A quick summary of things few people know about federal finances.

This is the false logic that bedevils us: The federal government spends money it doesn’t have. So it borrows the money. Now it owes the money. Someday it must repay the money. Repayment requires taxes and interest. Therefore too much borrowing burdens our children. The government must live within its means.

It equates federal finances with household finances. The problem is that the federal government is Monetarily Sovereign and households are monetarily NON-sovereign — the ultimate apples and A-bombs comparison.

1. It’s not really federal “debt” as commonly understood. It’s deposits into T-security accounts at the Federal Reserve Bank, similar to deposits into your private bank savings accounts, but safer.
2. Those deposits pose no threat to the federal government’s solvency. As a monetarily sovereign entity, its ability to pay its bills is infinite.
3. Those deposits also pose no threat to taxpayers. Neither the deposits nor the interest are funded by taxes. The government creates new dollars to fund interest and all other federal spending.
4. The federal government has the power to pay off the entire “debt” (deposits) today, if it chose to, merely by returning all the dollars in those T-security accounts.
5. Federal deficits are in lockstep with T-security issuance legally, but not financially. As a monetarily sovereign government, the federal government never borrows dollars. It creates all the dollars it needs by pressing computer keys.
6. Even if the federal government collected $0 taxes, it could fund spending forever.
7. T-securities do not provide spending money to the government. The purposes of T-securities are:
   A. To provide a safe, interest-paying place to store unused dollars and
   B. To help the Fed control interest rates by providing a base rate
8. The federal government can control T-security market interest rates by changing its laws and/or by increasing or decreasing the supply of T-securities.
9. The federal government has the infinite ability to pay interest, simply by pressing computer keys. No taxes are involved.
10. Just as T-securities do not provide the government with spending money, federal taxes also do not provide the government with spending money. The purposes of federal taxes are:
    A. To control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to reward, and
    B. To assure demand for the U.S. dollar by requiring that taxes be paid in dollars.
11. Federal interest payments add dollars and income to the private sector and stimulate demand and economic growth.
12. Federal deficits add net dollars to the economy; federal surpluses take net dollars out. Historically, every U.S. depression has been preceded by federal surpluses/debt reduction. The Clinton surpluses were followed by the 2001 recession. When deficits resumed, federal dollars again flowed into the economy..The federal government’s red ink is the economy’s black ink.
13. Recessions tend to be cured by increased deficit spending.
14. FICA does not fund Social Security or Medicare. The so-called “trust funds” are not real trust funds. Federal money creation funds those programs (and all other federal programs). The “trust funds” are line items tracking payments and disbursements, nothing at all like trust funds.
15. One of the greatest threats to the U.S. economy is the false belief that federal deficits and debt resemble private sector deficits and debt, and that the economy can grow without federal deficit spending. It has not. It will not. It cannot.
16. In real-world economies, inflation begins with shortages of crucial goods and services, not with excessive federal spending. Federal spending can worsen inflation after it has begun, but historically the initiating cause has been shortages—most often of energy and food.
17. Inflation begins with shortages. The cure is to cure the shortages. Federal spending to increase the production and distribution of scarce goods and services fights inflation rather than causing it.
18. Federal spending cuts make people poorer, which doesn’t produce another barrel of oil, bushel of wheat, house, or semiconductor. Increasing supply does.
19. Gap Psychology — the human desire to widen the income/wealth/power gap below and to narrow it above — is the psychological basis for economics.