The sole purpose of government is to improve and protect the people’s lives.
Why else would we, the people, turn over control of our lives to a government?
Why else would we. the people, give our precious money and limited power to a small group that tells them what they are allowed to do and not allowed to do?
But the International Monetary Fund (IMF) has different purposes, according to their site:
1. Furthering international monetary cooperation for consultation and collaboration on international monetary problems. 2. Facilitating the expansion and balanced growth of international trade, and to contributing thereby to the promotion and maintenance of high levels of employment, real income and productive resources. 3. Promoting orderly exchangearrangements among members, and to avoiding competitive exchange depreciation. 4. The elimination of foreign exchangerestrictions which hamper the growth of world trade. 5. Making the resources of the Fund temporarily available to members to correct maladjustments in their balance of payments without measures destructive of prosperity. 6. Shortening the duration and lessening the degree of disequilibrium in the international balances of payments of memberss
Nowhere are improving and protecting the people’s lives mentioned. It’s all about the governments and their money.
That is why the IMF never met an austerity it didn’t love.
It almost always recommends some form of austerity as a cure for what it deems “excessive” government debt.
Here’s what austerity means:
Reducing Expenditure: Governments may cut spending on public services, welfare benefits, and salariesfor public sector workers. This can include limiting the terms of unemployment benefits, reducing government employees’ wages,or cutting programs for the poor.
Increasing Revenue: This can be achieved by raising taxes, targeting tax fraud and evasion, or privatizing government-owned businesses to raise capital.
Economic Impact: Austerity measures act like contractionary fiscal policy, which can slow economic growth. This is because they reduce the amount of money circulating in the economy, which can lead to lower consumer spending and investment.
Debt Management: The primary goal of austerity is to reduce the risk of default on government debt. High levels of debt can lead to creditors demanding higher interest rates, making it more expensive for a country to borrow money.
Cut benefits, increase taxes, slow growth, and ensure the government pays its obligations to other governments. That is about as pro-government and “non-people” as you can get.
It can be said sweetly and nobly as President John Kennedy with his “Ask not what your country can do for you — ask what you can do for your country” speech.
Ah, those lofty words that sound so patriotic and easy on the ear, but are a prescription for an impoverished nation living under a dictatorship.
I prefer to ask politicians, “What will you do for us in return for your salary, lifestyle, and the prestige we have given you?”
Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
The IMF functions as an employee of governments and not of the people.
Based on history and its own statements, the IMF may have a different maxim: The sole purpose of people is to improve and protect their government.
That is true in America. Here, the federal government has infinite money but still demands taxes from the people.
Here, politicians decry federal deficits, though the government can pay any invoice merely by pressing computer keys.
Here, our government pretends to struggle with funding benefits for the poor, though it has no trouble funding tax breaks for the rich.
“Improving and protecting the people’s lives” seems to be the last thing the IFM and U.S. politicians worry about.
U.S. government budget deficits and an escalating debt load pose “a growing risk” to the global economy, marring an otherwise stellar economic performance, the International Monetary Fund said on Thursday.
Translation: The federal government is putting more dollars into people’s pockets than it is taking out, and as a result, the economy is doing great.
The “growing risk” is that somehow the poor will discover the government’s infinite ability to fund benefits, and demand more and better.
The United States over the next several years faces “a pressing need” to reduce its debt burden, which could require broad-based income tax increases and cuts in popular entitlement programs, the fund said at the conclusion of its annual review of the U.S. economy.
Translation: This “pressing need” often has been described as a “ticking time bomb,” which has been “ticking” for eighty-four years without exploding.
Our Monetarily Sovereign (MS) government has infinite dollars.
Why then does the IMF want, the government unnecessarily to take more money from the people and cut benefits to those who need them.
The required fiscal adjustment will mean “difficult political decisions over the course of multiple years,” the fund said, warning that an unchecked rise in debt could eventually sap U.S. growth and snowball into global financial distress.
Translation: “Difficult political decisions” are those that screw the people while sounding like the IMF is helping them.
For instance, raising Medicare, Social Security, and unemployment taxes with the false explanation that these taxes are needed to “save” the benefits.
These decisions are difficult, but we politicans, being heroic, are ready to sacrifice your lives to make the rich richer.
The rise in debt stimulated U.S. growth and “snowballed” into the people’s financial success. So, cut the debt.
“Now is a good time,” said Kristalina Georgieva, the fund’s managing director. “The U.S. economy is very strong, and it is in good times where you can do more to prepare yourself for risks in the future.”
Translation: The U.S. economy is very strong because the government has increased spending.
Therefore, now is a good time to weaken it by taking money out of the economy. GDP=Federal and Non-federal Spending + Net Exports.
You can be sure that if the economy was suffering, Ms. Georgieva would offer the same prescription: Austerity. It’s what they always recommend, regardless of the circumstances.
President Biden has ruled out at least one of the fund’s suggested remedies: Higher taxes on people making less than $400,000 a year.
Translation: The IMF wants to take dollars out of the pockets of the poorer people.
Apparently, these people should ask not what the country can do for them but what they can do for the rich people.
But debt aside, the IMF statement praised the U.S. economy for “a remarkable performance” in recent years.
Inflation has largely been brought under control without the sharp increase in unemployment that many economists had expected.
Gross domestic product (GDP) growth remains above expectations and is expected to continue.
Translation: We, the IMF, are completely clueless about how high levels of federal deficit spending can cause these remarkable outcomes, but whatever the reason, we want it stopped.
“The U.S. is the only G-20 economy whose GDP level now exceeds the pre-pandemic level. This is good for the U.S. and it is good for the global economy,” Georgieva told reporters.
Translation: The federal debt (that isn’t federal and isn’t debt — See: National Debt ) is up, and all this good stuff is happening. We of the IMF don’t understand why, and we want it stopped.
Despite the U.S. debt bulge, financial markets remain untroubled. The return that the government must offer to entice investors to purchase 10-year treasury securities hovers around 4.2 percent, below rates that were typical before the Great Recession.
Translation: The IMF is shocked that financial markets are untroubled by sales and profit growth.
Jerome Powell: “Look how well I’m driving.”
The U.S. government doesn’t really don’t care how many treasury securities are purchased.
Those dollars mean nothing to a government that has infinite dollars.
The government sets the interest rate at any level the Fed chooses.
It’s what the Fed does to make people think it is driving the car when, in fact, it is just going along for the ride.
The U.S. economy also is attracting an increasing share of global capital, according to Georgieva.
Before the pandemic, 18 percent of funds invested outside national borders was placed in the United States.
Today, the U.S. share of mobile finance is 33 percent, she said.
Translation: The so-called “federal debt” that bothers the IMF doesn’t seem to bother knowledgeable investors.
Debts and deficits will be an early challenge for the next president. In early 2025, Congress must lift the statutory debt ceiling or see the United States default on its debt.
Lawmakers also must decide by the end of 2025 to extend Trump’s 2017 tax cuts or allow them to expire, thus increasing taxes on most Americans.
Translation: Debts and deficits will grow the economy, but politicians, economists, the media and IMF will argue that the debt and deficits should be reduced. It’s what the very rich want us to say.
In April, as part of a separate review, IMF officials chided the United States for government deficits that stimulated the economy, saying they effectively made it more difficult for the Federal Reserve to cut interest rates.
Translation: Deficits grew the economy and enriched the private sector, but how is the Fed going to justify its existence if it can’t manipulate interest rates?
The IMF’s slogan should be: The sole purpose of people is to protect and improve their government and the rich people.
On Thursday, citing potential upside risks to inflation, the IMF said the Fed should wait to cut interest rates until “at least late 2024.”
Translation: Otherwise, it will be too easy for those who aren’t rich to buy cars, houses, refrigerators, furniture, and every other product whose price is increased by high interest rates (i.e., all products).
Thursday’s IMF statement is just the latest warning on the U.S. debt picture.
On Tuesday, the Organization for Economic Co-Operation and Development said that adding debt at a time of higher interest rateswill limit the ability of the United States to meet other needs, including defense, an aging population, and future economic shocks.
Translation: We have no idea what this means. The U.S. government has proved it has infinite moneyto meet all needs, including defense, an aging population, and future economic shocks. But, the IMF felt compelled to make a statement, however wrong.
Years of repeated tax cuts have narrowed the government’s revenue base at a time when it faces escalating spending commitments for programs such as Social Security and Medicare, as well as rising interest charges, the OECD said.
Translation: Federal taxes do not fund federal spending. Even if it collected zero taxes, it could continue spending forever.
But then, it couldn’t take dollars from the poor for social benefits or just limit those benefits altogether.
That is not what our real patrons, the rich, want.
As a share of the economy, corporate income tax payments are now less than half what they were in 1967, according to the Congressional Budget Office.
Interest expenses on the national debt over the same period have doubled to 2.4 percent of gross domestic product.
Translation: The government is taking comparatively less money from corporations, and adding more money to the economy in interest. This is working spectacularly, so it must be stopped???
The OECD, a group of more than three dozen advanced economies, called for a “sustained but steady multiyear” budget effort to curb debt.
Only Italy, Greece and Japan have higher gross debt-to-GDP ratios, the OECD said in its annual assessment of the U.S. economy.
Translation: Because the IMF is are clueless about the fundamental differences between a Monetarily Sovereign (MS) government and a monetarily non-sovereign government, it lumps Italy, Greece, and Japan into our comparison.
Italy and Greece, not being MS, must rely on the (EU) European Union to provide them with money. Japan, being MS, doesn’t need any help.
Government debt held by the public, which excludes Treasury securities in the Social Security Trust Fund, is equal to 99 percent of total U.S. output and is expected to hit 122 percent in 2034, according to the CBO.
Translation: The useless Debt/GDP ratio is the phony number of last resort for those who don’t understand MS; therefore, the IMF tries to fool you with it.
Many economists say the government’s growing debt burden must be addressed with a mix of spending cuts and tax increases.
Stabilizing the debt relative to the size of the economy is “a really important goal,” Jared Bernstein, the chairman of the White House Council of Economic Advisers, said at the Brookings Institution this week.
Someone please tell Mr. Bernstein that federal debt is two things, neither of which has any meaning relative to the size of our economy (which is GDP).
The two meanings of federal debt are:
The historical net total of federal deficits— the difference between federal spending and federal taxes. Simply add all the spending the government has ever done and subtract all the income the federal government has ever received. That’s the debt.
The current total of all outstanding Treasury Securities (T-bills, T-notes, T-bonds, etc.)
With regard to #1, the “debt” would have some meaning if the federal government was monetarily non-sovereign: it doesn’t use a currency it issues. This resembles city, county, and state governments, as well as businesses, you, and me.
It’s relevant because we monetarily non-sovereign types might have difficulty paying all those outstanding bills. The Monetarily Sovereign U.S. government has no such difficulty because it has the infinite ability to create dollars.
Regarding #2, Treasury Securities are accounts wholly owned by the depositors. The government doesn’t owe the contents of those accounts because it never takes ownership of the money. It just holds the dollars for safekeeping.
This resembles bank safe deposit boxes. The contents are not part of bank debt because the bank never owns them.
By contrast, city, county, and state notes and bonds are in accounts owed by the respective cities, counties, and states, which rely on income to pay them off.
The U.S. federal government is not like state/local governments, not like euro governments, not like businesses, and not like you and me.
It uniquely is Monetarily Sovereign. It cannot, unwillingly, run short of its own sovereign currency, the U.S. dollar. As real experts have said:
Former Federal Reserve Chairman Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”
Former Fed Chairman 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. It’s not tax money… We simply use the computer to mark up the size of the account.”
Statement from the St. Louis Fed: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”
Press Conference: Mario Draghi, President of the Monetarily Sovereign ECB, 9 January 2014 Question: can the ECB ever run out of money? Mario Draghi: Technically, no. We cannot run out of money.
Because the U.S. federal government has the infinite ability to create its sovereign currency, the U.S. dollar, it never borrows dollars.
Contrary to popular wisdom, T-bills, T-notes, and T-bonds do not represent borrowing. They simply are deposits, the purpose of which is to provide a safe place to store unused dollars and to help the Fed control interest rates.
The government never touches those dollars, which remain the property of the depositors. Not only can our Monetarily Sovereign government not run short of dollars, but federal deficits are necessary to grow the economy, as evidenced by the formula: GDP = Federal Spending + Nonfederal Spending + Net Exports.
When we don’t have sufficient federal deficits, we have depressions and recessions:
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.
Periodically, we publish yet another shrieking claim that the U.S. federal debt is “unsustainable”and a “ticking time bomb.”
This lie has been told to you every year (really, almost every day) since 1940, and that bomb has never exploded, nor will it.
Rather than repeat the entire list of the thousands of lies to which you have been subject, I will list samples here as a reference and add periodically, at the end, new “federal debt is a ticking time bomb“ lies as I encounter them.
Read these and see that even respected economists replace facts with intuition:
September 26, 1940, New York Times: The federal budget was a “ticking time-bomb which can eventually destroy the American system,” said Robert M. Hanes, president of the American Bankers Association.
By 1960, the debt was “threatening the country’s fiscal future,” said Secretary of Commerce Frederick H. Mueller. (“The enormous cost of various Federal programs is a time-bomb threatening the country’s fiscal future, Secretary of Commerce Frederick H. Mueller warned here yesterday.”)
In 1984: AFL-CIO President Lane Kirkland said. “It’s a time bomb ticking away.”
In 1985: “The federal deficit is a ticking time bomb, and it’s about to blow up,” U.S. Sen. Mitch McConnell. (Remember him?)
Later in 1985: Los Angeles Times: “We labeled the deficit a ‘ticking time bomb‘ that threatens to permanently undermine the strength and vitality of the American economy.”
In 1987: Richmond Times-Dispatch – Richmond, VA: “100TH CONGRESS FACING U.S. DEFICIT’ TIME BOMB‘”
Later in 1987: The Dallas Morning News: “A fiscal time bombis slowly ticking that, if not defused, could explode into a financial crisis within the next few years for the federal government.”
In 1989: FORTUNE Magazine: “A TIME BOMB FOR U.S. TAXPAYERS“
In 1992: The Pantagraph – Bloomington, Illinois: “I have seen where politicians in Washington have expressed little or no concern about this ticking time bomb they have helped to create, that being the enormous federal budget deficit, approaching $4 trillion.“
Later in 1992, Ross Perot said, “Our great nation is sitting right on top of a ticking time bomb. We have a national debt of $4 trillion.”
In 1995: Kansas City Star: “Concerned citizens. . . regard the national debt as a ticking time bombpoised to explode with devastating consequences at some future date.”
In 2004: Bradenton Herald: “A NATION AT RISK: TWIN DEFICIT A TICKING TIME BOMB“
In 2005: Providence Journal: “Some lawmakers see the Medicare drug benefit for what it is: a ticking time bomb.”
In 2006: NewsMax.com, “We have to worry about the deficit . . . when we combine it with the trade deficit, we have a real ticking time bomb in our economy,” said Mrs. Clinton.
In 2007: USA Today: “Like a ticking time bomb, the national debt is an explosion waiting to happen.“
In 2010: Heritage Foundation: “Why the National Debt is a Ticking Time Bomb. Interest rates on government bonds are virtually guaranteed to jump over the next few years.
In 2010: Reason Alert: “. . . the time bomb that’s ticking under the federal budget like a Guy Fawkes’ powder keg.”
In 2011: Washington Post, Lori Montgomery:”. . . defuse the biggest budgetary time bombs that are set to explode.”
June 19, 2013: Chamber of Commerce: Safety net spending is a ‘time bomb’, By Jim Tankersley: The U.S. Chamber of Commerce is worried that not enough Americans are worried about social safety net spending. The nation’s largest business lobbying group launched a renewed effort Wednesday to reduce projected federal spending on safety-net programs, labeling them a “ticking time bomb” that, left unchanged, “will bankrupt this nation.”
On June 15, 2014: CBN News: “The United States of Debt: A Ticking Time Bomb“
On January 27, 2017: America’s “debt bomb is going to explode.” That’s according to financial strategist Peter Schiff. Schiff said that while low interest rates had helped keep a lid on U.S. debt, it couldn’t be contained for much longer. Interest rates and inflation are rising, creditors will demand higher premiums, and the country is headed “off the edge of a cliff.”
February 16, 2018 America’s Debt Bomb By Andrew Soergel, Senior Reporter: Conservatives and deficit hawks are hurling criticism at Washington for deepening America’s debt hole.
April 10, 2019,The National Debt: America’s Ticking Time Bomb. TIL Journal. Entire nations can go bankrupt. One prominent example was the *nation of Greece which was threatened with insolvency a decade ago. Greece survived the economic crisis because the European Union and the IMF bailed the nation out.
SEP 12, 2019, Our national ticking time bomb, By BILL YEARGIN SPECIAL TO THE SUN SENTINEL | At some point, investors will become concerned about lending to a debt-riddled U.S., which will result in having to offer higher interest rates to attract the money. Even with rates low today, interest expense is the federal government’s third-highest expenditure following the elderly and military. The U.S. already borrows all the money it uses to pay its interest expense, sort of like a Ponzi scheme. Lack of investor confidence will only make this problem worse.
JANUARY 06, 2020, National debt is a time bomb, BY MARK MANSPERGER, Tri City Herald | The increase in the U.S. deficit last year was about $1.1 trillion, bringing our total national debt to more than $23 trillion! This fiscal year, the deficit is forecasted to be even higher, and when the economy eventually slows down, our annual deficits could be pushing $2 trillion a year! This is financial madness. there’s not going to be a drastic cut in federal expenditures — that is, until we go broke — nor are we going to “grow our way” out of this predicament. Therefore, to gain control of this looming debt, we’re going to have to raise taxes.
February 14, 2020, OMG! It’s February 14, 2020, and the national debt is still a ticking time bomb! The national debt: A ticking time bomb?America is “headed toward a crisis,” said Tiana Lowe in WashingonExaminer.com. The Treasury Department reported last week that the federal deficit swelled to more than $1 trillion in 2019 for the first time since 2012. Even more alarming was the report from the bipartisan Congressional Budget Office (CBO) predicting that $1 trillion deficits will continue for the next 10 years, eventually reaching $1.7 trillion in 2030
August 29, 2020, LOS ANGELES, California: America’s mountain of debt is a ticking time bomb The United States not only looks ill, but also dead broke. To offset the pandemic-induced “Great Cessation,” the U.S. Federal Reserve and Congress have marshalled staggering sums of stimulus spending out of fear that the economy would otherwise plunge to 1930s soup kitchen levels. Assuming that America eventually defeats COVID-19 and does not devolve into a Terminator-like dystopia, how will it avoid the approaching fiscal cliff and national bankruptcy?
April 16, 2021, NATIONAL POLICY: ECONOMY AND TAXES / MARK ALEXANDER / The National Debt Clock: A Ticking Time Bomb: At the moment, our national debt exceeds $28 TRILLION — about 80% held as public debt and the rest as intragovernmental debt. That is $225,000 per taxpayer. Federal annual spending this year is almost $8 trillion, and more than half of that is deficit spending — piling on the national debt.
Now, the national debt is approaching $31 trillion,which is $12 trillion more than when Donald Trump took office in 2017 and more than half of that debt was tacked on in his final year. Then we’ve had the disastrous year and a half of Joe Biden.
Now, the Fed is now hiking its rates and that spells even more trouble for the national debt and the economy at large.
December 4, 2022 America’s ticking time bomb: $66 trillion in debt that could crash the economy By Stephen Moore, The national debt is $31 trillion when including Social Security’s and Medicare’s unfunded liabilities. Wake up, America.
That ticking sound you’re hearing is the American debt time bomb that with each passing day is getting precariously close to detonatingand crashing the US economy.
With the U.S. reaching its debt limit of $31.4 trillion on Jan. 19, Treasury Secretary Janet Yellen urged lawmakers to increase or suspend the debt ceiling.
April 22, 2023The Debt Ceiling Debate Is About More Than Debt, Jim Tankersley, WASHINGTON — Speaker Kevin McCarthy of California has repeatedly said that he and his fellow House Republicans are refusing to raise the nation’s borrowing limit,and risking economic catastrophe, to force a reckoning on America’s $31 trillion national debt. “Without exaggeration, America’s debt is a ticking time bomb that will detonate unless we take serious, responsible action,” he said this week.
November 3, 2023 The Fuse on America’s Debt Bomb Just Got Shorter,J Antoni Heritage Organization. The Treasury is now on track to borrow almost as much in just six months as it did in the previous 12 months. That’s nearly a doubling of the deficit. Because the federal debt is $33.7 trillion, just a 1 percent increase in yields adds $337 billion to the annual cost of servicing the debt over time. Absent spending reform, eventually no one will be willing to hold the bomb anymore, and the yields on U.S. debt will begin to resemble those in Argentina.
February 2, 2024How Florida can help defuse the nation’s debt bomb By BARRY W. POULSON,professor emeritus of economics at the University of Colorado Boulder and DAVID M. WALKER,former comptroller general of the United States. Washington’s out-of-control spending, combined with fiscal and monetary policies have resulted in trillion-dollar-plus annual deficits, over $34 trillion in federal debt, over $125 trillion in total federal liabilities and unfunded obligations, and excess inflation. Excessive spending and loose monetary policy increase inflation in the short term, and mounting debt burdens serve to reduce future economic growth and shift the economic burden and consequences of mounting debt burdens to future generations.
February 8, 2024Legendary investor Paul Tudor Jones says a ‘debt bomb’ is about to go off in the U.S.: ‘We’re fast-pouring consumption like crazy’. The U.S. economy may seem like it’s firing on all cylinders, but underneath the surface, a “debt bomb” could be on the verge of exploding, according to billionaire hedge fund manager Paul Tudor Jones. The esteemed investor said in an interview with CNBC that he couldn’t deny the economy was strong, but that it was actually “on steroids” due to massive government spending and borrowing.
Jones is not the only one to call attention to the growing deficit issue in the U.S. On Sunday, Federal Reserve Chairman Jerome Powell took a rare dive into politics, telling CBS’s 60 Minutes that the national debt was “growing faster than the economy,” and calling for lawmakers to get the federal government “back on a sustainable fiscal path.” Meanwhile, U.S. Treasury Secretary Janet Yellen has said she is not yet worried about the increasing national debt as long as the government keeps in check the net payments it makes on its debt relative to GDP.
Those payments are projected to rise from 2.5% last year to 2.9% next year, according to the Office of Management and Budget—below their level in the early 1990s. Jones told CNBC that the strong economy could postpone the effects of the government’s deficit spending, but only for a little while. “The only question is … when does that manifest itself in markets?” he added.
“It could be this year, it could be next year. Productivity may mask and it might be three or four years from now. But clearly, clearly we’re on an unsustainable path.”
June 21, 2024 My Weekly Column: Our debt crisis is a ticking time bomb by Randy Feenstra: On June 18th, the nonpartisan Congressional Budget Office (CBO) – the government agency tasked with monitoring our nation’s fiscal health – confirmed my serious concerns with President Biden’s reckless spending agenda.
His administration’s fiscal policies have not only caused cumulative inflation to skyrocket by over 20% since he took office, but they have also accelerated our accumulation of debt to levels that are beyond unsustainable. Instead of changing course, he recently released his budget for Fiscal Year 2025, which has a $ 7.3 trillion price tag and looks to raise taxes on our families, farmers, and businesses to the tune of $5.5 trillion.
The CBO estimates that his debt “cancelation” policies will cost taxpayers nearly $400 billion over the next ten years. I strongly oppose these bailouts. Iowans who never attended college entered the workforce early or helped put their kids through school should not be forced to pick up the tab for President Biden’s costly and unfair executive orders.
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The latest installment contains the same old lies (“unsustainable,” “cost taxpayers” 0they’ve been telling since 1940.
They have been wrong for all those years. If we wait long enough, something will happen to prove them right, perhaps in a thousand years?
Today, this makes “only” 84 years of the debt nuts be ignorant.
The federal deficit yields economic growth year after year. When deficits are insufficient, we have had recessions, which were cured by increased deficits.
When deficits decline, we have recessions (vertical gray bars), which are cured by increased deficits.
If respected economists keep predicting something terrible is imminent year after year, yet exactly the opposite happens, at what point do they reexamine their beliefs?
At what point does the public say, “Fool me once; shame on you. Fool me repeatedly for 84 years; shame on me”?
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.
And now comes Investopedia. Perhaps you will wish to reevaluate any positive thoughts you may have had for this “pedia” regarding federal financing. Here is why:
1. U.S. debt-to-GDP ratio is the fourth largest among a group of nearly 40 developed economies, according to the Organization for Economic Co-operation and Development (OECD).
Last year, the country’s debt-to-GDP ratio was the highest since World War II as spending designed to help Americans recover from the pandemic added to debt levels.
OECD said there is still room for the U.S. to narrow the gap between how much money it brings in and how much money it spends (i.e. reduce the debt).
U.S. national debt relative to its economic output is now among the highest for developed countries even as the economy chugs along, a report by an international economic agency showed.
See those six little words, “even as the economy chugs along.” Revise that phrase to: “which is why the economy chugs along,” because so-called “federal debt” (that isn’t federal and isn’t debt) adds growth dollars to the economy.
More federal debt adds more growth dollars, and less federal debt leads to recessions and depressions.
A decline in federal “debt” growth (red) leads to recessions (vertical gray bars), which are cured by increased “debt” growth.
This cause-effect relationship is so powerful, that when there is a decrease in the debt itself (i.e. a surplus) we usually have depressions.
Every U.S. depression has come on the heels of federal 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.
The article continues:
The Organization for Economic Co-operation and Development (OECD) warned U.S. debt increased to 122% the size of its gross domestic product (GDP) last year.The debt-to-GDP ratio is an often-used metric to gauge a country’s ability to repay what it owes.
For a Monetarily Sovereign government that ratio does not indicate anything about a nation’s ability or willingness to pay its creditors. (It does have some meaning for monetarily non-sovereign governments, because they rely on income to fund spending. Monetarily Sovereign governments do not.)
The U.S. national debt has grown in the wake of the COVID-19 pandemic as policymakers voted to spend money to help stimulate the economy during that time.
The U.S. debt-to-GDP ratio is at its highest since World War II and is the fourth largest—behind only Japan, Greece and Italy—among the 38 OECD member states.
Unlike its peers, U.S. debt ratio has not returned to its pre-pandemic levels, the OECD found.
Federal deficit spending stimulates the economy. The article’s author, Terry Lane, wishes to reduce economic growth, seemingly because he doesn’t like the words “federal debt.” (?)
Never mind that the U.S. federal government has the infinite ability to create dollars and to pay for anything without collecting a penny in taxes. It’s just that darn phrase, “federal debt,” that, by the way, isn’t federal and isn’t debt.
It’s not “federal” because the contents of the T-security accounts upon which it is based are wholly owned by depositors. The federal government never uses that money. Those accounts resemble bank safe deposit boxes. The money in T-security accounts merely is held for safekeeping, not used to fund spending.
It isn’t debt because all federal deficit spending has already been paid for. No one owes the “federal debt,” not the government or taxpayers. For the same reasons, it also isn’t “borrowing,” a word often misused to describe T-securities.
Depositors are not lenders. The federal government could continue to pay all its bills, even if not on T-security was issued.
In summary:
The U.S. fiscal stimulus was large compared to most other countries.
Domestic spending rebounded faster than GDP, driven by demand for imported goods.
The trade deficit grew as imports surged and exports contracted; the dollar outflow made federal deficit spending even more critical.
The author complains about this: The U.S. post-COVID GDP (yellow) grew faster than that of other nations.Another look: Following COVID, the U.S. economy grew faster than other major economies. (China not included).
China’s debt-to-GDP ratio was 288% in 2023. The consequence of that high ratio is that China’s economy is projected to pass America’s as the world’s largest economy. Deficit spending stimulates economic growth. The lack of deficit spending creates recessions and depressions, which must be cured by increased deficit spending.
China’s debt/GDP ratio is higher than America’s. The result: Their GDP has grown faster
The author continues:
There Is Opportunity to Lessen US Debt
That “opportunity” to lessen the debt also is an “opportunity” to send America into a depression.
At the same time, the group’s 2024 Economic Survey of the United States showed consumer spending, a strong labor market and eventual interest rate cuts should all help to keep the U.S. economy moving forward, albeit at a slower pace.
The OECD projected U.S. gross domestic product (GDP) to increase slightly in 2024 to 2.6%, before slowing to 1.8% in 2025.
Considering this formula: GDP = Federal Spending + Non-federal Spending + Net Exports, it’s quite amazing that the OECD can predict GDP without knowing any of the three right-hand terms of the equation. In economics, the technical term for that is a WAG (Wild Ass Guess).
Federal Spending also affects the other two terms. It’s like a football pundit who recommends fewer runs, passes, and kicks, then with no idea about any of the three, predicts football game scores.
“This strong recovery creates a good opportunity to start narrowing the budget deficit and put debt on a more prudent path,” said OECD Secretary-General Mathias Cormann, who urged the U.S. to enact a series of spending cuts and tax hikes in 2025 to begin pruning the budget deficit.
Translation: Increased budget deficits are necessary to increase economic growth, so cutting budget deficits is prudent.
The report noted the U.S. should consider making changes in its budgeting process, including eliminating the “debt ceiling” that has led to political standoffs.
Huh? First, they complain about the debt/GDP ratio; then, they (correctly) complain about the “debt ceiling,” which limits the government’s ability to grow the debt/GDP ratio.
It’s like complaining about weight-loss efforts and then complaining about being overweight.
“Replacing the debt ceiling with a simple medium-term debt ratio target would be simpler than existing legislative budget rules and would provide more clarity for public budgeting,” the report said.
Perfect. The author has adopted the worst of all worlds. He wants a debt/GDP limit, not a debt limit (Huh?, again). Why? “For clarity.”
To the people at Investopedia and its peers: Look at historical data rather than following intuition. There is a difference between Monetarily Sovereign debt and monetarily non-sovereign debt. Don’t just parrot popular misinformation.
SUMMARY
Every ounce of historical evidence demonstrates:
The federal government never can run short of dollars.
So, it never needs to borrow dollars.
What is commonly called “federal debt” is really deposits into accounts, the purposes of which are to provide dollar users with a safer place than private banks, to store unused dollars, and to help the Fed control interest rates.
Federal “bills,” “notes,” and “bonds” are not related to private sector bills, notes, and bonds.
Thus, the debt/GDP ratio is a meaningless fraction for a Monetarily Sovereign government (though it does have significance for monetarily non-sovereign entities). It tells nothing about the federal government’s infinite ability to pay its obligations or about any taxpayer obligations (zero).
Yes, Mr. Vargas Llosa, it is time to tell the truth about government finances. Some might say, “Well, past time. Sadly, your article does not do it.
The purpose of government financing is not to give the government more money. Because the U.S. federal government is Monetarily Sovereign, it already has infinite money.
Former Federal Reserve Chairman Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”
Former Federal Reserve Chairman 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. It’s not tax money… We simply use the computer to mark up the size of the account.“
The purpose of the federal government — any government, in fact — is to improve the lives of the people. One measure of the improvement is Gross Domestic Product, the total amount of spending in an economy.
Here is what federal deficit spending has done to Gross Domestic Product.
As deficit spending increasingly adds dollars to the economy, the economy grows.
While the self-proclaimed “truth-tellers” complain about federal deficits and debt (red), America’s Gross Domestic Product (blue) has risen enormously.
“Ah,” they say, “but all that “money printing” has caused inflation, so Americans really are poorer now.”
I call the “truth-tellers” attention to the following graph.
Real (inflation-adjusted) GDP per personhas risen enormously for the past 90 years.
That graph shows that the average American is wealthier today than at any time in history. Federal deficit spending enriches Americans.
But—and it’s a big “but”— averages don’t tell the full story because of the income/wealth/power Gap, You can read more about that at the link.
If anyone living in the United States in the decades immediately after the Second World War had predicted the self-inflicted financial mess the U.S. government now finds itself in, nobody would have taken that person seriously.
A normal human would say that a “financial mess” is a situation in which a person has difficulty paying his/her financial obligations. But as Messrs. Greenspan and Bernanke explain, the Monetarily Sovereign U.S. government has no such difficulty.
It pays all its financial obligations simply by creating more dollars.
So what does Mr. Vargas Llosa mean by “financial mess“? Nowhere in his article does he explain. Typical for “debt- truth tellers” who use frightening words to deceive.
For most of American history, until the mid-1970s, annual federal spending and revenue were roughly in balance—the exceptions being in wartime.
Contrast that with the federal deficit in fiscal year 2023, which topped $1.7 trillion, an amount larger than Mexico’s total economy (the 12th largest in the world).
It exceeded $1 trillion again in the first eight months of the current fiscal year and, according to the Congressional Budget Office’s latest forecast, released on June 18, will approach $2 trillion by the end of fiscal 2024.
Translation: In 2023, the federal government pumped 1.7 trillion growth dollars into the economy. In the first eight months of the current fiscal year, it pumped another 1 trillion growth dollars into the economy and expects to pump 2 trillion growth dollarsinto the economy by the end of fiscal 2024.
These are dollars that go into the pockets of Americans at no cost to anyone — not to you, not to your friends and family, not to your neighbors. Why? Because federal taxes don’t fund federal spending. Even if federal tax collections totaled $0, the federal government could continue spending forever.
The Monetarily Sovereign U.S. federal government neither needs nor uses income. (It is different for state and local governments, businesses, and euro governments, all of which are monetarily non-sovereign, and they do need and use income to fund spending.)
The U.S. federal government destroys all the income it receives.
Paying creditors is the primary process by which the federal government creates dollars. To pay a creditor, the federal government first creates instructions (checks, wires, etc.) instructing the creditor’s bank to increase the balance in the creditor’s checking account.
The instant the creditor’s bank obeys those instructions, new dollars are added to the creditor’s checking account and to the M2 money supply measure. Those dollars are not deducted from the M2 money supply.
The bank clears those instructions through the Federal Reserve. Thus the federal government approves its own instructions, which is why it never can run short of dollars.
By contrast, when a local government sends instructions, M2 dollars are deducted from the local government’s checking account in a bank and added to a creditor’s bank account. No net dollars are created. They merely are transferred.
Not understanding the differences between Monetary Sovereignty and monetary non-sovereignty marks one as ignorant about economics.
This has fueled a massive increase in the federal debt, which now totals $34 trillion, about $6 trillion more than America’s gross domestic product (GDP), the value of all the goods and services produced by America’s 330 million residents in a year.
If we count Social Security and Medicare liabilities, total debt is several times larger than GDP.
The debt/GDP ratio is meaningless. Those who quote it hope to scare you with irrelevant numbers. Federal debt is not a burden on the government or on taxpayers. It is nothing like private sector debt.
Neither you nor anyone else pays for the federal debt—never has, never will. The so-called “debt” is nothing more than dollars deposited into T-security accounts. The contents of these accounts are wholly owned by the depositors and never used by the federal government.
The purpose of T-accounts is not to provide spending money to the government. The purpose is to stabilize the dollar by:
Providing a storage place for unused dollars that is safer than any private bank account.
To help the Fed control interest rates by providing a “floor” rate.
Upon request by the owners, the dollars in T- accounts are transferred back to their owners. This is not a financial burden on the federal government, and no tax dollars are involved.
The consequences are sobering. Politicians like to use euphemisms to describe what they’re doing. Government spending, in the current vernacular, is referred to as “investment.”
Government spending, however, crowds out investment, which explains why private investment, the equivalent of 4.8% of GDP, is 30% lower than in 2000.
Government spending is more properly termed “investments,” not “debt. The economy doesn’t care where he investments come from. In fact, federal spending creates new growth dollars, while private investment only moves existing dollars.
The “truth tellers” prefer the government to reduce its spending under the false narrative that this somehow will grow the economy. But:
GDP = Federal Spending + Non-federal Spending + Net Exports.
I have yet to communicate with a debt “truth-teller” who can explain the math of how cuts to federal spending will increase GDP.
At the same time, the purchasing power of the U.S. dollar, a reflection of both the federal government’s finances and the Federal Reserve’s money printing, also is down: by more than 50% since 2000.
That’s called “inflation,” and as we have seen, the economy has enjoyed real (inflation-adjusted) growth.
As a result of this economic mismanagement, the U.S. government will pay close to $900 billion this year just in interest payments on the national debt—and, according to Congressional Budget Office (CBO) projections, which assume an idyllic scenario of no major wars, no recessions, and no financial crises, debt service will steadily increase to some $5.3 trillion by 2054.
Translation: This year, at no cost to anyone, the government will pump 900 billion growth dollars into the economy in interest payments alone. In 2054, the government will pump 5.3 trillion growth dollars into the economy — also at no cost to anyone.
Most of those dollars will go into the pockets of the American people.
It was hard enough sustaining a debt that stood at 106% of GDP during WWII, when the country’s savings rate was 24%, but sustaining a much higher level of indebtedness with today’s 3% savings rate defies the imagination.
Oh, Mr. Vargas Llosa, I’ll bet you’re not even trying to use your imagination.
The only difficulty in “sustaining” the debt came from being on a gold standard, which limited the government’s ability to create dollars.
But Nixon took us off the gold standard in 1971 (Roosevelt did it for domestic us in 1933), and since then the federal government has had the infinite ability to “sustain” any level of deficit spending. It never can run short of dollars.
Private savings and the debt/GDP ratio are irrelevant to the government’s ability to “sustain.” but one must assume Mr. Vargas Llosa tosses in those numbers for fear effect, not because they make any sense whatsoever.
This catastrophe has been a long time in the making. In 1993, for instance, the annual deficit amounted to 3.8% of GDP, and the debt, which seemed astronomically high at a “mere” $4.4 trillion, was Lilliputian by today’s standards.
The U.S.’s real GDPwas approximately $7.1 trillion in 1993. In 2023, it increased to approximately $21.6 trillion. And this is a “catastrophe”?? One hopes we continue to have “catastrophes” like that.
The trend goes back longer than that. The growth of the U.S. government in modern times is the story of post-WWII America.
President Dwight Eisenhower seems to have been the last guy in the post-WWII era who understood that the welfare state, the warfare state, and tax cuts not backed by tough spending cuts are incompatible with fiscally responsible government, or at least with reasonably-sized government.
During Eisenhower’s term, we suffered, not one, not two, but threerecessions. One, called the “Eisenhower Recession,” occurred between 1957 and 1958. We had a sharp contraction in economic activity, high unemployment, and a decline in industrial production.
Is that an example of “fiscal responsibility?”
The “wonderful” Eisenhower years. Three recessions. When federal deficit spending declined, GDP declined into recessions,
The 1953-54 recession was caused by the reduced deficit spending for the Korean War.
This is a regular pattern: Reduced deficit spending leads to a recession, which is cured by increased deficit spending. See below.
A. Economic growth = B. Federal deficit growth + C. private sector spending. Cut B and C, and A declines into recession. Simple math.
The reason for the pattern is clear. Reduced deficit spending adds fewer growth dollars to the economy, so the economy sinks into recession. Curing the recession requires increased growth dollars.
Between 1950 and 1970, total debt (including government, household, corporate, and financial) was stable at about 150% of GDP. After Nixon did away with what was left of the gold standard in 1971, it was off to the races. Since then, total debt has grown by nearly 5,600%, more than double the U.S. economic growth rate.
This is another sleight-of-hand debt/GDP comparison that is meaningless. Nothing can be learned from comparing federal debt (i.e., the net cumulative total of deposits into Treasury Security accounts) vs. GDP (the total of all government and private spending in any given year).
They are akin to comparing tons of butter eaten in the past 10 years with the number of butterflies born this year. Totally meaningless.
If you don’t believe me, see Debt To GDP Ratio By Country. Scroll down to the middle of the page, where you will see every nation’s Debt/GDP ratio, from the highest (Japan) to tied for the lowest (Taiwan and several others).
Look at those ratios, and you will see they tell you nothing about a nation’s ability to pay its bills.
There was a time, even in the middle of the Cold War, when government leaders, despite their international responsibilities and the onerous legacy of the New Deal and Great Society that nobody dared reverse, understood the need for fiscal discipline and containing the growth of government.
And there it is: The Libertarian belief in an “onerous legacy” of programs designed to aid middle and lower-income groups.
That is the “onerous legacy” that gave us Social Security, Medicare, the War on Poverty, the Office of Economic Opportunity and the Economic Opportunity Act, a Job Corps for disadvantaged individuals, established work-study programs and community action initiatives, provided health insurance for elderly Americans, improving access to medical care, legislation addressing environmental concerns and conservation efforts, supported education, and Civil Rights Laws, focused on reducing racial injustice and promoting equality.
Is it any wonder that a right-wing Libertarian should consider those “onerous?” After all, they cost dollars the government creates at the touch of a computer key, and much to Libertarian dismay, narrow the Gap between the rich and the rest.
The 12 years under Presidents Ronald Reagan and George H. W. Bush averaged a 4% deficit due to defense spending increases, abandonment of domestic restraint—a legacy of Johnson’s “bread and butter” years and the Nixon-Ford presidencies’ about-face on most of the economic principles they previously had espoused—and the unfunded tax cutsinfluenced by Arthur Laffer’s notion that tax cuts would pay for themselves.
Oh, yes, cut defense spending to weaken the military at a time when we are the last hope for democracy. And eliminate the “bread and butter” for the poor and disadvantaged. Perfect.
And then there were the “unfunded tax cuts,” which is an oxymoron. Taxes need to be funded by the people. No one needs to fund tax cuts.
They don’t need to be paid for, and the government doesn’t need or use taxes. In fact, it destroys all tax dollars it receives.
The new millennium distorted matters even further, with the annual deficit from 2002 to 2023 averaging 5% over the two decades, 20% higher than nominal economic growth, which averaged 4.2%.
And yet again he mentions the meaningless debt/GDP ratio. It never ends for the Libertarians.
President Obama, under whom the deficit was double the Congressional Budget Office’s original projections, got the spending spree started, with Presidents Trump and Biden taking it to new levels.
And the economy grew massively.
It’s now come down to this. Unless a new generation of leaders has the courage to cut such “untouchables” as the defense, education, justice, and homeland security budgets, and privatize the Social Security program (as more than 40 countries wisely have done), sooner or later, the current trajectory of federal finances will lead to an extremely ugly place.
The above is a perfect description of the effort to widen the Gap between the rich and the rest, while weakening our economy and our national defense.
If you think things are bad now, just wait.
If we ever elect a right-wing, Libertarian fool to be President, along with our current, right-wing SCOTUS, and right-wing governors, things can get much worse.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell;MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
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#Monetary Sovereignty - Mitchell 