Will the “Build Back Better” bill and “too much” federal debt cause inflation? An examination of myths.

The big argument of the day has to do with federal deficit spending. The Republicans say they don’t like it because increasing the federal “debt” causes inflation.

The Democrats agree that increased federal “debt” is inflationary, but that their proposals are “paid for” by increased taxes. So, according to the Dems. the federal debt wouldn’t increase enough to cause inflation.

In total, both parties and all their hired economists wrongly agree that federal deficit spending leads to inflation, a false belief demonstrated in the following article:

House passes Build Back Better bill after overnight delay

It’s unclear whether moderate Senators Joe Manchin and Kyrsten Sinema will agree to some of the provisions included by the House.

“The Build Back Better Act is fiscally responsible,” Mr. Biden said in a statement. “It reduces the deficit over the long-term. It’s fully paid for by making sure that the wealthiest Americans and biggest corporations begin to pay their fair share in federal taxes.

“Leading economists and independent experts on Wall Street have confirmed that it will not add to inflationary pressures. Instead, it will boost the capacity of our economy and reduce costs for millions of families.”

Janet Yellen Not Planning a Wealth Tax, but Could Do Capital Gains Tax
Yellen spreading the Big Lie that federal taxes fund federal spending and that the federal debt is too large.

The CBO said it would increase the deficit by more than $367 billion over 10 years.

But the estimate did not include the revenue that could be generated from increasing IRS enforcement, which the CBO suggested would be $207 billion.

Treasury Secretary Janet Yellen noted that the Treasury Department estimates that the crackdown on tax evaders would raise $400 billion, and her own department’s analysis “make it clear that Build Back Better is fully paid for, and in fact will reduce our nation’s debt over time by generating more than $2 trillion through reforms that ask the wealthiest Americans and large corporations to pay their fair share.”

The White House, which estimated its framework would cost $1.75 trillion, claims it would reduce the deficit over time, generating more than $2.1 trillion over 10 years.

Sounds great, doesn’t it? The spending is “fully paid for,” and increased tax collections would “reduce our nation’s debt” and “reduce the deficit.”

Thank heavens it’s all a lie, a Big Lie.

Despite all the chest-thumping by Biden and friends, the bill will be “fully paid for” simply because all federal spending is fully paid for by federal money creation, never by taxes.

The federal government uniquely is Monetarily Sovereign. Unlike state and local taxes, which do pay for state and local government spending, federal taxes pay for nothing.

That is a fundamental difference between monetarily non-sovereign state and local governments vs. the Monetarily Sovereign federal government.

State and local taxes are M1 (money supply) dollars that remain in the private sector, even after they are received by state and local governments. (The state/local governments deposit their tax dollars into private sector banks.)

By contrast, Federal taxes are M1 dollars that are removed from the economy and destroyed when they hit the Treasury, where they no longer appear in any money measure.

Anyone not understanding that fundamental truth simply doesn’t understand economics, and has no business voting on or commenting about federal spending.

(In all probability, most of the federal politicians do understand, but don’t want you to understand, lest you ask for more benefits. Rich political benefactors want the Gap between the rich and the rest to widen, an event which makes the rich richer.)

Worse yet, if in fact, the increased federal taxes equal or exceed spending (which is what the Dems claim will happen) then the removal of money from the private sector (aka “the economy”) will lead to a depression, as has happened so often n the past.i

We only can pray the Dems are lying about reducing the debt and deficit.

The other issue, perhaps the biggest issue currently, is whether increased deficits and debt will cause inflation.

This is the one the GOP harps on, because they can’t complain about deficits, as they recently gifted the rich with major deficit-causing tax decreases (which by the way, increased the deficit and debt, but didn’t cause inflation).

So what causes inflation? Is it the money supply, as so many economists claim?

Do you see any relationship between the M2 money supply and inflation?

Inflation (blue) vs. The M2 Money Supply (red)

No, there doesn’t seem to be any relationship between the M2 money supply and inflation.

But wait. Some economists claim it isn’t just the increased money supply that causes inflation, but rather increases in the velocity of money that causes inflation.

The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. (per the Federal Reserve of St. Louis)

Inflation (bright blue) vs. the velocity of M2 (pale blue).

No, there is a massive difference between the two lines. The velocity of money doesn’t seem to be a cause of inflation.

So what about federal debt? That’s one that many economists claim causes inflation.

Inflation (blue) vs. Federal Debt Held By The Public (purple)

No, the peaks and valleys are completely different. Despite the bleating by Republicans and Libertarians, there doesn’t seem to be any relationship between federal debt and inflation.

Here’s another thought. Some folks worry that the world (China especially) won’t “lend” us enough dollars. It’s a ridiculous concern, because the federal government does not borrow dollars from anyone, and further, it never can run short of dollars.

But ridiculous concerns are part of what constitutes today’s economics. So, when the federal government doesn’t sell enough “debt” (Treasury Securities) to meet legal (though not financial) requirements, the Federal Reserve jumps in with its infinite supply of dollars.

So, is there a relationship between inflation and the Federal Debt held by Federal Reserve Banks?

Inflation vs. Federal Debt held by Federal Reserve Banks

Nope. No relationship there, either.

So, what does cause inflation?

Here’s one hint:

Inflation (blue) vs. Spot Crude Oil Price (orange).

That’s more like it. Notice how the peaks and valleys of inflation generally match up with the peaks and valleys of oil prices.

Of course, the match is not perfect because oil prices, which closely are related to oil shortages, are not the sole cause of inflation.

Today’s inflation is related to the shortages not only of oil, but also of food, labor, shipping, computer chips, and other vital resources. And that gives you the answer to the question, “What causes inflation?”

Inflation always is caused by shortages of key commodities, most often food and energy, along with other supplies. Inflation never is caused by “too much money,” never by federal spending, and never by federal deficits and debt.

Not only do shortages, not money supply, always cause inflation, but inflation can be cured by federal deficit spending to cure shortages and to distribute the scarce items.

Currently, the federal government is trying to ease inflation by distributing oil from the Strategic Petroleum Reserve. This is an example of government spending, because the government previously had deficit-spent to acquire that oil.

The government can reduce the shortages of food and shipping by strategic spending to aid growers and shippers. The government can spend to bring more computer chip manufacturing to our shores.

If the government would eliminate the nonsensical, useless FICA tax, (and act that would increase the federal deficit and debt) that would effectively raise salaries and encourage more people to come to work, thus easing the labor shortage.

In summary, all the worries about federal deficit spending causing inflation are completely misplaced and in most cases, dishonest. They are nothing more than an attempt to widen the Gap between the rich and the rest.

Finally, if federal deficit spending does not cause inflation, what does federal deficit spending do?

Federal deficit spending helps prevent and cure recessions:

Gold line shows increases and decreases in federal deficit spending. Vertical gray bars indicate recessions.

When federal deficit growth declines we have a recession, which is cured by a deficit growth increase.

SUMMARY
The federal government, unlike state/local governments, cannot run short of U.S. dollars. It can pay any debt denominated in dollars, simply by creating dollars.

Though state/local government taxes fund state/local government spendinng, federal taxes do not fund federal spending. Unlike state/local tax dollars, federal tax dollars are destroyed upon receipt by the Treasury.

No evidence supports the belief that “too much” federal deficit spending causes inflation. On the contrary, federal deficit spending can prevent and cure inflations.

Additionally, federal deficit spending can prevent and cure recessions and depressions.

There is no financial reason ever to restrict federal spending. The false belief that federal finances are similar to state/local government finances and personal finances is fostered by the very rich, who strongly influence the government via bribery.

The rich wish to widen the Gap between them and the rest of the citizenry. The wider the Gap, the richer are the rich. It is the fundamental reason why the rich bribe the politicians, the media, and the economists.

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:

  1. Monetary Sovereignty describes money creation and destruction.
  2. 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:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. 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.

MONETARY SOVEREIGNTY

Are you fucking stupid?

A question for Republican politicians and those who vote for them:

Let me get this straight:

  1. COVID kills thousands every day
  2. More deadly strains are popping up
  3. COVID can be prevented with vaccinations
  4. But you don’t want the government to mandate life-saving vaccinations

Is that about right?
Are you fucking stupid?

A letter from Marco Rubio

Marco Rubio Skips Miami Town Hall, Constituents Replace Him With Empty Suit  | Miami New Times
Rubio Skips Town Hall, Constituents Replace Him With Empty Suit

Sen. Marco Rubio, best known for not showing up for work, has demonstrated why his absence might be better for America than his attendance.

Here are excerpts from this truly ignorant letter I received today:

Dear Mr. Mitchell,

Thank you for taking the time to express your thoughts regarding spending and the federal budget.

Understanding your views helps me to better represent Florida in the United States Senate, and I appreciate the opportunity to respond.

As of May 20, 2021, the U.S. national debt had reached more than $28.3 trillion. This is an unsustainable course that Congress must address.

Why is it “unsustainable”? Sen. Rubio never says, surely because he has no clue.

Back in 1940, the so-called, misnamed “debt” was about $40 Billion, and today he says it is $28.3 Trillion, and yet we are “sustaining” it quite nicely, thank you.

Rather than explaining his position, Rubio goes on to demonstrate his total ignorance of federal financing:

On February 3, 2021, Senator Cindy Hyde-Smith (R-MS) and I introduced  S.J. Res. 6 , which would enact a balanced budget amendment to the United States Constitution. The bill has 14 cosponsors and was referred to the Senate Committee on the Judiciary.

A balanced budget is based on common-sense principles that should be enshrined in the U.S. Constitution. This would force politicians in Washington to do what every family across the United States must do in balancing their own budgets. This would also prevent us from continuously passing the bill to the next generation.

Clearly, he has no idea about the difference between a Monetarily Sovereign entity like the U.S. government and a monetarily non-sovereign entity like a family.

So he proposes an extraordinarily foolish law, that had it been in place back in 1940, would have doomed the U.S. to a $40 Billion “debt” today — i.e. the deepest depression in world history.

Pitifully, Rubio is joined in his exercise of idiocy by Sen. Cindy Hyde-Smith and “14 cosponsors.” With lawmakers like this, can anyone wonder why the U.S. Congress is perhaps the most inept group of partisan fools in America?

On March 27, 2020, President Trump signed into law the bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), which was a $2 trillion emergency relief package that, among other things, provides small businesses with direct assistance to stay in business and keep American workers employed.

As Chairman of the Senate Committee on Small Business and Entrepreneurship last Congress, I was able to include the Keeping American Workers Paid and Employed Act , legislation that made $349 billion in forgivable loans to small businesses and nonprofits available through the Paycheck Protection Program (PPP). 

Good grief, this no-show is chairman of a Senate committee!

Furthermore, on December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (P.L. 116-260), which provided $1.4 trillion to fund the federal government through September 30, 2021. 

While reducing federal spending is one of my top priorities, I believe it was appropriate during the COVID-19 pandemic to help small businesses stay open by providing government assistance, especially when much of their lost revenue came from government public health regulations. 

“See, it’s like this. Deficit spending is OK if Trump and I do it, even though it would have been unconstitutional if my dopey balanced budget amendment had passed.

“Gee, I never thought of that. I would have violated my own law.”

On March 11, 2021, President Biden signed in to law the American Rescue PlanAct (P.L. 117-2), which was a $1.9 trillion COVID-19 relief package. Unlike previous COVID-19 relief packages, this bill was passed with a solely partisan vote in the Senate.

I did not support the bill . . .

“Because I have no idea what was in it, and anyway, McConnell told me not to.”

 . . . as it spent hundreds of billions of dollars on items unrelated to COVID-19 recovery . . . 

Because I was told that the only reason for federal spending is COVID. So, not one Republican wanted to add dollars to an economy that was struggling, and desperately in need of help.

“Hmm, I wonder why with a Democrat President, we Republicans suddenly are worried about deficits. We didn’t worry when we gave a big tax break to the rich while the wealthy Donald Trump was President.”

In addition to the wasteful spending enacted by the American Rescue Plan, President Biden has proposed even more wasteful spending in his proposed federal budget.

Despite having just spent $1.9 trillion in the American Rescue Plan, President Biden has proposed a federal discretionary budget of more than $1.5 trillion.

Now that the economy is re-opening . . .

“Because of the federal deficit spending, but I don’t want you to know that . . .”

. . . Congress will need to rein in reckless federal spending and prioritize policies that get Americans back to work and help the economy recover . . . 

“Which by some magic can be accomplished without federal deficit spending.”

It is an honor and a privilege to serve you as your United States Senator.

I will keep your thoughts in mind as I consider these issues and continue working to ensure America remains a safe and prosperous nation.

“I have no idea what your thoughts were. I never read your letter, and I wouldn’t have understood it anyway. But I love being a Senator.”

Sincerely,


Marco Rubio
U.S. Senator 

Thank you, Senator, for your most informative letter. It confirms what we long have known.

 

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:

  1. Monetary Sovereignty describes money creation and destruction.
  2. 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:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. 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.

MONETARY SOVEREIGNTY

How to win a national Darwin Award

A person, a group, a political party, a nation — they all can survive a little stupid, a little crazy, a little incompetence and a little crooked, but when the amount of stupid, crazy, incompetence, and crooked passes a tipping point, then that person, group, political party, and even an entire nation will win a gigantic Darwin Award.

Based on its recent supply of stupid, crazy, incompetent, and crooked, I suggest America is now entering the tipping point. Here is the evidence:

  1. Anti-vaccination
  2. Anti-mask

    Texas-based anti-vaccine group got Paycheck Protection Program funds in May  | The Texas Tribune
    Darwin Awards contestants
  3. Hydroxychloroquine, bleach, light
  4. De-vaccination
  5. Climate change denial
  6. Donald Trump
  7. Donald Trump, Jr.
  8. Sarah Palin
  9. Michelle Bachman
  10. Steve King
  11. Glenn Beck
  12. Tucker Carlson
  13. Marjorie Taylor Green
  14. Jim Jordan
  15. Lauren Boebert
  16. Sean Hannity
  17. Laura Ingraham
  18. Lara Logan
  19. Ali Alexander
  20. Ron DeSantis
  21. Kim Reynolds
  22. Greg Abbott
  23. Josh Hawley
  24. Louie Gohmert
  25. Rand Paul
  26. Matt Gaetz
  27. Ted Cruz
  28. Tom Cotton
  29. Stephen Bannon
  30. Stephen Miller
  31. Mark Meadows
  32. Jeffrey Clark
  33. Sonny Perdue
  34. Wilbur Ross
  35. Ben Carson
  36. William Barr
  37. Mike Pompeo
  38. Steven Mnuchin
  39. Scott Pruitt
  40. Kevin McCarthy
  41. Mitch McConnell
  42. Ryan Maue
  43. John Eastman
  44. Anti-gun control
  45. Fox News
  46. Breitbart
  47. Newsmax
  48. OANN
  49. QAnon
  50. Alex Jones

    FBI Investigating 'Inside Job' Involving Capitol Police, Other Staffers  During Insurrection
    Trump’s patriots
  51. Coup rioters
  52. Confederate sympathizers
  53. Anti-immigrant
  54. Anti-poor
  55. Pro-rich
  56. Anti-black
  57. Anti-brown
  58. Anti-Muslim
  59. Anti-gay
  60. White supremacists
  61. Mike Lindell
  62. Roger Stone
  63. Paul Manafort
  64. Rick Gates
  65. George Nader
  66. Steve Cortes
  67. Michael Cohen
  68. George Papadopoulos
  69. Elliott Broidy
  70. Allen Weisselberg
  71. Michael Flynn
  72. Kyle Rittenhouse
  73. Rudy Giuliani
  74. Sidney Powell
  75. Clarence Thomas
  76. Samuel Alito
  77. Antonin ScaliaFl
  78. Pizzagate, Deep State and numerous other conspiracy theories
  79. Gun nuts
  80. And numerous others
  81. TIPPING POINT REACHED. AMERICA’S DARWIN AWARD is now in process.

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:

  1. Monetary Sovereignty describes money creation and destruction.
  2. 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:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. 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.

MONETARY SOVEREIGNTY