“We can’t pay for it.” Did you fall for it? Saturday, Feb 23 2019 

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It’s our little secret. Don’t tell the people we don’t use their tax dollars.

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: “Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. A government cannot become insolvent with respect to obligations in its own currency.”

St. Louis Federal Reserve: “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. ………………………………………………………………………………………………………………………………………….. …………………………………………………………………………

Background

Federal financing is different. It is different from your financing and mine. It is different from your state’s and local government’s financing.

The federal government uniquely is Monetarily Sovereign.

That means it created the original dollars from thin air, and gave those dollars the value it wished, simply by passing laws. Today the federal government retains the right to keep passing laws and creating dollars, forever.

It can give the U.S. dollar any value it wishes, relative to other currencies or to precious metals. It can change the dollar’s value at the stroke of a pen, which it has done many times over the years. 

Unlike you, and me, and unlike your state, your county, and your city, and unlike any corporation, the federal government never unintentionally can run short of U.S. dollars. It can service any debt, of any size at any time.

So long as the federal government does not run short of laws, it will not run short of dollars.

Having the unlimited ability to create its dollars, the federal government has no need to ask anyone else for dollars, that is, it has no need for income. It simply creates all the dollars it needs. So, when you send your federal tax dollars to the U.S. Treasury, they are destroyed upon receipt.

(Why federal tax? The real purpose of federal taxation is to control the economy — to tax what the government wishes to discourage and to cut taxes on things it wishes to encourage.)

That’s right, your precious tax dollars are destroyed, and the federal government creates brand new dollars, every time it pays a bill. That is why the government is able to run a deficit almost every year, and still have no difficulty paying its bills.

Contrary to popular wisdom, the federal government does not borrow the dollars it can create at will. The issuance of T-bills, T-notes, and T-bonds is not borrowing, in the sense that the government neither needs nor uses those dollars.

Instead, the dollars are deposited for safekeeping into T-security accounts, and upon maturity, the dollars are returned to their owners. Not only does the government not use those dollars, but the government adds interest to the accounts.

(This is unlike the monetarily non-sovereign state and local governments, which do need and use the money paid for their bonds.)

Our Monetarily Sovereign government neither needs nor uses any form of income.

You wouldn’t know it, by the “Big Lie” comments of our leaders:

Dianne Feinstein Lectures Children Who Want Green New Deal, Portraying It as Untenable New York Times, Feb 22, 2019

Senator Dianne Feinstein found herself in a standoff Friday with a group of schoolchildren who confronted her about her refusal to support the Green New Deal.

In a video posted by the Sunrise Movement, which encourages young people to combat climate change, an exchange quickly became tense once Ms. Feinstein started to explain her opposition to the Green New Deal, an ambitious Democratic-led proposal that calls for a radical transformation of the United States’ energy sector.

“There’s no way to pay for it,” Ms. Feinstein told the group of about 15 children at her San Francisco office.

“We have tons of money going to the military,” a young girl responded, only to receive a lecture about the realpolitik of passing bills in a Republican-led Senate.

I don’t yet know enough about the details of “The Green New Deal” to support or denounce it (so far, no one does), but in any event, Feinstein is wrong. No matter what the dollar cost, whether a billion, a trillion, or many trillions, the federal government easily could pay for it.  And yes, the government could prevent excessive inflation, too.

And lest you believe Dianne Feinstein is uniquely ignorant or deceitful, another, even more “reliable” source of false scare headlines is the Committee for a Responsible Federal Budget (CRFB). We have written about them many times.

Excerpts from their latest scare headline: 

As Debt Rises, Interest Costs Could Top $1 Trillion, Feb 13, 2019

Under current law, net interest payments will nearly triple over the next decade, rising from $325 billion last year to $928 billion by 2029. Under the Alternative Fiscal Scenario, which assumes lawmakers extend the tax cuts and spending increases passed over the last two years, interest on the debt will exceed $1 trillion in a decade.

As a share of the economy, interest payments will nearly double – from 1.6 percent of Gross Domestic Product (GDP) last year to 3 percent by 2029. Under the AFS, interest would be 3.4 percent of GDP by 2029, surpassing the post-WWII record set in 1991 when interest payments were 3.2 percent of GDP.

The article is buttressed by a “scare” graph showing the rise of federal debt.

What the article fails to mention is that this rise is accompanied by one of the greater periods of economic growth in U.S. history.

And this growth is no coincidence. Federal deficits, which lead to federal debt, are the additional growth money the federal government pumps into the economy.

In fact, when federal debt fails to grow sufficiently, the U.S. experiences recessions and depressions.

The most common measure of economic growth is Gross Domestic Product (GDP). The formula for GDP is: GDP = Federal Spending + Non-federal Spending + Net Exports.

All three terms reflect increased dollars, and federal deficits pump dollars into the economy. The graph you never will see from the debt fear-mongers is this one:

Reductions in federal debt growth (red line) lead to recessions (vertical bars) which are cured by increases in federal debt growth.

And though the CRFB may be among the better funded of the Big Lie purveyors, consider this from Reason.com:

Forget Paying for Medicare for All—We Can’t Pay for the Medicare We Have, Peter Suderman|, Feb. 22, 2019

How would Medicare for All, which even under rosy assumptions would require more than doubling individual and corporate income taxes, be financed?

Today, Medicare and Medicaid are widely acknowledged as the biggest drivers of the federal government’s long-term debt. Broadly speaking, America’s biggest fiscal problems are health care spending problems.

And America’s health care spending problems are largely problems stemming from increasing spending on Medicare.

The article lies. Federal taxes do not fund federal spending. (If they did, there would be no federal deficit, the federal debt would not have grown into the many trillions, and the federal government would have had difficulty paying its bills.) 

The federal government does not have a fiscal problem other than the ignorance being spread by our opinion leaders.

What the article does not mention is, all those deficit dollars and interest dollars the federal government has pumped into the economy, are in fact growth dollars that have wended their way through every town, county, state and business in America, enriching our entire nation. While the federal government doesn’t need any infusions of U.S. dollars, the private economy does in order to grow.

But, here comes USA Today, quoting from debt-fear mongers. Let’s take it line-by-line:

The national debt and the federal deficit are skyrocketing. How it affects you

More debt and higher deficits not only harm the economy. They dip into the pocketbooks of average Americans.

Why the debt-fear mongers are wrong: The deficit adds dollars to the economy, thus adding dollars to the pocketbooks of average Americans.

For starters, they drive up interest rates, which leads to slower economic growth. Slower growth leads to lower wages, which results in a lower standard of living for Americans.

Why the debt-fear mongers are wrong: Interest rates are set by the Federal Reserve, which raises rates by fiat, to combat inflation, not to attract buyers of T-securities. If buyers are needed, the Fed itself can buy. Higher interest rates cause the government to pay more interest dollars into the economy, which is stimulative.

To pay for years of deficits, the federal government must borrow money. Roughly half of the U.S. debt is held by foreign countries, such as China, Japan and Saudi Arabia. China alone holds more than $1 trillion in U.S. debt. 

Why the debt-fear mongers are wrong: The federal government, having the unlimited ability to create dollars, has no need to borrow dollars, so does not borrow dollars. It accepts deposits into T-security accounts. The purposes of offering T-securities are not to obtain dollars, but rather to:

  1. Provide a safe “parking place” for unused dollars, which helps stabilize the dollar, and
  2. Assist the Fed in setting interest rates, with T-bill rates at the bottom.

Borrowing at that level is financially irresponsible, because the more we borrow, the more we pay in interest to those countries.

Interest on U.S. debt is projected to total $7 trillion over the next decade and, by 2026, will become the third largest category of the federal budget. That’s $7 trillion going out on the door.

Why the debt-fear mongers are wrong: Paying interest helps grow America’s economy by adding dollars to the economy. The U.S. government has the unlimited ability to pay interest. Those dollars are not “going out the door.” They are being added to the U.S. and world economies, enriching domestic America and future importers of American goods and services.

In other words, that’s $7 trillion that could be spent on things like roads, bridges, schools and other programs that benefit Americans every day.

Why the debt-fear mongers are wrong: The U.S. government has infinite dollars. It never can run short of dollars. It can pay unlimited interest and still fund “roads, bridges, schools, and other programs that benefit Americans.”

Higher interest rates reduce the amount of private capital available for investments, which hurts economic growth and wages and leaves the U.S. with less flexibility to respond to a financial crisis like the Great Recession of 2008.

Why the debt-fear mongers are wrong:Most interest is paid within the economy. Private lenders lend to private borrowers. The money flows within the private economy. However, when the federal government pays more interest, those dollars go into the private economy, increasing the amount of private capital available for investments.

Online you can find hundreds, perhaps thousands of such wrongheaded articles. We’ll close with excerpts from this Heritage Foundation doozy:

In Boom Times, Unsustainable Debt Levels Threaten Prosperity, Justin Bogie, Senior Policy Analyst in Fiscal Affairs, Oct 3rd, 2018

Washington’s soaring deficit and debt could wipe out the progress being made, hitting working Americans the hardest.

Unless lawmakers make significant reforms to entitlement programs — the driving force behind the deficits — it’s a question of when, not if, the breakdown will occur.

Every disseminator of the Big Lie suggests “significant reforms (i.e. cuts) in entitlement programs.” Your are supposed to think reason is because these programs are big. The real reason is that these programs help the poor and middle classes more than the rich.

The federal government’s fiscal year 2018 is over. In some ways, it was a banner year: Economic growth quickened, average paychecks fattened, and there were more jobs available than there were people looking for work.

But there are clouds on the horizon. Washington’s soaring deficit and debt could wipe out the progress being made, hitting working Americans the hardest.

Why the debt-fear mongers are wrong: Economic growth has been substantial since 2008, because deficit spending added growth dollars to the economy.

The Congressional Budget Office (CBO) projects that the FY 2018 deficit will hit $804 billion, pushing national debt to over $21 trillion. It’s a crushing tide of red ink.

Why the debt-fear mongers are wrong: There is nothing “crushing” about it. Federal finances are different from your and my finances. While large debt could “crush” you and me, the federal debt has no crushing effects.

The federal government could pay off the entire debt today, without creating one new dollar. It merely would return the dollars that already exist in T-security accounts, back to the owners of those accounts.

To put those numbers into context, consider the typical U.S. household, which last year earned $60,336. If that typical family spent like the feds, they would have entered the fiscal year more than $300,000 in debt and piled on an additional $12,000 on top of that.

Why the debt-fear mongers are wrong: The Heritage Foundation disseminates the Big Lie by equating Federal Monetarily Sovereign finances with personal monetarily non-sovereign finances. Whether this is ignorance or intent, it is wrong.

For years, budget experts have warned Congress that high deficit and debt levels are not sustainable and will eventually lead to an reconomic breakdown. Unless lawmakers make significant reforms to entitlement programs — the driving force behind the deficits — it’s a question of when, not if, the breakdown will occur. 

Why the debt-fear mongers are wrong: Actually, so-called experts have warned that the federal debt is a “ticking time bomb,” ready to explode. They have promulgated this lie every year since 1940.

In 1940, the federal debt was $40 Billion. Today, it is above $20 Trillion, a 50,000% increase (!), yet here we are, after 80 years of lies, with a strong economy and none of the predicted disasters.

There is also the real risk of sharply higher interest rates and inflation. 

Why the debt-fear mongers are wrong: So where are the ” sharply higher interest rates and inflation”? Both have been low for the past decade. The Fed, not deficits, sets the interest rates..

Some analysts argue that last year’s tax cuts are what’s driving up the deficit, but that’s not true. It’s out-of-control spending, not insufficient revenues, that’s driving the country toward fiscal disaster.

Why the debt-fear mongers are wrong: No disaster, but The Heritage Foundation reveals its bias favoring the rich. These folks love tax cuts for the rich, but hate benefits for the poor and middle classes. So they say, tax cuts are O.K. but benefits should be cut.

Anytime I’ve had discussions with people who do not understand Monetary Sovereignty, they first claim that federal spending is unaffordable. Then, after more discussion, they acknowledge that the federal government never can run short of dollars to pay its bills, but then they turn to inflation.

They claim that despite the 50,000% debt increase in the past 80 years, “eventually” federal deficit spending will cause inflation. 

In recent years, they have claimed that if the federal Debt/GDP ratio rose above a certain percentage, we would have inflation, but as the percentage kept climbing without inflation, they kept adjusting their figures. 

Today’s ratio is above 100% (depending on how “debt” is calculated), and still inflation is low. (Japan’s Debt/GDP ratio is above 250%, and they have struggled to achieve inflation.)

When all other claims have been disproved by history, the debt fear-mongers final, desperate claim is “What about Zimbabwe?” (or Germany, or some other nation that has experienced hyperinflation?)

But inflations are not caused by deficit spending. Inflations are caused by shortages, usually shortages of food, but sometimes shortages of oil or other goods.

As for Zimbabwe, the government stole farm land from farmers and gave it to non-farmers. The predictable shortage of food caused inflation in food costs, which led the government to respond with money “printing.”

In Germany, the onerous conditions placed on Germany by the Allies, caused severe shortages of most goods and services. The German government responded by “printing” money.

In short, inflations are caused by shortages. Money “printing” and deficit spending is a government’s response to inflation, not the cause of inflations.

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Koch foundations have attaching strings to their massive University contributions, — control over curriculum and professor hiring and evaluation.

Summary

The rich are motivated by Gap Psychology, the human desire to distance themselves (“widen the Gap”) from those below them on a social scale, and to come closer (“narrow the Gap”) to those above. 

To widen the Gap below, and to narrow the Gap above, the rich opt for cuts to social programs like Social Security and Medicare. These cuts are called “reforms.”

The excuse for the cuts is the supposed “unsustainability” of federal Social Security and Medicare spending.

It is a lie — a Big Lie.

To promulgate the Big Lie, the rich bribe politicians (via campaign contributions and promises of lucrative employment later), economists (via university contributions and jobs with “think tanks”), and the media (via advertising expenditures and outright ownership).

Thus, the rich pay the main sources of information available to the public to spread the Big Lie, that federal deficits and federal debt are a threat to the U.S. 

Until you tell your Senators and Representatives that you know they have been lying, and that the federal government easily can pay for our benefits, they will keep lying and cutting your benefits.

You are the only thing that can eliminate the lies. 

Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell …………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

–Financial frauds who give exactly the same advice to every client, no matter what the situation. Friday, May 27 2011 

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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We all are aware of the euro nations’ financial problems, especially the problems of the PIIGS – Portugal, Italy, Ireland, Greece and Spain. We have discussed the fact that because these nations, in surrendering their Monetary Sovereignty, surrendered their control over their money supply. They are unable to create the money necessary to support their economies.

I predicted in a 1995 speech at the UMKC,Because of the Euro, no euro nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the euro.” However, not all European nations surrendered their Monetary Sovereignty. Among the nations choosing to remain Monetarily Sovereign are Poland, Romania, Sweden, Norway and the United Kingdom.

Here are some sample news items:

Bloomberg; 5/25/11: “Poland’s economic-growth forecast was raised to 3.9 percent from 3 percent at the Organization for Economic Cooperation and Development

5/27/11: According to Capital Economics, a British research group, Romania’s economy will grow by 3% this year compared to a previous forecast of 1%, followed in 2012 by a 2.5% advance. The recovery will be fueled by private consumption, but also by the resumption of investments. Also the research group states that Romania has the second best potential for economic development in the region, along with Bulgaria, Poland and Russia.

OCDE:1/2/11 – Sweden is expected to continue to recover strongly from the recession as high saving, low interest rates and an improving jobs market encourage consumers to step up spending, according to the OECD’s latest Economic Survey of the country.

Bloomberg: 5/26/11: The mainland (Norway) economy will expand 3.3 percent this year and 4 percent in 2012, after growing 2.2 percent in 2010, the Organization for Economic Cooperation and Development said yesterday.

The Monetarily Sovereign nations are doing better than the monetarily non-sovereign nations. No surprise there for those of you who have been reading this blog. The key, of course, is for a Monetarily Sovereign nation to realize it’s Monetarily Sovereign. Not all do.

Why the British economy is in very deep trouble, Financial Times, Posted by Neil Hume on May 26, 2011

Here’s something for the Chancellor and the Office for Budget Responsibility (OBR) to chew on: a warning from Dr Tim Morgan, the global head of research at Tullett Prebon, that the deficit reduction plan won’t work and the UK is headed for a debt disaster.

Morgan says sectors that account for nearly 60 per cent of UK economic output are critically dependent on debt (public or private) and set to contract rather than expand. This will render economic growth implausible and means the burden of public and private debt will prove too heavy for the nation to carry:

Over the past decade, the British economy has been critically dependent on private borrowing and public spending. Now that these drivers have disappeared – private borrowing has evaporated, and the era of massive public spending expansion is over – the outlook for growth is exceptionally bleak.

Sectors which depend upon either private borrowing or public spending now account for at least 58% of economic output. These sectors are now set to contract rather than expand, which renders aggregate economic growth implausible. And, without growth, there may be no way of avoiding a debt disaster.

The UK, wisely avoided surrendering its Monetary Sovereignty, then forgot why it did so. It thinks, “the era of massive public spending is over.” Why? It has no idea. It believes it’s monetarily non-sovereign.

This puts the UK in the same position as the U.S., whose politicians, media and old-time economists do not understand the implications of Monetary Sovereignty. Read any article or listen to any politician, and you will not be able to tell whether the subject is a Monetarily Sovereign nation or a monetarily non-sovereign nation. They say exactly the same things about both.

What would you think about an investment advisor who gives exactly the same advice to a wealthy, married old man with no children, as he gives to an impoverished single, young woman supporting five children? If someone says exactly the same things, makes exactly the same predictions, and offers exactly the same advice regarding two diametrically opposite monetary situations, that person is a fraud.

I have just described the debt-hawk media, politicians and old-time economists.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up my future.”

MONETARY SOVEREIGNTY

–Federal Debt/GDP– A Useless Ratio Sunday, Nov 8 2009 

An alternative to popular faith

Lately, we’ve heard a great deal about the federal debt/GDP ratio.

The Investopedia says, “The debt-to-GDP ratio indicates the country’s ability to pay back its debt.” This ratio often is quoted in stories predicting the demise of America if federal debt continues to rise and especially if the debt ever were to exceed 100% of GDP. (Since we are about to hit that level, and we still exist, the debt hawks now have moved the time of Armageddon too 200%. But Japan is there already, so maybe move it to 300%?)

This nonsense ratio is so important, the European Union once required, as a condition of membership, the ratio of gross government debt to GDP not to exceed 60% at the end of the preceding fiscal year.

What would you say if I told you the total number of hits the Chicago Cubs made in 2008 is 47% of the total number of runs the Cubs have scored in all of their 100+ year history?

You might well say, “Huh? What does one thing have to do with the other? One is hits; the other is runs. One is 100+ years; the other is one year. It’s classic apples vs oranges.” And you would be right.

Yet, that is exactly what the debt/GDP ratio represents. Federal “debt” is the net amount of outstanding T-securities created in the history of America. The GDP is the total dollar value of goods and services creating this year. The two are unrelated. The federal government does not use GDP to service its debt.

Actually, federal “debt” is not even related to federal “deficits” by function, though the two are related by law. During the gold standard days, the Treasury was required by law to issue T-securities in the amount of the federal deficit.

It was necessary then, because the Treasury could only produce money in the amount of gold reserves. In 1971, we went off the gold standard, which gave the Treasury the unlimited ability to create money.

The creation of T-securities no longer is necessary; it is a relic of the gold standard days. A government with the unlimited ability to create dollars does not need to borrow those dollars.

The government “borrows” by creating T-securities out of thin air, backed only by full faith and credit. Purchasers of T-securities instruct their banks to debit their checking accounts and credit their T-security accounts at the Federal Reserve Bank.

No dollars are created or destroyed.

Then, to “pay off” its debt, the process is reversed: The government merely transfers dollars from T-security accounts (essentially bank savings accounts) back to checking accounts.

Again, no dollars are created or destroyed.

Today, Japan’s ratio is above 200%. The U.S. ratio is near 100%.

monetary sovereignty

By contrast, Russia’s, Chile’s, Libya’s, Qatar’s and others are below 10% – which tells you nothing about their economies, but says a great deal about the meaningless Debt/GDP ratio.

As for GDP indicating “the country’s ability to pay back its debt,” again we have apples/oranges. The value of goods and services created by the private sector, has no relationship to the federal government’s ability to transfer dollars from T-security accounts at the FRB to checking accounts at private banks.

Finally, Debt/GDP (shown as “FYGFDPUN/GDP”) has no relationship to inflation:

Debt/GDP vs inflation

And that is why the debt/GDP ratio is meaningless.

Rodger Malcolm Mitchell
http:www.rodgermitchell.com

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