I have been reading the Libertarian articles in Reason.com for several years and have noticed something odd. Despite ongoing claims that federal spending should be reduced, no data can support that myth.
Like all other debt Henny Pennys, they focus on telling you how big the so-called debt is and how much will be spent on benefits. OK, we get it. The numbers are significant, but why are they bad?
But there never is data. It is all speculation supported by more speculation.
The following article is no exception:
CBO Projects Huge Deficits, $116 Trillion in New Borrowing Over the Next 30 YearsA new Congressional Budget Office report warns of “significant economic and financial consequences” caused by the federal government’s reckless borrowing.Merely paying the interest costs on the accumulated national debt will require a staggering 35 percent of annual federal revenue by the end of that time frame. | 6.29.2023 11:00 AM
And what will those “significant economic consequences” be? And where is your evidence?
The federal government is on pace to borrow $116 trillion over the next 30 years, and merely paying the interest costs on the accumulated national debt will require a staggering 35 percent of annual federal revenue by the end of that time frame.
And that’s likely an optimistic scenario.
Actually, it is an optimistic scenario. Mathematically, the more the federal government spends, the more the economy grows. Why? Because the economy is measured by Gross Domestic Product (GDP) and:
GDP = Federal Spending + Nonfederal Spending + Net Exports
That $116 trillion in “borrowing” is not borrowing. It is the acceptance of deposits into Treasury Security accounts. The U.S. federal government never borrows dollars.
Why would it? The federal government has the infinite ability to create (aka “print”) dollars, so why would it ever need to borrow what it can create at no cost, especially since borrowing requires paying interest?
Alan Greenspan: “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.”
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.”
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.”
Get it, Libertarians? The U.S. government is not dependent on credit markets. It doesn’t borrow.
Let me rephrase your comment: ” . . . merely paying the interest costs on the accumulated deposits into T-security accounts will require a staggering 35 percent of annual federal revenue by the end of that time frame.
Why is it “staggering” if Greenspan, Bernanke, and the St. Louis Fed say the government never can run out of dollars? Even if annual revenue totaled $0, the federal government could continue spending forever.
Those sobering figures were published Wednesday by the Congressional Budget Office (CBO) as part of the number-crunching agency’s new long-term budget outlook.
The report once again points to an unsustainable fiscal trajectory driven by a federal government that’s addicted to borrowing—even as it becomes readily apparent that the bill is coming due.
It’s Libertarian nonsense. Why is it “unsustainable”? And since the government never borrows, what is the “addiction”? And exactly what bill is “coming due”?
The problem is Eric Boehm, and the rest of the Libertarians do not wish to acknowledge the fundamental difference between personal finance and federal finance.
In short, they don’t seem to understand the difference between Monetary Sovereignty and monetary non-sovereignty. And not understanding those fundamental differences means they don’t understand economics. At all.
Are they being devious or simply ignorant? I don’t know. I vote for devious. In my opinion, they have an agenda and are just pretending to be ignorant.
“Such high and rising debt would have significant economic and financial consequences,” the CBO warns.
Among other things, the mountain of debt will “slow economic growth, drive up interest payments to foreign holders of U.S. debt, elevate the risk of a fiscal crisis, increase the likelihood of other adverse effects that could occur more gradually, and make the nation’s fiscal position more vulnerable to an increase in interest rates.”
In what way does federal deficit spending “slow economic growth” when Federal Spending increases GDP by simple algebraic formula?
As for interest payments, here’s the Libertarian theory: To acquire the dollars to pay its bills, the federal government needs to borrow. And because it needs to borrow so much, it has to raise interest rates to attract lenders.
Wrong. The government never needs to borrow and, indeed, never borrows. The Fed determines the interest it pays on Treasury Securities, not to attract lenders but to regulate the economy.
Example: Of late, interest on T-securities has gone up significantly, not because the Fed wants to attract more depositors, but because the Fed thinks that’s how to reduce inflation. Interest rates have nothing to do with the government needing dollars to pay its bills.
As for foreign holders of U.S. “debt,” that is a convenience for foreigners. The Fed doesn’t give a fig whether Russia or China deposits dollars into Treasury Bill accounts. The purpose of those accounts is not to give America it own dollars. The purpose is to provide the Russians, Chinese et al. a safe place to deposit unused dollars.
Further, what is the “fiscal crisis” the CBO worries about? The government always can pay its bills. If a creditor were to demand that the U.S. federal government pay $100 Trillion tomorrow, a functionary at the Federal Reserve would press a computer key, and the $100 Trillion instantly would be transferred to the creditor’s account.
The CBO’s erroneous claims end with: ” . . . increase the likelihood of other adverse effects that could occur more gradually, and make the nation’s fiscal position more vulnerable to an increase in interest rates.”
We don’t know what the “other adverse effects” supposedly are. We suspect the CBO has no idea, either.
Finally, the federal government’s fiscal position is invulnerable. It can pay any bill of any size at any time it chooses.
The formula for massive deficits and unsustainable levels of borrowing is actually pretty simple: federal spending that far exceeds what the government collects in tax revenue.
Because the federal government has the infinite ability to create U.S. dollars, it neither needs nor even uses tax revenue to pay its bills. So why does it collect taxes at all?
Three reasons:
To control the economy by taxing what it wishes to discourage and giving tax breaks to what it wishes to encourage.
To assure demand for the U.S. dollar and thus stabilize the dollar by requiring taxes to be paid in dollars.
To make the public believe federal spending is limited by taxes and reduce public requests for benefits
As for #3, the rich who run America do not want the non-rich to receive the benefits that would narrow the Gap between the rich and the rest. The Gap makes the rich rich; the wider the Gap, the richer they are.
Over the past 30 years, federal spending has averaged 21 percent of gross domestic product (GDP), a rough measure of the size of the whole American economy, while tax revenue has averaged 17.2 percent, the CBO notes. That’s not great, but the future looks much worse.
By 2053, the CBO expects federal spending to grow to 29.1 percent of GDP while revenue climbs to just 19.1 percent.
From being exposed to the above table, you might be led to believe that Federal Spending/GDP or federal taxes/GDP are essential measures. They aren’t.
The first fraction tells you how much the federal government spends vs. the domestic private sector. What can you do with that information? Not much.
You might wish to increase private sector spending, probably requiring federal tax reduction, which is almost always a good idea. And you should increase exports which need federal aid to exporters, though that might run afoul of international agreements.
What you do not want to do is cut federal spending. That will only reduce GDP, which would only make it worse if you are concerned about the Federal Spending/GDP fraction.
As for the Federal Taxes/GDP fraction, the analysis is straightforward. The more significant the fraction, the worse will be economic growth. Sadly, the CBO complains that the fraction will be getting smaller — Federal Spending will grow faster than GDP — and here is the crucial part: GDP is projected to grow.
Even more importantly, real(inflation-adjusted) GDP has been growing per capita. That means despite all the moaning and groaning from the Libertarians and the CBO, Americans are getting richer. Here are the data:
Real Per Capita Gross Domestic Product
That, my friends, is a picture of a healthy economy — uh, except for this:
The GINI index shows the distribution of wealth. A level of “0” would mean everyone has the same wealth. A level of “1” would mean one person has all the wealth. The graph shows the rich getting more affluent than the rest of us, with only a small drop from 2019 to 2020.
Keep the GINI index in mind when you read about the Libertarians and the Republicans wanting to cut “Entitlements” (Social Security, Medicare, Medicaid), school lunch programs, and other poverty aids.
The oft-quoted Federal Debt/GDP ratio is equally meaningless. It compares the amount deposited into T-security accounts by foreign nations, domestic companies, and Americans (aka “Federal Debt) vs. the amount spent by Americans and net imports.
This ratio often is cited as something to be concerned about. Yet it has no predictive or analytic value. A low ratio is neither a sign of a healthy nor sick economy. It is not a prediction of the future nor a measure of the past.
GDP doesn’t pay for Federal Debt, and Federal Debt doesn’t pay for GDP. Yet some so-called “economists” wring their hands when the ratio increases.
The only relationship between the two is when Federal Debt increases, which helps GDP increase, though all the bleating about this ratio would make you think otherwise.
Entitlements are the primary driver of that future spending surge. Social Security spending will rise from about 5 percent of GDP to about 6.2 percent over the next 30 years. Costs for Medicare and Medicaid will jump from 5.8 percent of GDP to 8.6 percent by 2053.
And there it is. The right-wing pitch is to reduce Social Security, Medicare, and Medicaid. The purpose is to widen further the Gap between the rich and the rest.
Financing the national debt will become a major share of federal spending in the next few decades. The CBO projects that interest payments on the debt will cost $71 trillion over the next 30 years and consume more than one-third of all federal revenue by the 2050s.
As Greenspan, Bernanke, and the St. Louis Fed reminded us, it costs the U.S. government nothing to create those dollars; that dollar creation has been enriching Americans for decades.
“America’s fiscal outlook is more dangerous and daunting than ever, threatening our economy and the next generation,” Michael A. Peterson, CEO of the Peter G. Peterson Foundation, which advocates for fiscal responsibility, said in a statement.
The group responded to the new CBO report by renewing its calls for a bipartisan fiscal commission to consider plans for stabilizing the debt.
To a rich guy like Michael A. Peterson, “fiscal responsibility” means soaking the poor and middle-income groups while giving tax breaks to the rich.
Stabilizing the debt” means creating recessions and depressions, during which the rich will buy all those low-priced assets to increase domination over the rest of us.
Here is precisely what happens when we “stabilize the debt” as rich Mr. Peterson wishes”
When federal “Debt” growth (red) declines (“Debt” is stabilized), we have recessions (gray bars). To cure recessions, the government increases “Debt.” GDP = Federal Spending + Nonfederal Spending + Net Exports.
The national debt reached a record high of 106 percent as a share of GDP during World War II. The CBO projects the record to be broken in 2029, and the debt will keep climbing—to 181 percent of GDP by 2053.
A meaningless graph that tells you nothing about the U.S. economy yesterday, today, or tomorrow.
Even something called the “World Population Review” is hypnotized by this meaningless ratio. Here is what they say:
Typically used to determine the stability and health of a nation’s economy, the debt-to-GDP ratio is expressed as a percentage and offers an at-a-glance estimate of a country’s ability to pay back its current debts.
And here are the examples they give:
Top 12 Countries with the Highest Debt-to-GDP Ratios
Venezuela — 350%
Japan — 266%
Sudan — 259%
Greece — 206%
Lebanon — 172%
Cabo Verde — 157%
Italy — 156%
Libya — 155%
Portugal — 134%
Singapore — 131%
Bahrain — 128%
United States — 128%
Top 12 Countries with the Lowest Debt-to-GDP Ratios (%)
Isn’t it nice to know that all these countries — Russia, Afghanistan, Botswana, et al. — supposedly are more stable and healthy and better able to pay back their current debts than the United States and Japan?
It must be true because that is what the Libertarians, the CBO. Michael A. Peterson and the World Population Review are telling you.
So be sure to tell all your creditors not to pay you dollars because you’d rather receive Russian rubles. Right?
The (CBO’s) projections leave out the possibility that Congress will extend the Trump administration’s tax cuts past their planned expiration in 2025—which would add to the deficit and require more borrowing in the future—or the possibility that Social Security’s impending insolvency will be papered over with yet more borrowing.
The United States cannot become insolvent. Per Former Fed Chairman Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
Because the U.S. can’t become insolvent, Social Security, a federal agency, can only become insolvent if that is what Congress and the President want.
What the author calls “papered over” normal people would call “paying for,” which the government can do simply by pressing a computer key.
And do you really believe that no Congress or president will hike spending without offsetting tax increases in the next three decades?
If Congress and the President increase taxes they will not “offset” anything. Federal taxes do not fund federal spending. They are destroyed upon receipt, and new dollars are created ad hoc to pay for expenditures.
Under an alternative scenario in which the Trump administration’s tax cuts are extended, and federal spending grows at the same rate as the economy (rather than in line with inflation, as the CBO assumes), the Committee for a Responsible Federal Budget projects the debt to hit 222 percent of GDP by 2053.
And that 222 percent will have no meaning.
There’s one shred of good news inside the CBO’s latest report, however. Compared to last year, long-term borrowing is expected to be slightly lower. That resulted from the debt ceiling deal struck last month between Congress and the White House.
The deal included spending caps on nondefense discretionary spending for the next two years, and even that minimal bit of fiscal responsibility can have a measurable impact on future deficits.
This is terrible news. A limit on spending growth is, by definition, a limit on economic growth. Could you remember the formula for measuring the economy?
Still, the modest decline in future deficits mainly illustrates the daunting size of the federal government’s debt problem. By 2053, the debt will more than double the size of America’s economy—and, again, that’s only if you assume borrowing won’t increase for any reason in the next three decades.
“This level of debt would be truly unprecedented,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, in a statement. “Time is of the essence; we simply cannot afford to keep borrowing at this unsustainable rate.”
May MacGuineas is another Henny Penny paid by the rich to claim that the middle and poor should receive less money.
Good heavens, one needs to learn only five simple facts, and even that seems to be too much for the economic “experts.”
Gross Domestic Product (the economy) = Federal Spending + Nonfederal Spending + Net Exports
The U.S. government (unlike state/local governments, euro nations, businesses, you, and me) is Monetarily Sovereign. It, and any of its agencies, can only run short of its sovereign currency if Congress and the President will it.
Federal taxes (unlike state/local government taxes) pay for nothing. They are destroyed upon receipt by the Treasury.
Having the infinite ability to create dollars, the government never borrows. The so-called “debt” actually is deposited into T-security accounts. Those dollars remain the depositor’s property, never used by the federal government for anything, and “paid off” by returning them to the owners.
Inflation never is caused by money creation. It always is caused by shortages of crucial goods and services, most often oil and food.
If you understand these five facts, you know more than most economists, politicians, and media writers.
Just five things. Is that so hard?
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
I hope our government leaders listen to him, though I doubt they will. They sure haven’t listened to me. The reason: The debt hawks have the nation worried, because they equate federal debt with personal debt. So you hear that your grandchildren will have to pay the debt, and large deficits cause inflation, and surpluses are more prudent than deficits — none of which are true.
So, we struggle with trying to provide universal health care, which the government can and should provide, while debt fear negatively impacts the physical and financial health of millions.
Deficit spending grows the economy and can provide health care, too — and it never needs to be paid back. Never. But Congress, the President and most of the economists simply don’t get it. They don’t even look at our economic history, which repeatedly shows long-term deficit spending is necessary for long-term economic growth.
Human beings have difficulty distinguishing threat levels. Despite the absolute fact that airline travel is safer per mile than auto travel, some people drive, even long distances, because they fear the safer air travel more than the dangerous auto travel.
Then think of the people who won’t vaccinate their children against the H1N1 flue, because they fear any unknown, possible adverse effects of vaccination more than they fear the known, deadly effects of the flue.
I was reminded of this human failing when I read an article in which the author claimed the economic recovery was not “real,” because it relied on government funding rather than on private funding. The author seemed to feel government funding was, in some way, artificial – as though we were using saccharine, rather than sugar, to sweeten our coffee.
Of course, money is money, and federal money is indistinguishable in effect from private money. But I suspect the author had something more than artificiality in the back of his mind. He probably understands that the federal government has the unique and unlimited ability to create money from thin air, and repeatedly has proved it never can run out of money. So, what is his concern? He must fear two things: Federal deficit spending might cause inflation and our grandchildren might have to pay for deficits.
As for inflation: Despite current, massive deficit spending we do not now experience an unacceptable level of inflation, and are unlikely to soon. Moreover, in the thirty-five years since we went off the gold standard, large deficits never have caused inflation. Clearly, something is askew with the deficits-cause-inflation hypothesis.
Even if deficits did cause inflation, private spending is identical with public spending; both add money to the economy. So the author should fear the supposed inflationary effects of private and public spending, equally.
As for grandchildren, I am a grandchild of the adults who saw the gigantic deficits of WWII and of President Reagan. Yet, because tax rates have gone down, I never have paid one penny toward those monster deficits. Similarly, if tax rates continue to stay level or decline, as they should, my grandchildren will not pay a penny toward today’s deficits.
What has this to do with the human difficulty distinguishing threat levels? The debt hawks know with certainty, that many millions of people now suffer the devastating effects of unemployment and loss of homes and lifestyle. People are dying, financially, emotionally and yes, even physically.
These same debt hawks believe that at some unknown time in the future, their children, grandchildren or great grandchildren may have to pay some unknown amount toward today’s debt. Yet they fear unknown future damage more than the certainty of today’s. That is why you see people rail against deficits. In essence, they are so afraid they one day may run short of water, they will let a home burn to the ground rather than allowing the fire fighters to save it.
The shame is that many professional economists, who should know better, foster these misguided fears, leading to misguided actions.
Are you too young (or too old) to remember the fable about Chicken Little, who believed the sky was falling down when an acorn fell on her head? She ran around in a panic, screaming “The sky is falling,” a now common idiom denoting an hysterical or mistaken belief that disaster is imminent.
Thus, have the debt hawks, aka Chicken Littles, been telling us for 30 years that the sky is falling, and that federal deficits will create disaster. Neither has occurred, or is likely soon, but failure of prediction neither embarrasses nor educates debt hawks.
We have arrived at a deficit of $1.4 trillion. In the past 30 years, the gross federal debt has grown an astounding 1,400%. The economy has grown, inflation has not been a problem, federal borrowing has not replaced private borrowing, countries have not refused to lend to us and because federal tax rates actually have gone down, no one’s grandchildren have paid for the $12 trillion gross debt.
The problem with debt hawks is they don’t understand money. They think of money as a scarce physical substance. It may be scarce to you and to me, but it no longer is scarce to the federal government, which since 1971, has created money at will, simply by creating T-securities from thin air, then exchanging them for the dollars it created earlier — also from thin air.
Visualize this. You go to a football game and the scoreboard reads 14 – 7. You might say one team “has” 14 points and the other team “has” 7 points. But in reality, the scoreboard merely has credited one team with 14 points and the other team with 7 points. The points are not physical things. No one “has” them.
Why is this important? Because in the economy, you and I are the teams and the government is the scoreboard. Points are not a real substance. Teams are merely credited with points. Money no longer (after we went off the gold standard) is a real substance. You and I, or more specifically, our bank accounts, merely are credited with money.
The scoreboard (government) never runs out of points. The government never runs out of the ability to credit you with dollars. The scoreboard does not need to ask either team to return some points so it can credit more points. Crediting a team with points does not reduce the scoreboard’s ability to credit more points. Crediting people or companies with money does not reduce the government’s ability to credit more money.
The scoreboard does not need to borrow points. The government does not need to borrow dollars. It as easily, safely and prudently can create dollars directly, rather than by creating and selling T-securities.
Imagine you decide to start a country from scratch. What is the first thing you will do? The people in your country need money, so you, as the government, will credit them with money. How? Perhaps by buying things from them. The people will give you material things and services; you will credit their bank accounts.
Debt hawks will call this exchange “deficit spending,” and they will demand that the people credit you, the government, back with some of the money. That’s called “taxation.” It is identical with giving the scoreboard back some points.
The scoreboard neither has nor needs points. The federal government neither has nor needs money. It never needs to be credited with money. It never needs to borrow money. It is the scoreboard. It can credit, endlessly.
The debt hawks continue to use obsolete, gold-standard thinking, from when money was a substance and was scarce to the government. Today, if the government wanted to give you $1 trillion, it simply would credit your bank account for $1 trillion, and debit its own balance sheets. Nothing physical would happen except the movement of a few electrons. The government can do this endlessly. In fact, last fiscal year, it did.
The government does not have a stash of money from which it spends. The government has no money at all. It merely credits bank accounts — yours, mine, foreign governments’.
Some may fear this can cause inflation, but the government now has absolute control over the value of its money through its control over both the supply and the demand (interest rates) for money.
The world changed in 1971, and the debt hawks have not yet understood that. Perhaps “hawk” is the wrong bird. More appropriate might be “Chicken Little.”
#Monetary Sovereignty - Mitchell 