If you don’t want to feel useless, don’t do what I just did. Out of curiosity, I looked at the first post I ever made on this blog.

It was back in 2009, fifteen years ago. To my chagrin, I discovered that virtually nothing has changed.

The graphs automatically updated, but they make exactly the same points they did then. The commentary has been updated to reflect the latest graph numbers. But the issues are the same.

The people decrying the federal debt (that isn’t federal and isn’t debt) still make the same false claims. The people who say the federal government is running short of dollars still do. The people who warn that the federal debt is a “ticking time bomb” continue to make the same false warning.

I empathize with Ignaz Semmelweis as for 15 years I have faced the Semmelweis reflex. Now, as 90 approaches, I hope to avoid what happened to poor Dr. Semmelweis.

What follows is a repeat of that 2009 post, with the aforementioned updates.

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Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Kermit the frog famously said, “It isn’t easy being green.”  It also isn’t easy convincing people that traditional economics not only is hypothetically wrong, not only is factually wrong, but is wrong to such a degree it is extremely harmful to our economy. 

The more extreme debt hawks believe the U.S. federal government should run a balanced budget or even have no debt at all. The more moderate debt hawks feel some debt may be necessary at times, but to them, federal debt is like bitter medicine you take only when absolutely necessary.

All debt hawks, whether extreme or moderate, are long on twisted “facts” but short on evidence.

Their “facts” inevitably include federal deficit and debt measures, projections for the future, debt/GDP ratios, and spending on Medicare and Social Security.

However, when they interpret the facts, they provide no evidence that their interpretations reflect reality.

By contrast, here are facts and a few opinions, which you may interpret for yourself.

1. Fact: Money is the way modern economies are measured. By definition, a large economy has a larger money supply than does a small economy.

Therefore, a growing economy requires a growing supply of money. QED

The graph below shows the essentially parallel paths of GDP vs. perhaps the most comprehensive measure of the money supply, Domestic Non-Financial Debt:

One could argue that money begets production or that production begets money, and both would be correct. The point is that money supply (i.e. debt) and GDP go hand-in-hand. Reduced debt growth results in reduced economic growth.

2. Fact: All money is debt and all financial debt is money.  In addition to being state-sponsored, legal tender, there are four criteria for modern money:

–Monetarily Sovereign money must be defined in a standard unit of currency.

–MS money has no, or limited, intrinsic value.

–The demand for money is determined by its risk (danger of default or devaluation, i.e., inflation) and its reward (interest rates).

–To have value, money must be owned by an entity other than the entity that created it.

The above criteria describe many forms of money, including currency, bank accounts, T-securities, corporate bonds, and money markets. All forms of money are debt, and a growing economy requires a growing supply of debt/money.

2.a. Fact: Federal “deficit” is a statement of the net amount of money the federal government has created in one year.
Opinion: The word “deficit” is pejorative. A more neutral description would be money “created” or “added,” as in, “The government has created $1 trillion,” or “The government has added $1 trillion to the economy.”

Compare the psychological meaning of those statements with the current phrasing, “The government has run a $1 trillion deficit.”

3. Fact: 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.

4. Fact: Recessions tend to follow reductions in federal debt/money growth (See graph below), while debt/money growth has increased when recessions are resolving.

Taxes reduce debt/money growth. No government can tax itself into prosperity, but many governments tax themselves into recession.

5. Fact: On August 15, 1971, the federal government gave itself the unlimited ability to create debt/money by completely abandoning the gold standard. This ability is called Monetary Sovereignty.

Because the federal government now has the unlimited ability to create dollars, it neither taxes or borrows in order to obtain dollars. It simply creates them ad hoc. Tax dollars are destroyed upon receipt.

When you pay your taxes, you take dollars from your checking account. These dollars were part of the M2 money supply measure.

6. Fact: Federal “debt” is the total of outstanding Treasury Securities. Here is Treasury Securities, incorrectly termed “borrowing” come into existence.

–You tell the government to debit your checking account and credit your Treasury security account by the same amount. The process is similar to transferring money from your checking account to your savings account.

To “pay off” the Treasury Security, the government simply debits your T-security account and credits your checking account.

Thus, the government could pay off all its so-called “debt” tomorrow simply by debiting all T-security accounts and crediting the T-Security owners’ checking accounts.

The entire process neither adds nor subtracts money from the economy (but for interest paid).

Our Monetarily Sovereign government does not borrow the money it has already created but rather exchanges one form of U.S. money (T-securities) for another (dollars). The entire “borrowing” process is actually nothing more than an asset exchange.

Do T-securities have any benefit? Yes, federal interest payments add to the money supply, an economically stimulative event. Federal interest payments help the government control interest rates and the dollar’s value. (The higher the interest, the greater the value of the dollar, and the more the economy receives in growth dollars.

T-securities (debt) are not functionally related to the difference between taxes and spending (deficits). They are related only by laws requiring the Treasury to create T-securities in the amount of the deficit.

The Treasury can create T-securities (debt) without a deficit, and the government can run a deficit without creating T-securities. Federal debt is not functionally the total of federal deficits.

7. Fact: Federal taxes, as a money-raising tool, are unnecessary, harmful and futile:

— unnecessary because since 1971 (when the U.S. government became fully Monetarily Sovereign), the government has had the unlimited ability to create money without taxes,

–harmful because taxes reduce the money supply, which reduction leads to recessions and depressions, and

–futile because tax money sent to the government is destroyed upon receipt by the U.S. Treasury. 

When you send taxes to the government, you are sending M2 dollars, but when they reach the Treasury, they cease to be part of any money supply measure. They effectively are destroyed.

Our Monetarily Sovereign government does not store dollars for future use. It can create unlimited dollars ad hoc by paying bills.

The so-called “debt” merely accounts for the total outstanding T-securities created out of thin air by the federal government.

The government decide to create T-securities equal to the deficit, but this requirement became obsolete in 1971 when we went off the gold standard and became Monetarily Sovereign.

Today, the federal government creates money by spending, i.e. it credits checking accounts to pay its bills. This crediting of checking accounts adds dollars to the economy.

The federal “deficit” is the net money created in one year and the federal “surplus” is the net money destroyed in one year. In short, deficit spending creates money and taxing destroys money. If taxes fell to $0 or rose to $100 trillion, this would not affect by even one dollar, the federal government’s ability to spend.

Further, (opinion)all tax (money-destroying) systems are unfair. See: http://rodgermitchell.com/FairTaxes.html. For a country with the unlimited power to create money, spending is not related in any way to taxing.

8. Fact: Contrary to popular myth, there is no post-gold standard relationship between federal debt and inflation. (See graph, below)

Also, contrary to popular myth, inflation is not caused by “excessive federal spending.” Inflation is caused by shortages of crucial goods and services, most often oil and/or food. (See the graph, below)

A brief discussion of oil prices and inflation is at https://rodgermmitchell.wordpress.com/2009/09/24/is-inflation-too-much-money-chasing-too-few-goods/

In this regard, hyperinflations are not caused by “money-printing,” but rather by shortages. So-called “money printing” (ala Zimabwe and Germany), were the governments’ response to hyperinflation, not the cause.

The most recent inflation was caused by COVID-related shortages of oil, food, shipping, computer chips, metal, housing, lumber, and labor, among other things. As the shortages have been reduced, so has the inflation.

9. Fact: There is no post-gold standard relationship between federal debt and your taxes.

Unlike state/local governments, which are monetarily non-sovereign, the federal government does not use tax dollars to  pay its bills. It creates new dollars, from thin air, every time it pays a creditor.

The sole purposes of federal taxes are:

–To control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to reward.

–To assure demand for the U.S. dollar by requiring all federal taxes to be paid in dollars.

Taxes do not pay for federal spending. Federal spending creates dollars.

9.a. Fact: Federal deficit spending does not use “taxpayers’ money.” Federal spending creates money ad hoc.

When the government spends it credits bank accounts. No taxes involved. By definition, deficit spending means taxes do not equal this year’s spending let alone previous year’s spending. Only surpluses use taxpayers’ money, by causing recessions.

For the above reasons, our children and grandchildren will not pay for today’s money creation. Still, they will benefit from today’s deficit spending — better infrastructure, army, education, R&D, safety, security, health, and retirement.

Any time you hear or read about the federal government spending “taxpayers’ money,” know that the person is ignorant about Monetary Sovereignty. The federal government doesn’t spend taxpayers’ money. Period.

10. Fact: There is no post-gold standard relationship between low interest rates and high GDP growth.
Opinion: The opposite seems true:

Why do high interest rates stimulate?
Opinion: High rates force the federal government to pay more interest, pumping more money into the economy.

11. Fact: The Federal debt/GDP ratio is a meaningless fraction, because it measures two, mathematically incompatible pieces of data. It’s an apples/oranges comparison. GDP is a one-year measure of output; federal debt is the net outstanding T-securities created since the nation’s birth.

The T-securities created years ago affect this year’s debt in the debt/GDP ratio, while even last year’s GDP does not affect this ratio. See: Debt/GDP

Because federal debt is the total of T-securities, and the federal government has the functional ability to stop creating T-securities at any time, the Debt/GDP ratio easily could fall to 0, depending on federal law.

11.a. Fact: The debt/GDP ratio does not measure the federal government’s ability to pay its bills. The government does not pay bills with GDP; it creates the money ad hoc to pay its bills.

Were GDP to be $0, the government still could pay bills of any size, simply by crediting the bank accounts of its creditors.

12. Facts: In 1979, gross federal debt was $800 billion. In 2009 it reached $12 trillion, a 1400% increase in 30 years. During that period, GPD rose 440% (annual rate of 5.5%>) with acceptable inflation. The same 1400% increase would put the debt at $180 trillion in 2039, a mean annual deficit of $5+ trillion.

This calculates to a 9.5% annual debt increase for the past 30 years. Repeating that growth rate would put the 2010 deficit at about $1.14 trillion, and the 2011 deficit at about $1.25 trillion. The deficit for year 2039 would be about $15.8 trillion.

Opinion: I know of no reason why the results would not be the same as they have been in the past 30 years. However, increasing the debt growth rate above 9.5% might show even better results:

In the 10 year period, 1980 – 1989, federal debt grew 210%, from $900 billion to $2.8 trillion (a 12% annual debt increase), while GDP grew .96% from $2.8 trillion to $5.5 trillion (a 7% annual increase). During that same period, inflation fell from 14.5% in 1980 to 5.2% in 1989. See graph, below.

Facts: In summary, large deficits have coincided with real (inflation adjusted) GDP growth

12. Facts: Any health insurance proposal that covers more people will cost more money. Extracting that money from doctors, hospitals, pharmaceutical companies, by necessity, would reduce the availability of health care.

Increasing taxes on any individuals (even the wealthy) or on businesses, will depress the economy by removing money from the economy. Only the federal government can supply additional money while stimulating the economy.

13. Fact: Social Security is supported neither by FICA nor by a trust fund. Were FICA eliminated, and benefits doubled, Social Security still would not go bankrupt unless Congress decided to make this happen.

In June, 2001, Paul O’Neill, Secretary of the Treasury said, “I come to you as a managing trustee of Social Security. Today we have no assets in the trust fund. We have promises of the good faith and credit of the United States government that benefits will flow.“

Yet, SS continues to pay benefits. Your Social Security check comes from a mythical trust fund that contains no money and receives no money.

Social Security (and Medicare) benefits are paid ad hoc by the U.S. government, not from a trust fund, and are not dependent on FICA taxes. which (opinion:) can and should be eliminated. See: FICA

14. Fact: The finances of the federal government are different from yours and mine and businesses’ and state, county and city government finances.

Unlike the federal government, which is Monetarily Sovereign, we cannot create unlimited amounts of money to pay our bills. We first need to acquire money, either by borrowing or by saving, to spend.

The federal government does not acquire money. It creates money by spending. As an accounting principle, the tax money you send to the government is destroyed upon receipt. Then the federal government creates new money to pay its bills. The government has no fund from which it pays bills.

Fact: Were taxes to decrease to zero, this would not change by even one penny, the federal government’s ability to spend.

Opinion: The failure to recognize the difference between the Monetarily Sovereign federal government and all other entities, which are monetarily non-sovereign, is the primary reason for recessions and depressions.

15. Fact: The federal government has the unlimited ability to create the dollars to pay any bill of any size. It never can run short of dollars; it never can go broke.

Opinion: The federal government should distribute dollars to each monetarily non-sovereign state, on a per capita basis.

The states would determine how they distribute the dollars (to counties, cities and/or taxpayers). I suggest a distribution of $5,000 per person or a total of $1.5 trillion.

16. To understand economics you must understand Monetary Sovereignty.

Fact: In 1971, the U.S. went off the gold standard, thereby becoming a Monetarily Sovereign nation, and at that moment, all economics textbooks became obsolete. Sadly, mainstream economists, the politicians and the media have not yet caught up.

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Summary: So there you have a list of facts, plus a few opinions, which I have noted. Read the facts and draw your own inferences.

You can find a great number of debt-hawk sites (i.e. Concord Coalition, Committee for a Responsible Federal Budget), which in essence are privately funded think tanks, paid to influence popular belief, with propaganda masquerading as data.

There, you will see data showing the size of the federal debt. These data are presented in a way designed to imply that the debt (money created) is too large.

But you will find no proof of these ideas. You will see no historical graphs equating debt with any negative economic outcome, simply because such graphs do not exist. Debt hawks believe federal deficits are so obviously bad, no proof is needed.

Yet, despite lacking proof, debt-hawks have foisted their opinions on the media, the politicians, weak-minded economists, and the public, much to the detriment of our economy.

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

#MONETARY SOVEREIGNTY

Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell; https://www.academia.edu/

 

We’ll begin with the facts and then move on to the ignorance: Fact: 1. The ostensible purpose of most tariffs is to protect domestic businesses by raising the price of similar imported goods. This allows domestic producers to charge higher prices while remaining competitive. Fact: 2. For a Monetarily Sovereign (M.S.) nation like the U.S. (and Canada, China, Japan, Australia, the U.K., et al.), tariffs cost domestic consumers in two ways.

• They are forced to pay higher prices, i.e., tariffs are inflationary.
• Consumers’ dollars are removed from the private sector (“the economy”) and transferred to the M.S. government, where they are destroyed. They cease to be part of any money-supply measure. Since a growing economy requires an increasing money supply, tariffs are recessionary. 

Fact 3. An MS government has the infinite ability to create dollars simply by pressing computer keys.

Former Federal Reserve Chairman Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Fact 4. Gross Domestic Product (GDP) = Federal Spending + Nonfederal Spending + Net Exports Fact 5. To protect domestic industries, the federal government either could use tax laws to lower their costs or federal spending to increase their net income. Either approach would protect the selected businesses, fight inflation (reduce prices), and/or increase GDP (increase the money supply).

In summary, import tariffs transfer dollars from the economy to the government in a misguided effort to protect the economy. If that isn’t stupid, I don’t know what is. Now, for the ignorance:

The Epoch Times Trump, Harris Endorse Tariffs on China, With Differing Approaches The next administration will be likely pro-tariff. The conversation has shifted from whether tariffs are necessary to how they can best be implemented.

Regardless of who wins the White House in November, tariffs against China are here to stay.

That’s the consensus in Washington, although Democrats and Republicans have different approaches.

That’s the consensus and that’s the ignorance.

Meanwhile, who bears the cost of tariffs remains a topic for debate.

How can it be a “topic for debate”? When money is collected from a transaction, the buyer generally pays unless the seller is willing to accept lower profit margins. However, in this case, the fundamental purpose of the tariffs is to increase the buyer’s price, so the buyer will opt for a cheaper domestic product.  Both Trump and Harris want the price to go up for U.S. buyers. They don’t want the Chinese seller to absorb the tariff and continue to undercut domestic sellers.

The Trump administration imposed tariffs on more than $300 billion worth of Chinese goods to respond to an array of unfair trade practices, including intellectual property theft.

Translation: The Trump administration raised the prices paid by American buyers to punish the Chinese for unfair trade practices and intellectual property theft. That’s like cutting off your own hand for stealing. It might work, but it’s expensive, painful and unnecessary.

The Biden–Harris administration has kept all of them in place and, in May, increased rates on $18 billion of goods, including electric vehicles, solar panels, medical equipment, lithium-ion batteries, steel, and aluminum.

Translation: The Biden-Harris administration increased the cost of electric vehicles, solar panels, medical equipment, lithium-ion batteries, steel, and aluminum so as to help American industry, the consumer, and the economy. If that makes sense to you, you should be a government economist.

Both administrations have used tariffs to level the playing field for domestic manufacturers as China unloads its excess production in the U.S. market at cheap prices.

Heaven forbid U.S. consumers should enjoy cheap prices.

Without them, domestic industries will keep losing market share and cutting jobs.

Unless the government helps those industries survive by providing them with tax benefits and/or direct subsidies.

An August poll by the CATO Institute, a Washington-based think tank, found that a majority of Republicans and Democrats support tariffs levied by their party but not the opposing party.

The Republicans support tariffs by Republicans and not by Democrats. The Democrats support the reverse. Thus, tariffs are a nonsensical game of tit-for-tat, with the U.S. consumer paying both the tit and the tat.

Former President Donald Trump has repeatedly said on the campaign trail that he would raise China tariffs to 60 percent and apply at least 10 percent tariffs to goods imported from other countries.

“We have to take care of our own nation and her industries first,” he said, while alluding to tariff rates “higher than people had heard in the past.”

The Republicans raise tariffs because taxes on goods proportionately affect the rich much less than those who are not rich. As a percentage of their income and wealth, the rich spend less on tariffed goods. Thus, tariffs widen the income/wealth/power Gap between the rich and the rest, which is exactly what the right-wing Republicans want. Sadly, most of the MAGA crowd, though not rich, doesn’t understand what their hero wants to do to them just for his personal revenge.

Vice President Kamala Harris’s position on tariffs is less clear, but they’ll be retained if she keeps the current administration’s policies. The administration will announce its final tariff determinations, initially scheduled for the end of August, in the coming days.

As for Harris, she’ll just do what she thinks the public, in its economic ignorance, wants. The public believes that Chinese companies will pay for tariffs, and “being tough on China” is required for election.

Tariffs are a “key piece of the solution,” if used in conjunction with other trade and industrial policies, to allow for domestic investments in critical industries, according to Nick Iacovella, a senior vice president at the Coalition for a Prosperous America, an advocacy organization exclusively representing manufacturers that have productions in the United States.

Iacovella is also political. Voters would not like to see “rich” manufacturers receive tax benefits or federal aid, but nobody will object to tariffs supposedly paid by the Chinese. As always, ignorance has a cost, and the U.S. consumers will pay it.

Who Bears the Cost of Tariffs? When the Trump administration imposed tariffs on Chinese goods in 2018, they were unpopular among many economists. Conventional free trade theory considers tariffs a market distortion that reduces competition and market efficiency and slows economic growth.

In this view, tariffs also raise retail prices to varying degrees, effectively reducing consumers’ net income.

Trust the economists to focus on “market distortion” and “reduced competition, market efficiency, and economic growth,” none of which the typical voter understands. The big, obvious problem is that tariffs are meant to raise prices, which the consumer pays.

Erica York, senior economist with the Tax Foundation, a tax policy watchdog, told The Epoch Times that the potential of multiple groups—exporters, importers, and retail consumers—sharing the burden of tariffs “doesn’t change that tariffs are a policy overall that reduces incomes and output.”

Who cares so long as one can appear to be “tough on China”?

Her analysis estimates the Trump–Biden tariffs will reduce long-run gross domestic product by 0.2 percent and employment by 142,000 full-time equivalent jobs.

Not to mention the inflationary aspects in addition to the recessionary.

Coalition for a Prosperous America, which advocates for tariffs on Chinese goods, says that the net impact of tariffs is more complicated than many analyses can assume.

Instead, the organization examined the singular case of washing machines, which had tariffs imposed from 2018 through to February 2023.

The trade organization concluded that the washing machine tariffs created more than 2,000 new jobs at Korean-owned companies that opened U.S. factories.

The study also noted that after a 12 percent retail price increase during the initial six months, the price came down to the pre-tariff level after another 14 months.

Isn’t that wonderful? The tariffs shifted profits from China to Korea while increasing prices paid by America’s consumers, and (maybe) created only 2,000 jobs — a real “success” story.

Paula Mints, the chief analyst of SPV Market Research, a research firm specializing in the solar industry, said tariffs impact different sectors differently.

U.S. manufacturing would not exist without China tariffs in her industry, she said, where China controls more than 90 percent of the global supply chain. The Trump administration imposed a 25 percent tariff on solar cells, and President Joe Biden doubled it, effective Aug. 1.

“We are starting to have a domestic industry. We are just starting to have it. It’s because of the tariffs, manufacturing incentives, and domestic content incentives attached to the demand side,” Mints told The Epoch Times.

She said the tariffs now work with the accompanying incentives for manufacturers to locate in the United States. “The Biden administration has used them to level the playing field.”

All those results could have been obtained with “manufacturing incentives, and domestic content incentives attached to the demand side” while putting money into U.S. economic growth and the pockets of American consumers.

William Lee, chief economist at the Milken Institute, an economic think tank based in California, calls himself “one of the few economists who actually considers tariffs as not so bad.”

He said the real-world market, which is different from an ideal world where free trade is the best solution, has distortions, such as government subsidies. Therefore, if used correctly, tariffs can be another distortion that makes things right.

Tariffs come at a cost because they raise the prices for U.S. importers and consumers, Lee said.

However, “the strategic need dominates the costs,” he told The Epoch Times. “The strategic need to have diversified industries in certain sectors, such as high-tech industries, became so important after COVID.”

Again, all of that could be accomplished without the American consumer paying the bill. Just use the abovementioned “manufacturing incentives and domestic content incentives. Reward the U.S. consumer with incentives; don’t punish the consumer with taxes.

Mints thinks the Trump administration viewed tariffs in a “retaliatory and aggressive way,” which would be carried into a second term. She believes the Trump administration didn’t think tariffs affected consumers, while the Biden administration says it raises the cost for buyers.

It’s the usual Trump way: Punish the middle and the poor to reward the rich.

Iacovella believes a second Trump administration would “go further on tariffs and industrial policy than a Harris administration” because Trump “has a greater understanding of the China threat.”

There’s that “be tough on China by punishing the U.S. consumer” idea, again.

He is delighted to see the conversation about tariffs shifting from whether they are necessary to how they can be best implemented.

“I think it’s very important that everyone recognizes that regardless of who becomes president, it will be a pro-tariff administration.”

They don’t even want to discuss whether taxing American consumers is necessary. The only question is how big a tax consumers should pay before they catch on to the rich’s money grab. Yes, there is a penalty for ignorance, and American consumers are paying for it. Both parties will make sure the poor and middle classes keep paying. The GOP will just make them pay more. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell; https://www.academia.edu/

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY