The “myth” of Monetary Sovereignty Friday, Nov 16 2018 

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.”

Image result for bernanke and greenspan

Would someone please tell her the US doesn’t need to borrow dollars.

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.

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Reader Koen Hoefgeest kindly called my attention to this article: The myth of monetary sovereignty
By Frances Coppola – November 02, 2018

Here are some excerpts from an article that “proves” Monetary Sovereignty (MS) is a myth:

How many countries can really claim to have full monetary sovereignty?

The simplistic answer is “any country which issues its own currency, has free movement of capital and a floating exchange rate.”

I have seen this trotted out MANY times, particularly by non-economists of the MMT persuasion. It is, unfortunately, wrong.

“Trotted out” is a pejorative, that immediately displays a supercilious contempt for the many economists who each day provide ample proof of Monetary Sovereignty’s existence.

In any event (spoiler alert), at no time will Ms. Coppola prove the above-mentioned “simplistic answer” is wrong.

Instead, she will attack another “more complex” definition, from a “prominent MMT economist.”

This is a more complex definition from a prominent MMT economist:

1. Issues its own currency exclusively
2. Requires all taxes and related obligations to be extinguished in that currency
3. Can purchase anything that is for sale in that currency at any time it chooses, without financial constraints. That includes all idle labour
4. Its central bank sets the interest rate
5. The currency floats
6. The Government does not borrow in any currency other than its own.

This appears solid. But in fact, it too is wrong.

The big hole in this is the external borrowing constraint – item 6 in the list. If a government genuinely could purchase everything the country needed in its own currency, then it would indeed be monetarily sovereign.

But no country is self-sufficient. All countries need imports. So item 3 on the list is a red herring.

Hmmm . . . The “big hole” is #6, but #3 is a “red herring”?

Actually, #6 is not a requirement for Monetary Sovereignty, partly because MS nations do not borrow their own currency. They have no need to, because they have the unlimited ability to create their own currency.

(See the Bernanke, Greenspan, Federal Reserve comments above.

And #3, the “without financial constraint” definition, is absolutely, 100% correct.  An MS nation cannot unintentionally run short of its own sovereign currency.

A government may be able to buy anything that is for sale in its own currency, but that doesn’t include oil, or gas, or raw materials for industrial production, or basic foodstuffs.

To buy those, you need US dollars. Indeed, these days, you need dollars for most imports. Most global trade is conducted in US dollars.

Here, Ms. Coppola displays ignorance of foreign exchange, which is the device all nations use for imports.

Even the mighty U.S. cannot purchase all its goods and services using U.S. dollars. It exchanges its sovereign currency for the exporting nation’s currency.

Perhaps this would be clearer to her if #3 read, “Can purchase anything that is for sale in exchange for its sovereign currency at any time it chooses, without financial constraints.” 

The only country in the world that can always buy everything the country needs in its own currency, and therefore never needs to borrow in another currency, is the United States, because it is the sole issuer of the US dollar.

Completely wrong. Again she ignores the FX issue. Perhaps she never has traveled abroad, but what is the first thing many Americans do, when landing on foreign soil? Right. They exchange their dollars for the local currency.

Contrary to popular opinion, the United States government does not borrow, not dollars and not any other currency.

What erroneously is termed “borrowing,” actually is the acceptance of deposits into T-security accounts. The purpose of these accounts is not to provide the federal government with the dollars it can produce at essentially no cost (See Bernanke, above), but rather to:

  1. Provide a safe depository for dollars, which stabilizes the dollar, and
  2. Assist the Fed’s interest rate control, which helps it control inflation

The dollars deposited into those T-security accounts remain there — they are not used by the federal government — until the accounts mature, at which time the dollars are returned to the account owners.

Having the unlimited ability to create dollars, the U.S. has no need to borrow. It creates dollars ad hoc, by paying creditors.

The dollar creation system is this:

  1. In paying creditors, each federal agency sends instructions (not dollars) to each creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account. The instructions can be in the form of a check or wire (“Pay to the order of . . .”)
  2. At the instant the bank obeys those instructions, and not before, brand new dollars are created and added to the nation’s M1 money supply.
  3. The instructions then are cleared through the Fed.

This, by the way, is identical with how you pay your bills. You send instructions (checks) to creditors’ banks, and at the moment the bank obeys your instructions, new dollars are created.

Then, when your check clears, your bank deducts them from your checking account, and M1 dollars are destroyed.

The difference is the no dollars are destroyed when the Fed clears federal government checks, which is why federal paying of bills creates net dollars.

However, the dark side of this is that the US is obliged to run wide current account and fiscal deficits, because global demand for the dollar far exceeds US production.

When it attempts to close these deficits, global trade and investment shrinks, causing market crashes and triggering recessions around the world.

Sometimes, there is even a recession in the US itself. The US’s last attempt to run a fiscal surplus ended in the 2001 market crash and recession:

Not understanding the differences between federal financing and personal financing, Ms. Coppola believes the U.S. federal government needs to “close those deficits.”

But why would a nation, having the unlimited ability to create dollars, need to “close deficits”? What is wrong with deficits? America’s deficits already have accumulated to $15 Trillion in debt, and despite hand-wringing from debt hawks, the U.S. economy has not suffered.

For individuals and others in the private sector, deficits and debt are burdens. For the U.S. government, they are no burden on the government or on taxpayers.

As stated, that thing erroneously termed U.S. “debt,” actually is the total of deposits into T-security accounts, somewhat similar to bank savings accounts.

To pay off the so-called “debt,” the federal government merely returns the dollars in those accounts. It does this every day. No tax dollars are involved in paying off U.S. “debt” (deposits).

MMT adherents like to cite this as evidence that eliminating the government deficit in any country will result in a recession. But this is stretching things considerably.

FRED shows us that even in the U.S., only one recession in the last century has been preceded by a government surplus.

Ms. Coppola is confused again, this time between reducing deficits (while still increasing debt) and reducing debt (i.e running surpluses).

Here is what happens when the federal government runs a surplus:

U.S. depressions tend to come on the heels of federal surpluses.

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

While reducing federal debt tends to cause depressions, reducing deficit growth tends to cause recessions.

Reduced deficit growth leads to recessions (vertical gray bars), while increased deficit growth cures recessions.

The reason is rather simple. An economy either grows or shrinks. A growing economy requires a growing supply of money.

By definition: GDP = Federal Spending + Non-federal Spending + Net Exports. Thus, a growing GDP involves a growing money supply.

Federal deficit spending grows the money supply, which increases both Federal Spending and Non-federal Spending, thus increasing GDP.

Of course, many developed countries do in practice pay for imports in their own currencies. Governments, banks and corporations meet dollar  funding requirements by borrowing in their own currency and swapping into dollars in the financial markets.

This diminishes the need for dollar-denominated borrowing, either by government or the private sector. These countries therefore have a considerable degree of monetary sovereignty. But it is not absolute as it is in the United States.

Whether or not nations pay for imports in their own currencies is irrelevant to the question of Monetary Sovereignty. Of real importance is whether they have their own currencies, which they produce at will.

The euro nations do not. Cities, counties, and states do not. Businesses do not. You, and I, and Ms. Coppela do not. We all are monetarily non-sovereign.

We monetarily non-sovereign entities can run short of currency. Monetarily Sovereign entities cannot.

Sadly, Ms. Coppola does not seem to understand this fundamental difference.

It crucially depends on the stability of their currencies and the creditworthiness of their borrowers, both of which are a matter of market confidence.

For most countries, the need for external borrowing crucially depends on the external balance. If the current account is balanced or in surplus, then they will earn the dollars they need to pay for essential imports. But any country that runs a current account deficit inevitably borrows dollars.

Wrong. A Monetarily Sovereign nation creates its own currency, which if it chooses, it can exchange for dollars or other currencies. Stability and creditworthiness, merely influence exchange rates, not the fact of Monetary Sovereignty.

If the local currency depreciates significantly (see item 5 in the list), local banks and corporations can find themselves unable to service dollar debts, because dollars become far more expensive.

No. “Local banks and corporations” are monetarily non-sovereign. A Monetarily Sovereign nation can service any amount of dollar debts, merely by exchanging their unlimited sovereign currency for dollars.

If banks stop lending cross-border, as they did in 2008, local banks and corporations can find themselves unable to refinance dollar debts.

. . . because “local banks and corporations” are monetarily non-sovereign entities. They can run short of money. A Monetarily Sovereign nation cannot.

During the “Great Recession” of 2008, monetarily non-sovereign Greece, France, and Portugal ran short of euros. But MS Canada, China, and Australia never ran short of their own sovereign currencies.

The world is littered with examples of countries that have had to run down public sector FX reserves to provide dollar liquidity to local banks and corporations after they are effectively shut out of global markets by local currency depreciation.

A Monetarily Sovereign nation cannot unintentionally “run down” public sector FX reserves. It has the unlimited ability to create its sovereign currency. It can create all the reserves it wishes.

If the public sector doesn’t have sufficient dollar reserves, it must borrow them, or face financial crisis, widespread debt defaults and economic recession.

In an FX crisis, private sector external debt becomes public sector external debt.

Nonsense. The entire world running short of dollar reserves?? (Where would those dollars be???) In any event, the Bernanke “printing press” would immediately solve the problem.

Thus, when currencies are allowed to float freely (item 5), no government that runs a current account deficit can possibly guarantee that it will never borrow in any currency other than its own (item 6).

The list therefore contains an internal contradiction.

Again, she is confusing between a Monetarily Sovereign nation, which never needs to borrow its own currency, and a monetarily non-sovereign entity, which never can borrow its own currency (It doesn’t have one.)

Monetary sovereignty is perhaps best regarded as a spectrum.

No country on earth is completely monetarily sovereign: the closest is the US, because of its “exorbitant privilege”, but even the US cannot completely ignore the effect of its government’s policies on international demand for its currency and its debt.

She is correct that Monetary Sovereignty is a spectrum, but not because of the demand for dollars. Instead, the spectrum has to do with the nation’s own laws.

For instance, even the U.S. is not absolutely Monetarily Sovereign. We are hamstrung by our own ridiculous “debt limit” laws, which have the potential of reducing our ability to create dollars.

In general, the major reserve currency issuers tend to have more monetary sovereignty than other countries, because there is international demand for their currencies and their debt.

The primary reserve currency issuer is the US, but the Eurozone (for which Germany is the primary safe asset issuer), the UK, Japan, Switzerland, Canada, and – now – China, all fall into this category.

However, there is a hierarchy even among reserve currency issuers. High on the list comes Japan, because its debt is held almost exclusively by its own citizens (and its central bank), and investors regard it as a “safe haven” in troubled times.
There is a heirarchy, but it has nothing to do with Japan’s citizens. It has to do with usage. The U.S. economy is the largest in the world, so all international banks must hold dollars in reserve, to facilitate international trade.
That is why the U.S. dollar is the world’s premier reserve currency, though other currencies also are reserve currencies.
But the ostensibly similar Switzerland has less monetary sovereignty than Japan, because it has extensive trade and financial ties to its much larger neighbour the Eurozone.
The above borders on the silly. “Trade and financial ties” have nothing to do with Monetary Sovereignty.
The Eurozone countries have relinquished their monetary sovereignty in the interests of developing ever-closer links. However, the Eurozone as a bloc has a high degree of monetary sovereignty, because its currency is the second most widely used currency for trade after the dollar.
The European Union is MS because it, not its member nations, has the unlimited ability to create euros.

Ms. Coppola confuses Monetary Sovereignty with credit rating and currency demand. 

The fact that Japan’s yen may or may not have a better credit rating than China’s yuan has absolutely nothing to do with the degree to which either nation is Monetarily Sovereign.

Both are sovereign over their own currencies, subject to their own laws regarding the creation of those currencies.

The rest of her article drifts into further musing about “more or less Monetary Sovereignty” when she really means better or worse credit.

Bottom line: Monetary Sovereignty means exactly what it says: Being sovereign over a currency. The U.S., Australia, Canada, China, the UK et al are sovereign over their currencies. Germany, France, and Italy are not.

And by the way, a very good example of Monetary Sovereignty is the Bank in the game of Monopoly. By rule, it too cannot run short of Monopoly dollars, and never needs to borrow dollars or to obtain dollars from any source.

Contrary to the title of Ms. Coppola’s paper, Monetary Sovereignty not only is not a myth, but it is the foundation of economics.

If one does not understand Monetary Sovereignty, one simply cannot understand economics.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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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

Self-immolation by the Dems Thursday, Nov 15 2018 

Image result for bernanke and greenspan

The rich don’t want us to let the rest know that federal taxes don’t fund federal spending.

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.

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To understand liars you must listen to (or read) liars, which is why I read Breitbart, the ultimate in prevarication and exaggeration. In Breitbart, you sometimes can uncover a tiny nugget of truth from the vast supplies of bovine excrement, or at least acquire a better understanding of fool’s thinking.

Here is a Breitbart story which I found both fascinating and disturbing, because amazingly, it contained what appears to be the abovementioned nugget:

WATCH — DNC CEO Seema Nanda: I Do Not Know How to Pay for ‘Medicare for All’
14 Nov 2018

Democratic National Committee (DNC) chief executive officer Seema Nanda admitted on Tuesday she does not know how to pay for the socialized medicine scheme known as Medicare for All, estimates of which are somewhere between $32 and $38 trillion.

Nanda, during Yahoo Finance’s “All Markets Summit: America’s Financial Future” event in Washington, DC, on Tuesday, the interviewer asked:

It would be very expensive, so, if this is going to be a winning issue for Democrats in 2020, how do you answer the question of how are you going to pay for this? Because there have been studies, credible studies that say it would cost three trillion dollars a year, you would have to double everybody’s taxes or maybe triple everybody’s taxes.

How do you answer the cost question?

“So, you know, your answer is I don’t know how we’re going to get there, but these are all big conversations that we need to be engaged in,” Nanda added.

Perhaps Nanda does know but doesn’t wish to give away the Democrat’s plans just yet. Or, more likely, she is as clueless as Sen. Bernie Sanders was when he first proposed Medicare for All.

Virtually everyone, left and right, believes that having medical insurance is important. Today’s medicine simply is so expensive that only the richest among us could risk not having a backup plan to pay.

So, the question becomes a simple one: Who should pay for medical insurance, the public or the federal government?

“The public,” which consists of people, businesses and local governments, is financially constrained. It does not have unlimited funds. The public can, and often does, run short of dollars. It is what is known as monetarily non-sovereign.

By contrast, the federal government is not financially constrained. It has the unlimited ability to create its own sovereign currency, the U.S. dollar. It is Monetarily Sovereign.

The U.S. government never can run short of dollars. Even if all federal taxing totaled $0, the federal government could continue spending, forever.

In fact, the federal government’s method for creating dollars and adding them to the economy, is to pay creditors.

So, before we continue with the Breitbart article, think about the answer to this basic question:

Who should pay for healthcare, the public which does not have unlimited money or the federal government which does have unlimited money?

Paying for Medicare for All remains a daunting task for Democrats. Multiple studies have estimated that the plan would cost between $32 and $38 trillion over the next ten years, contrary to Sen. Bernie Sanders’ (I-VT) claim that the plan would save America money.

In the unlikely event that the $38 trillion over ten years turns out to be correct, what does the seemingly simple term “save America money” mean?

If the federal government were to fund for Medicare for All, that indeed would save the American people money.

And the federal government has no need to save money, because it has the unlimited ability to create dollars.

So yes, Medicare for All would save America money.

The Associated Press (AP) even noted that the socialized medicine proposal would require “historic” tax increases to pay for the single-payer healthcare proposal.

Note the pejorative and incorrect term “socialized medicine.” In socialized medicine, the government would own all the medical facilities and employ all the medical workers.

I know of no one who suggests that. It’s a fake objection by Breitbart, the home of fake objections to anything that benefits the middle classes and the poor.

In Medicare for All, as with today’s Medicare, the federal government merely takes the place of private insurance carriers.

It does not own the hospital and clinics and pharmaceutical companies.e It does not employ the doctors, nurses and other personnel. It merely writes checks, which it can do endlessly.

Sen. Bill Cassidy (R-LA) said that Medicare will soon become bankrupt and that adding half of the country to the government health care program will not improve anyone’s health care.

Because the U.S. federal government has the unlimited ability to create U.S. dollars, it cannot unintentionally go bankrupt.

And because the federal government cannot go bankrupt, no agency of the federal government unintentionally can go bankrupt.

Even if all FICA taxes disappeared, the federal government could support Medicare for All forever, and I suspect Cassidy knows this.

“My point is Medicare for All is Medicare for none,” Cassidy told Breitbart News in October.

“Medicare is actually going bankrupt in eight years, and now Bernie Sanders wants to put 150 million more people into a system going bankrupt in eight years?”

No, Medicare will not go bankrupt in eight years or in eighty years, unless Congress wishes it.

Many in Congress do not understand the differences between federal financing and personal financing. They think federal debt is like personal debt, and is a burden on the government or on taxpayers.

It is neither.

Many others in Congress are well aware that the federal government has the unlimited ability to fund Medicare for All, and in fact, adding trillions of dollars would provide a dramatic stimulus to the overall economy.

These members of Congress do not want you to know this for fear you will make “unreasonable” demands on the government.

What is an “unreasonable” demand? Anything that narrows the Gap between the rich and the rest. (See: Gap Psychology)

In summary: Every person in America should be able to afford health care, and not to be financially devastated by illness. But someone has to pay for such insurance.

The public’s funds are limited, but the federal government’s funds are unlimited. The only logical solution is for the federal government to pay for Medicare for every man, woman, and child in America — which the federal government easily can do.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: 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

The debt lies just keep on coming. Wednesday, Nov 14 2018 

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.

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There is a website known as “Reason” (the libertarian magazine of “Free Minds and Free Markets.”) and its editor, Nick Gillespie, who can be depended upon to display incredible ignorance about federal financing.

Fundamentally, Gillespie seems to believe that federal financing resembles personal financing.

He does not understand, or refuses to acknowledge, that the federal government is Monetarily Sovereign, while you and I, and the state and local governments, and businesses all are monetarily non-sovereign.

The U.K. created and distributes the British pound. Japan created and distributes the Japanese yen. The U.S. government created and distributes the U.S. dollar.

That little prefix “non” should have given him a clue, but for those who are unfamiliar with the terms, a Monetarily Sovereign entity is the creator and distributor of a type of money.  A monetarily non-sovereign entity uses money, but did not create that money. 

By contrast, the State of Illinois, the City of Chicago, you and I, did not create the dollar. We are users of the dollar. France and Germany did not create the euro they use. All are monetarily non-sovereign.

One functional advantage of a Monetarily Sovereign government is that it cannot unintentionally run short of its own sovereign currency. By contrast, a monetarily non-sovereign entity can, and often may, run short of the currency it uses.

Here are excerpts from one of Reason’s recent articles:

The National Debt Is Coming Due, Just Like We Told You

By 2020, interest on the debt will cost more than Medicaid. By 2025, it will cost more than defense spending. And that’s just the start.

Right away, Gillespie tosses in a scare headline. You are supposed to be frightened that the national debt is “coming due” whatever that means.

To be clear, Gillespie isn’t really talking about “national” debt (which would include all of a nation’s debt, public and private); he is talking about the federal debt.

And, the fact that, in the future, interest will exceed the cost of Medicaid and defense spending, is a good thing, not a problem:

  1. The federal government, being Monetarily Sovereign, has the unlimited ability to pay any amount of interest, so interest payments are no burden on the government. 
  2. Because the Federal government is Monetarily Sovereign, federal taxes do not fund federal spending.
  3. The federal government (unlike the monetarily no-sovereign state and local governments) creates brand new dollars each time it pays a bill. Federal spending on interest adds growth dollars to the economy.

In short, the more interest the federal government pays into the economy, the richer is the economy.

Returning to the article:

In 2017, interest costs on federal debt of $263 billion accounted for 6.6% of all government spending and 1.4% of gross domestic product, well below averages of the previous 50 years.

The Congressional Budget Office estimates interest spending will rise to $915 billion by 2028, or 13% of all outlays and 3.1% of gross domestic product.

The above figures are meant to be alarming. But, interest as a percentage of all spending is an irrelevant ratio.

And interest as a percentage of GDP is similarly irrelevant. Neither ratio has any effect on the economy.

A quick recap of our dismal national fiances: The U.S. economy generates about $21 trillion in annual activity. Debt owed to the public comes to about $15.5 trillion, but when you add intra-governmental debt (which you should, because it represents actual commitments to pay), the figure is…about $21 trillion.

This is not good, both for obvious and and for less obvious reasons. Among the obvious problems: When you have to pay more in interest, it crowds out your ability to spend on other things.

If you’re a government, it also might mean that you raise taxes or inflate your money. (You could also cut spending, but politicians tend to resist that for as long as possible.)

The “crowds out” statement demonstrates Mr. Gillespie’s ignorance about the differences between Monetary Sovereignty and monetary non-sovereignty.

He is absolutely correct with regard to a monetarily non-sovereign entity, and is absolutely wrong with regard to a Monetarily Sovereign government like the U.S. government.

If you have the unlimited ability to create your own sovereign currency, how can your spending for some things crowd out your spending for anything? It can’t.

Absent significant changes in current law, what the government spends on will be more and more limited.

From a libertarian perspective, less government spending is a good thing, but we’re not really going to get that, even with a gridlocked Congress.

The only change in current law, that would be necessary, is the elimination of the ridiculous, useless “debt ceiling, a law that tells the government it cannot pay for things already purchased and received.

In short, it is a law that asks the federal government to be a deadbeat — a law that has no redeeming characteristics.

Other than that useless law, what the government spends cannot be limited. Having the unlimited ability to create U.S.dollars, the government can pay any bills of any size, instantly.

In 1940, the federal “debt” was 40 Billion. Today, 78 years later, it is 16 Trillion, a 40,000% increase.

Yet, federal spending is not limited, because federal money creation is not limited.

Libertarians wrongly believe “less government spending is a good thing.” That belief is utter nonsense. Reductions in federal spending lead to recessions and depressions, simply because a growing nation requires a growing supply of money.

Do you think less spending for roads, bridges, and dams is a “good thing”? Should less be spent for Social Security, Medicare, education, research & development, the military, and the myriad other activities that improve our lives?

GDP = Federal Spending + Non-federal Spending + Net Exports.

 Money growth is stimulative; money shrinkage is recessive. Period. 

We cannot help but wonder what Mr. Gillespie would say about this:

U.S. depressions tend to come on the heels of federal surpluses.

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929

And this:

When federal debt growth declines, we have recessions (vertical gray bars), which are cured by increases in federal debt growth.

Finally, the cut-federal-spending libertarians resort to the laughable, the already discredited team of Carmen Reinhart and Kenneth Rogoff. 

These preachers of austerity who spent years creating a massive document that was based on erroneous arithmetic. They claimed to have discovered that high levels of government debt are associated with weak economic growth.

It was total nonsense on many levels, including bad math and selective examples, but perhaps the biggest problem was that they lumped the results from dozens of countries, some of which were Monetarily Sovereign and some of which were monetarily non-sovereign. 

It was absurd.

Greece, France, Italy and the other euro nations struggle with high debt. So do many American states, businesses and citizens. Why? They all are monetarily non-sovereign. They can run short of money with which to pay their bills.

By contrast, the U.S. has unlimited access to dollars. It can pay any financial obligation denominated in dollars.

So lumping Monetarily Sovereign nations with monetarily non-sovereign nations, is like lumping pigs and giraffes to get average height.

This foolishness did not deter Mr. Gillespie, whose article continued:

More importantly and less obviously, high levels of national debt exert a downward pressure on long-term economic growth.

In a 2012 paper, economists Carmen Reinhart and Kenneth Rogoff define a “debt overhang” as a situation in which the debt-to-GDP ratio exceeds 90 percent for five or more consecutive years.

After looking at 26 debt overhangs in 22 advanced economies since 1800, they conclude that “on average, debt levels above 90 percent are associated with growth that is 1.2 percent lower than in other periods (2.3 percent versus 3.5 percent).”

Whether or not there is anything magical about 90 percent, there’s every reason to be concerned when the government is spending far more than it can ever collect in taxes.

We’re essentially entering an era where “debt overhang” is the new normal and there’s no sign that’s going to change any time soon.

There is zero reason to be concerned when a Monetarily Sovereign government spends more than it taxes. The reverse is true.

Spending less than taxes (i.e. running a federal surplus) causes recessions if we are lucky and depressions if we are not, by taking money from the economy.

And as it turned out, there is nothing magical about 90% at all. In fact, the whole thing is a bunch of hooey, as this article from 2013 points out. Read it for yourself:

The Reinhart and Rogoff Controversy: A Summing Up
By John CassidyApril 26, 2013

As the euro nations now have learned, austerity kills. By formula, GDP growth requires money growth, and money growth comes from deficit spending. There simply is no way around it.

Gillespie concludes his libertarian screed with yet one more misstatement: 

We’re already poorer for lower economic growth, even as the government spends more (and borrows more to cover those costs).

The Congressional Budget Office (CBO) says the economy grew by 3.1 percent in 2018, but it estimates that annual growth is going to slow to 1.7 percent annually between 2023 and 2028.

The federal government does not borrow to cover anything. Its finances are not like yours and mine. It does not even borrow. It merely accepts deposits, not to gain spending money, but rather to:

  1. Provide a safe place to park dollars, which stabilizes the dollar, and
  2. To assist the Fed’s ability to control interest rates and inflation.

Federal tax dollars are destroyed upon receipt. The federal government creates brand new dollars every time it pays a creditor. 

Yes, that’s right. Those tax dollars you send to the federal government instantly disappear from any money measure. Doesn’t that make you feel good?

(State and local taxes, by contrast, are not destroyed. They are used to pay bills — another difference between Monetary Sovereignty and monetary non-sovereignty.)

I suspect Mr. Gillespie knows all this (After all these years, how can he not?) and if so, it truly is a shame that he keeps fooling the public by writing such tripe.

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

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: 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

Are your children important enough to you? Saturday, Nov 10 2018 

Are your children important enough to you?

You sobbing mothers who have guns in your homes
Shriek to heaven and cry me your bitter tears.
You killed your own children.
You knew it would happen.
And will happen, again.

You angry fathers who have guns in your homes
Rage your rage and tell the microphone, “Something must be done.”
You killed your own children.
You knew it would happen.
And will happen, again.

You politicians, bribed to mouth disingenuous thoughts and prayers,
and to preen and smirk, leading ironic marches in the streets.
Spew your fabricated outrage.
You killed our children.
You knew it would happen.
And will happen, again.

You Justices, twisting plain English
to deny the obvious
You killed our children.
You knew it would happen.
And will happen, again.

So fly the tattered flag at half-staff to display your false compassion
And leave the flag down for the next time.
And sob your tears,
and mouth your anger,
and offer your thoughts and prayers,
and march in the streets,
and vote for your rights.
So it all can happen again
As you know damn well it will.

Yes, you know what must be done.
But is it important enough to you?

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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