Here is what former Federal Reserve Chairmen said when they were being honest:
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.”
Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
Get it? The U.S. government cannot run short of dollars unless it wants to.
Now mull that over and explain to yourself why the federal government, having the infinite ability to create dollars, should be concerned about the dollars it supposedly owes.
Read the following articles as you keep that infinite ability in mind:
Yellen says US is projected to hit debt ceiling on Jan. 19 by Aris Folley – 01/13/23 12:46 PM ET
Treasury Secretary Janet Yellen said the U.S. is projected to reach its roughly $31.4 trillion borrowing limit in less than a week.
The question, “Why does the U.S. government have a borrowing limit?” leads to two questions:
- Why does the U.S. government, which is Monetarily Sovereign (i.e., having that infinite ability to create its own sovereign currency), borrow dollars?Answer: The U.S. government never borrows dollars. It accepts deposits into Treasury Security accounts, the purpose of which is not to supply the government with its own dollars (The government never touches those deposits.)The purpose of T-bills, T-notes, and T-bonds is to provide a safe place for dollar users to store unused dollars. This helps stabilize the dollar.
- Why does the U.S. government limit acceptance of deposits into T-security accounts (aka “debt”).Answer: There is no rational financial reason. The con is to make the public believe falsely that federal finances are like personal finances, where spending must be limited to income.But federal finances are entirely different.The federal government cannot run short of dollars.The con goes something like this:Congress cannot control its spending, so to be “prudent,” a law that limits spending is needed. Unfortunately, this is all hogwash. Spending does not need to be controlled (as demonstrated by the repeated increases in the “debt limit)
the debt limit law does not control spending. It controls paying for what already has been spent.
Yellen shared the estimate in a letter to Speaker Kevin McCarthy (R-Calif.) on Friday. She also warned the department would soon have to begin taking “extraordinary measures” to stave off a default to buy time for Congress to find a bipartisan solution.
Those measures include temporarily redeeming existing and suspending new investments of the Civil Service, Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund, as well as suspending reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan.
We’ve accented the word “temporarily” to demonstrate that Yellen, Congress, and the world know the debt limit will be raised.
It will happen only after the Republican Representatives have had their chance to parade their fake thrift by giving speeches about spending cuts
Then, they will return to spending. It’s all a charade for the benefit of you, the voting public.
Yellen added that the funds would be “made whole” after the debt limit impasse has ended.
“Impasse has ended” means the limit will be raised again after all the lies have been told.
How will the funds be made “whole?” The government will do what it always has done: It will create new dollars from thin air, to pay all its bills.
That is precisely what the government has done every year of the phony debt ceiling and will continue to do in the future.
While the secretary said it’s unlikely cash and extraordinary measures will run out before early June, she stressed the measures will only last for “a limited amount of time” and pressed for Congress to “act in a timely manner” to raise or suspend the ceiling.
The letter to McCarthy comes as a high-stakes fight over raising the debt ceiling looms over the further Congress after Republicans took back control of the lower chamber last week.
McCarthy has pressed for any action to address the debt ceiling to be tied to spending cuts sought by Republicans.
The “spending cuts sought by Republicans are cuts to social programs — Medicare, Social Security, poverty aids — whatever helps those who are not rich. Benefits to the rich will not be cut, as the rich are the main contributors to the Republican party.
Also, anything that will help grow the economy will be cut because, in advance of the next elections, the Republicans want the Biden administration to be blamed for a weak economy.
However, proposals for significant cuts are likely to find trouble in the Senate, where Democrats still hold control.
“If you’re going to ask for an increase in the limit, at some point in time, you’ve got to sit down and say why are we hitting the limit? Why are we maxing out the credit card?”
The “credit card” analogy often is used. It is a false analogy, and anyone using it is ignorant about federal finance, a liar, or both.
The federal government does not use anything even remotely resembling a credit card. It pays all its financial obligations the same way: It creates new dollars, ad hoc.
There is no credit card. There is no borrowing. In fact, the federal “debt” isn’t even a real debt.
The T-security accounts are mere dollar storage — similar to bank safe deposit boxes. The government never touches those dollars. It creates all the dollars it uses. The dollars remain the property of the depositors.
Just as your bank does not count what you have in your bank safe deposit box as “debt,” the federal government does not owe the contents of T-security accounts. To pay off this misnamed “debt,” the government merely returns the contents of those accounts.
This is not a burden on the government or on taxpayers or on T-security holders.
Previous Fed Chairmen have testified that the federal government cannot run short of dollars. Even if the government collected $0 in taxes, it still could continue spending forever.
It’s a little-known secret that federal taxes are unlike state/local government taxes. All taxes are paid with dollars from the M2 money supply measure, but when federal tax dollars hit the U.S. Treasury, they disappear from any money supply measure. They effectively are destroyed.
Yes, those tax dollars you work so hard to earn and you waste so much time and money calculating and paying are destroyed upon receipt by the federal government.
Never used, never needed, the purpose of federal taxes is not to fund federal spending. They help the government control the economy by punishing what the government doesn’t like and by rewarding, via tax breaks, what the government wishes to aid.
(By contrast, state/local tax dollars remain in the economy as part of one or more money supply measures.)
The entire “debt limit” scene is a kabuki play designed to impress you. The Republicans want to make the rich richer by widening the Gap between the rich and the rest.
The Gap is what makes the rich richer. Without the Gap, no one would be rich — we all would be the same — and the wider the Gap, the richer are the rich.
To widen the Gap, the Republicans try to cut benefits to the populace, all in the name of “prudence.”
The Democrats try to demonstrate their frugality chops by pushing the “debt limit” button, but only when they are out of office, so the Republicans can be blamed for a weakened economy.
This con has been running for your amusement since 1939 when the so-called debt was called a “ticking time bomb.” That bomb has been ticking for 84 years and presumably will continue ticking as long as liars are in Congress, i.e., forever.
Here is another article on the same subject:
Will the U.S. Ever Pay Off Its Debt? Ways to Reduce the National Debt By Kimberly Amadeo Updated on October 4, 2022 Reviewed by Robert C. Kelly Fact checked by Emily Ernsberger.
Congress has made many attempts to lower the national debt, but it hasn’t been able to reduce the growth of what the nation owes.
Yes, Congress has made many attempts to lower the federal debt.
For clarity, federal debt is not real debt. It is the net total of deposits into Treasury security accounts — T-bills, T-notes, T-bonds — since the nation’s founding. To pay off this “debt,” the government merely returns the accounts’ balances.
The national debt is a nonsensical figure that totals the above T-security accounts plus all U.S. private debt (mortgages, credit card debt, etc.) It’s something like adding water in the lakes to alcohol to find the total amount of liquid in America.
The U.S. debt is the outstanding obligation owed by the federal government.
Now, the author refers confusingly to “U.S. debt.” Presumably, she means federal debt, though it is not owed by the federal government any more than the contents of a bank safe deposit box are owed by the bank.
Those deposits are owned by the depositors and are merely held for security by the U.S. Treasury.
It exceeded $31 trillion in for the first time on Oct. 4, 2022, and it has increased by at least $1 trillion each year since 2016.1
Federal debt is at its highest point in American history. Raising taxes and cutting spending are two of the most popular solutions for reducing debt, but politicians may be hesitant to do both.
The word “solutions” indicates that the writer believes the federal “debt” is a problem. It isn’t. The federal government quickly could pay off the entire federal “debt” today merely by returning all the dollars that exist in T-security accounts.
This would cost America and American taxpayers $0.
Sadly, the “solutions” for reducing the federal “debt” often involve reducing federal deficit growth or even running federal surpluses.
This is what happens when the government reduces deficit growth:
This is what happens when the federal government reduces the federal “debt” by running surpluses:
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.
When the federal government runs a surplus (taxes exceed spending), we usually have a depression.
The reason: Recessions and depressions are measured by decreases in Gross Domestic Product, which is:
GDP = Federal Spending + Non-federal spending + Net Exports
Federal spending decreases also cause non-federal spending decreases in an overall decrease in money creation. The economy shrinks and, in an endless feedback loop, will continue to shrink unless the federal government cures the depression or recession with a healthy dose of deficit spending.
The author posts this illustration that is utter nonsense:
She begins with “Cut government spending” and “raise taxes,” i.e., reduce deficit growth — precisely what we see causes recessions.
Then she adds, “Drive economic growth at a faster rate,” but does not say how to do that when government spending falls and taxes rise.
Finally, she says, “Shift spending to areas that create the most jobs.”
Again, she doesn’t explain how that would be done with less spending and higher taxes, but spending in areas that have more jobs may not be efficient, economically.
Diverting spending from the military to other sectors may boost job growth, which could spur consumer spending and help the economy.
She doesn’t explain why diverting spending from the military boosts job growth. The military not only is a massive employer, but far more importantly is a massive consumer.
It purchases everything from weapons to research to all sorts of ancillary products and services, many of which transition to non-military use (think GPS, etc.)
And of course, the military defends us, but hey, when you’re cutting deficits, who cares about defense. Right?
What’s Stopping the U.S. From Paying Down Its Debt?
Most creditors don’t worry about a nation’s debt, also known as “sovereign debt,” until it’s more than 77% of gross domestic product (GDP).
That’s the point at which added debt cuts into annual economic growth, according to the World Bank.
When economists don’t know what they are talking about, it usually is because they don’t understand Monetary Sovereignty.
There is a vast, sometimes diametric, difference between a Monetarily Sovereign government and a monetarily non-sovereign government. Studies that lump the two usually come to wrong conclusions. It’s like lumping professional football and backyard croquet into a study of athletics on health.
The above-referenced World Bank study is a classic example:
“Finding The Tipping Point — When Sovereign Debt Turns Bad” Authors/Editors: Thomas Grennes, Mehmet Caner, Fritzi Koehler-Geib
Public debt has surged during the current global economic crisis and is expected to increase further. This development has raised concerns whether public debt is starting to hit levels where it might negatively affect economic growth.
Does such a tipping point in public debt exist? How severe would the impact of public debt be on growth beyond this threshold? What happens if debt stays above this threshold for an extended period of time?
The present study addresses these questions with the help of threshold estimations based on a yearly dataset of 101 developing and developed economies spanning a time period from 1980 to 2008.
Of the “101 developing and developed economies” few would be massive, developed, Monetarily Sovereign. Perhaps, three or four, and none of those is like the United States.
It’s a phony study that ignores reality, namely the non-effect of the “Debt”/GDP ratio on GDP growth in America.
In America at least, no evidence points to the assumption that a high “debt”/GDP ratio negatively affects GDP growth. It’s just a belief unfounded in data.
At the end of the second quarter of 2021, the U.S. debt-to-GDP ratio was 125%.3 That’s much higher than the tipping point and is a concern for many.
“Much higher than the (fake) tipping point and a concern for many (unsupported by data).
Over $22 trillion of that national debt is public debt, which is what the government owes to investors and taxpayers.
“Owed to investors” are the dollars deposited into T-security accounts, which the government could pay off tomorrow simply by returning those dollars.
“Owed to taxpayers” are tax overpayments, which the government could pay off tomorrow simply by creating dollars ad hoc.
Congress places a limit on public debt. It increased the limit by $2.5 trillion in December 2021 to nearly $31.4 million.
Why isn’t the U.S. eliminating its debt and paying people back? There are a few reasons.
U.S. economic growth has historically outpaced its debt. The U.S. debt was $258.68 billion in August 1945, but the economy outgrew that in a few years. GDP more than doubled by 1960. Congress believes that today’s debt will be dwarfed by tomorrow’s economic growth.
As always, remember that federal “debt” is the total of deposits into T-security accounts. Whether economic growth is greater or less than deposit growth says nothing about the economy’s health.
The federal government has the right to stop accepting deposits. This would not injure economic health.
Members of Congress have a lot to lose by cutting spending. They could lose their next election if they cut Social Security or Medicare benefits.
Yes, they could, and well deservedly so. Also, tarred and feathered might be appropriate because it would be an unnecessary penalty for the non-rich.
Raising taxes can be politically unpopular. Experts believe President George H.W. Bush lost reelection because he raised taxes after promising he wouldn’t at the 1988 Republican convention.
He raised taxes in 1990 to reduce the deficit, and voters remembered.
He lost because he broke his promise. But he should have lost because the federal government neither needs nor uses tax dollars. As described earlier, federal tax dollars (unlike state/local tax dollars) are destroyed upon receipt by the Treasury.
Bush unnecessarily impoverished the private sector (aka “the economy”). He deserved to lose his job.
There are two main themes in most discussions about paying off the national debt: cutting spending and raising taxes.
There are other options that might not enter most conversations but can aid in debt reduction, too.
The 2010 bipartisan Simpson-Bowles report is a good example of how the government could cut spending to reduce debt.
The report proposed balancing the budget through a mix of spending cuts and tax reform.
Congress didn’t adopt the complete plan, but the government did implement parts of it with some success. Note A 2015 report from the Committee for a Responsible Federal Budget indicated that although a piecemeal approach reduced debt, full-fledged adoption of the Simpson-Bowles plan may have produced a significantly lower debt-to-GDP ratio.
It also would have produced a depression, which we have discussed here: Hoover, Smoot and Hawley reincarnated as Obama, Bowles and Simpson and here: Erskine Bowles and Alan Simpson reveal why the nation is in trouble: Them.
Very simply, Simpson-Bowles suggested cutting Social Security and Medicare while increasing FICA in order to impoverish the working class at the behest of the rich.
And for what purpose? To reduce the so-called “debt” which as we repeatedly have seen has no adverse effects on the economy. None.
(The real purpose is to widen the Gap between the rich and the rest. Enriching the rich is what the bribed economists, media, and politicians are paid to do.)
Raising taxes can generate revenue that the government can use to pay down debt as well as invest in programs that support the economy.
But it can cut into tax revenue and hurt the economy if the government raises taxes too high.
Finding the correct balance is expressed by a concept known as the “Laffer Curve.”
Wrong on so many fronts. First, the government does not use taxes to pay down “debt,” i.e. deposits in T-security accounts. It merely returns the dollars already exisiting in those accounts.
Second, federal tax revenue is destroyed upon receipt.
Third, the Laffer Curve is a case of BBB (Bullsh*t baffles brains). You can click the above link to understand why, but it is telling that the author, Kimberly Amadeo, mentions this discredited hypothesis. It’s especially telling that she thinks the Laffer Curve finds “the correct balance,” which it absolutely does not do.
Increasing the GDP has a twofold benefit: It generates extra revenue to pay down debt, and it reduces the debt-to-GDP ratio if GDP growth outpaces debt growth.
Federal revenue does not pay down anything. All federal revenue is destroyed. All payments are made with newly created dollars.
The debt-to-GDP ratio is meaningless.
Driving economic growth is one way to reduce the national debt, but Congress tends to disagree on how to create that growth.
Most Democrats push increased spending, while most Republicans champion lower taxes.
Both are correct. Increased spending adds more growth dollars to the economy. Lower taxes remove fewer growth dollars from the economy.
However, unlimited growth is an unrealistic goal, so growth alone can’t solve the federal debt.
Spending Congress could shift spending from defense to job-creation areas like infrastructure and education. Almost 15% of government spending goes to the military. But past studies indicate that money spent on the military is less effective in creating jobs than money spent in other areas.
According to a report from the Political Economy Research Institute at the University of Massachusetts, Amherst, $1 billion in education and mass transit spending could produce more than twice the jobs created by military spending.
Job creation can help boost the GDP, which can help lower the nation’s debt-to-GDP ratio in many cases.
Job creation does not rely on reduced military spending. The federal government has the infinite ability to spend.
What is the U.S. debt limit? The debt ceiling is the limit on what the U.S. government can borrow to pay bills that have come due. Congress puts this limit in place each year.
The debt limit isn’t about future debt. Instead, it’s about paying for spending that Congress authorized in previous years. If Congress does not raise the federal debt as needed, then the U.S. government cannot pay its bills and will default.
The final paragraph further demonstrates the ridiculousness of the “debt ceiling.” Either it will be raised or it won’t.
If it’s raised, that merely proves it’s a sham. If it isn’t raised, the U.S. will become a deadbeat nation and the world’s financial systems will fall into chaos.
Given that those are its only two possible outcomes, which fool would like it to continue?
Rodger Malcolm Mitchell
Twitter: @rodgermitchell Search #monetarysovereignty
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.