to receive. Maybe both.

Waiting to deal with this problem will only make it worse. If Krugman’s column is the best argument for the long-term sustainability of America’s two major entitlement programs, it should only underline how seriously screwed they are.

No, Krugman’s column is not the best argument for long-term sustainability.

Using the facts about Monetary Sovereignty is the absolute guarantee of long-term sustainability.

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.


6 thoughts on “Again, claims the US government can run out of US dollars. Liars or fools? You decide.

    1. Is it ignorance or intent? That is the question. I suspect that because the focus always is on benefits to the poor and middle classes, it is intent. The Libertarians are servants of the rich.

      They provide the pseudo-scientific rationale for the desires of the rich to widen the Gap between the rich and the rest.


  1. In the past you have asked whether these groups are aware of monetary sovereignty. I think they are. It’s (to them) the elephant in the room. We’ve all seen the reaction when two people are in a heated argument and suddenly one side gives absolute proof (usually scientific) that their claim is correct. What does the other side do? In my experience they are stunned into silence and maybe walk away tail between legs. It’s humiliating. My point is: These people know better. You don’t hear them raising hell criticizing and laughing at monetary sovereignty. They’re quiet or dismissive! They don’t want to wake the sleeping dog of potential liberation.


    1. I forgot to add that the U.S. government is also aware of monetary sovereignty. They’re quiet too, and doing the bidding of their rich benefactors as well as keeping their jobs, like you say.


    2. Are you sure they know: Not a one of them can reasonably explain how banks work for example. That goes back at least 75 years to when Paul Samuelson’s textbook ‘Economics’ first came out in 1948.

      ‘Paul Anthony Samuelson (May 15, 1915 – December 13, 2009) was an American economist who was the first American to win the Nobel Memorial Prize in Economic Sciences. When awarding the prize in 1970, the Swedish Royal Academies stated that he “has done more than any other contemporary economist to raise the level of scientific analysis in economic theory”. Economic historian Randall E. Parker has called him the “Father of Modern Economics”, and The New York Times considers him to be the “foremost academic economist of the 20th century”.’

      ‘Samuelson is also author (and since 1985 co-author) of an influential principles textbook, Economics, first published in 1948 (19th ed. as of 2010; multiple reprints). The book sold more than 300,000 copies of each edition from 1961 through 1976 and was translated in the forty-one languages. As of 2018, it has sold over four million copies. William Nordhaus joined as co-author on the 12th edition (1985). Sometime before 1988, it had become the best-selling economics textbook of all time.’

      Samuelson was once quoted as saying, “Let those who will write the nation’s laws if I can write its textbooks.”

      Read this and tell me what you think: A lost century in economics: three theories of banking and the conclusive evidence

      Werner, Richard (2016) A lost century in economics: three theories of banking and the conclusive evidence. International Review of Financial Analysis, 46, 361-379.

      Samuelson had a brother who was vain enough to believe no one would realize he was Jewish if he changed his surname from Samuelson to Summers. Begat a son Larry the dimmest bulb that ever was… living embodiment of the Peter Principle as RMM is fond of saying. Samuelson has Biden’s ear whispering his esoteric ‘secular stagnation’ slogan having been Treasury Secretary for a spell under Clinton without ever understanding how reserve accounting at the Fed worked as Warren Mosler found out once when confronting his stupid ass at some conference. If a big head Harvard professor like him doesn’t understand anything then how do you think anyone else who came out of the ecosystem is going to?


      1. Oops wrote one name instead of the other: “Samuelson has Biden’s ear whispering his esoteric ‘secular stagnation’ slogan”

        Had heard somewhere that whole secular stagnation thing was something he plagiarized from someone else. Stole it from some obscure academic who published an article that some years later was read by some student eager to kiss-up to Larry and so brought it to his attention. Did a quick re-write and claimed it as his own creation.

        Also read on some message board that L. Randall Wray once went by Larry R. Wray and changed it around in the eighties when the other Lawrence’s star suddenly began to rise.

        Has RMM got any wisdom to share on the toxic practice,_kick_down

        “The flow of blame in an organization may be a primary indicator of that organization’s robustness and integrity.”


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