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 Years A 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.
The universe has an infinite number of facts. We can’t learn and process them all, so we compensate. We learn about the universe by analogy, and by inference, and by reference:
Analogy: A comparison of two otherwise unlike things based on the resemblance of a particular aspect. Inference: If two or more things agree with one another in some respects they will probably agree in others Reference: The words of trusted people.
Think of the factual statement: Dogs have four legs and teeth. Spot is my dog. Therefore Spot has four legs and teeth.
Spot
Knowing that Spot is a dog, you infer a picture of him.
You visualize details about Spot without ever having to see or hear him.
Often though, what we think of as analogy and inference can deceive us:
Dogs have four legs and teeth. Spot has four legs and teeth. Therefore Spot is a dog.
Wrong.
Your inference threw you off because it wasn’t a true analogy. It was a misleading “intuition.”
Because the universe is so big, the vast majority of what you “know” is based on your intuition.
Here is another example of where your intuition fails you. As you “know,” when
“A” is bigger than “B” and
“B” is bigger than “C” and
“C” is bigger than “D” then
“A” must be bigger than “D”
Right? Do you know any exceptions to this? Actually, there are many exceptions.
Here is one example. It’s called “non-transitive dice.”
These are not ordinary dice. As you can see that they are numbered differently.
The numbers are:
A. Blue Die: 6 6 6 6 5 5
B. Black Die: 4 4 4 4 12 12
C. Red Die: 10 10 3 3 2 2
D. Green Die: 7 7 7 7 1 0
When rolled, die “A” will beat die “B” 2/3 of the time. “B” will beat “C” 2/3 of the time. “C” will beat “D” 2/3 of the time.
And counter-intuitively, “D” will beat “A” 2/3 of the time. No one die is the greatest.
We often see non-transitiveness in sports, where the winningest teams do not always have winning records against the poorest teams. Your favorite team may win the World Series in the same season as they have a losing record against a last-place team.
Politicians repeatedly create false analogies and false inferences. President Barack Obama, in his weekly radio address, July 2, 2011, said, “Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on a sounder footing.”
This is misleading on multiple levels.
The federal government is Monetarily Sovereign. It has a sovereign currency, the U.S. dollar, of which it can create an infinite supply. By contrast, you and your family are monetarily non-sovereign. You do not have a sovereign currency nor can you create an infinite supply of dollars.
The federal government can pay any debt denominated in dollars. You cannot. The federal government never unintentionally can run short of dollars. You can. The federal government needs no income to pay its bills. You need income to pay your bills.
Although you have a “means,” within which you must live, the federal government does not. And, unlike you, the federal government does not need to cut spending so it can afford to spend. Even if the federal government collected zero taxes, it could continue spending, forever.
And finally, it is federal spending, not spending cuts, that grow the U.S. economy and “put it on a sounder footing.”
Obama’s two short sentences were 100% wrong, and the inferences they were meant to draw were 100% misleading.
But to the average person, they sound logical, reasonable and prudent.
Because so much of what you know is based on what seems logical, reasonable, and prudent, you have learned to trust your intuition. You will fight mightily against anything that violates your intuition, despite powerful facts supporting the opposition.
You will believe your intuition especially if it supported by comments from a leader. You might more readily believe that vaccination causes autism, and immigrants cause disproportionate crime, and global warming is a Chinese hoax, if these ideas are supported by the President of the United States.
You have been primed for these beliefs by the knowledge that many medicines cause unpublicized problems, strangers are more responsible for crime than are friends, and China is an economic foe.
Nearly every politician, economist, and media writer tells you that federal financing is just like your personal financing (so debt is a danger and living within one’s means is prudent). The brainwashing comes at you from all sides.
Add such retorts as, “There’s no such thing as a free lunch,” and “Why are you the only one who knows this,” and you have created a powerful belief system that cannot be shaken by facts.
The federal government has increased its debt almost every year for the past 80 years, yet still, you are told that federal debt is a “ticking time bomb.”
Belief is less logical than emotional. You believe what you feel comfortable believing.
If, to help you visualize Monetary Sovereignty, I show you why federal finances are very much like those of the Bank in the game of Monopoly, you may dismiss that as being unrealistic, and “just a game.”
But by rule, the financial parallels between the Monopoly Bank and the federal government nearly are perfect. In the Monopoly rules, you will find this:
“The Bank never goes ‘broke.’ If the Bank runs out of money, the Banker may issue as much more as may be needed by merely writing on any ordinary paper.”
You didn’t question that rule in Monopoly, yet the vast majority of people’s intuition questions exactly the same rule for our Monetarily Sovereign federal government.
Finally, we come to inflation and the brainwashed belief that federal money “printing” causes inflation.
Let’s say you go to the store, and you find that the price of apples has gone up. Do you immediately think, “The government is printing more money,” or more likely do you think, “There must be a shortage of apples”?
In any capitalist economy, supply responds to demand, and prices result from an imbalance between supply and demand.
If supply is less than demand, there will be shortages and price increases, upon which producers will respond by creating more product, alleviating the shortages and lowering prices.
Here is the normal sequence leading to low amounts of inflation, and then inflation moderating:
Shortages develop —>
Prices rise —>
Production increases to meet demand —>
Shortages are eliminated —>
Prices fall.
This process creates the average low inflation that has been the norm for decades.
Here is the process leading to large inflations and hyperinflations:
Shortages develop —>
Prices rise —>
Production is unable to increase sufficiently to meet demand—>
Shortages continue to grow —>
Prices continue to rise into hyperinflation —>
All inflations and hyperinflations are caused by shortages, usually shortages of food or energy, never by federal money “printing.”
In the following graph, note how peaks and valleys of inflation do not match peaks and valleys of federal money “printing.”
In summary, the universe contains more facts than you can absorb. You are forced to develop shortcuts that allow you to bypass the vast majority of facts and to come to conclusions about the reality around you.
These shortcuts include analogy, inference, and reference, the guidance of other people.
Despite common belief, the federal government cannot run short of dollars with which to pay its debts, and federal money creation does not cause excessive inflation (which is caused by shortages.)
And yes, the federal government easily can pay for the Ten Steps to Prosperity (below), without causing inflation.
The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.
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:
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.
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:
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.
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:
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:
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:
Provide a safe “parking place” for unused dollars, which helps stabilize the dollar, and
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:
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.
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.
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:
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.
==============================================================================================================================================================================================
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.
============================================================================================================================================================================================== 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 - Mitchell 