A Libertarian tells “the truth” about federal debt.

What follows is an article by a Libertarian, interspersed with a few whiffs of reality.

The national debt is over $34 trillion. It’s time to tell the truth about the U.S. government’s finances Story by Libertarian Alvaro Vargas Llosa

Yes, Mr. Vargas Llosa, it is time to tell the truth about government finances. Some might say, “Well, past time. Sadly, your article does not do it. The purpose of government financing is not to give the government more money. Because the U.S. federal government is Monetarily Sovereign, it already has infinite money.

Former Federal Reserve Chairman Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. 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.”

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. It’s not tax money… We simply use the computer to mark up the size of the account.“

The purpose of the federal government — any government, in fact — is to improve the lives of the people. One measure of the improvement is Gross Domestic Product, the total amount of spending in an economy. Here is what federal deficit spending has done to Gross Domestic Product.

As deficit spending increasingly adds dollars to the economy, the economy grows.

While the self-proclaimed “truth-tellers” complain about federal deficits and debt (red), America’s Gross Domestic Product (blue) has risen enormously. “Ah,” they say, “but all that “money printing” has caused inflation, so Americans really are poorer now.” I call the “truth-tellers” attention to the following graph.

Real (inflation-adjusted) GDP **per person** has risen enormously for the past 90 years.

That graph shows that the average American is wealthier today than at any time in history. Federal deficit spending enriches Americans. But—and it’s a big “but”— averages don’t tell the full story because of the income/wealth/power Gap, You can read more about that at the link.

If anyone living in the United States in the decades immediately after the Second World War had predicted the self-inflicted financial mess the U.S. government now finds itself in, nobody would have taken that person seriously.

A normal human would say that a “financial mess” is a situation in which a person has difficulty paying his/her financial obligations. But as Messrs. Greenspan and Bernanke explain, the Monetarily Sovereign U.S. government has no such difficulty. It pays all its financial obligations simply by creating more dollars. So what does Mr. Vargas Llosa mean by “financial mess“? Nowhere in his article does he explain. Typical for “debt- truth tellers” who use frightening words to deceive.

For most of American history, until the mid-1970s, annual federal spending and revenue were roughly in balance—the exceptions being in wartime.

Contrast that with the federal deficit in fiscal year 2023, which topped $1.7 trillion, an amount larger than Mexico’s total economy (the 12th largest in the world).

It exceeded $1 trillion again in the first eight months of the current fiscal year and, according to the Congressional Budget Office’s latest forecast, released on June 18, will approach $2 trillion by the end of fiscal 2024.

Translation: In 2023, the federal government pumped 1.7 trillion growth dollars into the economy. In the first eight months of the current fiscal year, it pumped another 1 trillion growth dollars into the economy and expects to pump 2 trillion growth dollars into the economy by the end of fiscal 2024. These are dollars that go into the pockets of Americans at no cost to anyone — not to you, not to your friends and family, not to your neighbors. Why? Because federal taxes don’t fund federal spending. Even if federal tax collections totaled $0, the federal government could continue spending forever. The Monetarily Sovereign U.S. federal government neither needs nor uses income. (It is different for state and local governments, businesses, and euro governments, all of which are monetarily non-sovereign, and they do need and use income to fund spending.) The U.S. federal government destroys all the income it receives. Paying creditors is the primary process by which the federal government creates dollars. To pay a creditor, the federal government first creates instructions (checks, wires, etc.) instructing the creditor’s bank to increase the balance in the creditor’s checking account. The instant the creditor’s bank obeys those instructions, new dollars are added to the creditor’s checking account and to the M2 money supply measure. Those dollars are not deducted from the M2 money supply. The bank clears those instructions through the Federal Reserve. Thus the federal government approves its own instructions, which is why it never can run short of dollars. By contrast, when a local government sends instructions, M2 dollars are deducted from the local government’s checking account in a bank and added to a creditor’s bank account. No net dollars are created. They merely are transferred. Not understanding the differences between Monetary Sovereignty and monetary non-sovereignty marks one as ignorant about economics.

This has fueled a massive increase in the federal debt, which now totals $34 trillion, about $6 trillion more than America’s gross domestic product (GDP), the value of all the goods and services produced by America’s 330 million residents in a year.

If we count Social Security and Medicare liabilities, total debt is several times larger than GDP.

The debt/GDP ratio is meaningless. Those who quote it hope to scare you with irrelevant numbers. Federal debt is not a burden on the government or on taxpayers. It is nothing like private sector debt. Neither you nor anyone else pays for the federal debt—never has, never will. The so-called “debt” is nothing more than dollars deposited into T-security accounts. The contents of these accounts are wholly owned by the depositors and never used by the federal government. The purpose of T-accounts is not to provide spending money to the government. The purpose is to stabilize the dollar by:

Providing a storage place for unused dollars that is safer than any private bank account.
To help the Fed control interest rates by providing a “floor” rate.

Upon request by the owners, the dollars in T- accounts are transferred back to their owners. This is not a financial burden on the federal government, and no tax dollars are involved.

The consequences are sobering. Politicians like to use euphemisms to describe what they’re doing. Government spending, in the current vernacular, is referred to as “investment.”

Government spending, however, crowds out investment, which explains why private investment, the equivalent of 4.8% of GDP, is 30% lower than in 2000.

Government spending is more properly termed “investments,” not “debt. The economy doesn’t care where he investments come from. In fact, federal spending creates new growth dollars, while private investment only moves existing dollars. The “truth tellers” prefer the government to reduce its spending under the false narrative that this somehow will grow the economy. But:

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

I have yet to communicate with a debt “truth-teller” who can explain the math of how cuts to federal spending will increase GDP.

At the same time, the purchasing power of the U.S. dollar, a reflection of both the federal government’s finances and the Federal Reserve’s money printing, also is down: by more than 50% since 2000.

That’s called “inflation,” and as we have seen, the economy has enjoyed real (inflation-adjusted) growth.

As a result of this economic mismanagement, the U.S. government will pay close to $900 billion this year just in interest payments on the national debt—and, according to Congressional Budget Office (CBO) projections, which assume an idyllic scenario of no major wars, no recessions, and no financial crises, debt service will steadily increase to some $5.3 trillion by 2054.

Translation: This year, at no cost to anyone, the government will pump 900 billion growth dollars into the economy in interest payments alone. In 2054, the government will pump 5.3 trillion growth dollars into the economy — also at no cost to anyone. Most of those dollars will go into the pockets of the American people.

It was hard enough sustaining a debt that stood at 106% of GDP during WWII, when the country’s savings rate was 24%, but sustaining a much higher level of indebtedness with today’s 3% savings rate defies the imagination.

Oh, Mr. Vargas Llosa, I’ll bet you’re not even trying to use your imagination. The only difficulty in “sustaining” the debt came from being on a gold standard, which limited the government’s ability to create dollars. But Nixon took us off the gold standard in 1971 (Roosevelt did it for domestic us in 1933), and since then the federal government has had the infinite ability to “sustain” any level of deficit spending. It never can run short of dollars. Private savings and the debt/GDP ratio are irrelevant to the government’s ability to “sustain.” but one must assume Mr. Vargas Llosa tosses in those numbers for fear effect, not because they make any sense whatsoever.

This catastrophe has been a long time in the making. In 1993, for instance, the annual deficit amounted to 3.8% of GDP, and the debt, which seemed astronomically high at a “mere” $4.4 trillion, was Lilliputian by today’s standards.

The U.S.’s real GDP was approximately $7.1 trillion in 1993. In 2023, it increased to approximately $21.6 trillion. And this is a “catastrophe”?? One hopes we continue to have “catastrophes” like that.

The trend goes back longer than that. The growth of the U.S. government in modern times is the story of post-WWII America.

President Dwight Eisenhower seems to have been the last guy in the post-WWII era who understood that the welfare state, the warfare state, and tax cuts not backed by tough spending cuts are incompatible with fiscally responsible government, or at least with reasonably-sized government.

During Eisenhower’s term, we suffered, not one, not two, but three recessions. One, called the “Eisenhower Recession,” occurred between 1957 and 1958. We had a sharp contraction in economic activity, high unemployment, and a decline in industrial production. Is that an example of “fiscal responsibility?”

The “wonderful” Eisenhower years. **Three recessions**. When federal deficit spending declined, GDP declined into recessions,

The 1953-54 recession was caused by the reduced deficit spending for the Korean War. This is a regular pattern: Reduced deficit spending leads to a recession, which is cured by increased deficit spending. See below.

A. Economic growth = B. Federal deficit growth + C. private sector spending. Cut B and C, and A declines into recession. Simple math.

The reason for the pattern is clear. Reduced deficit spending adds fewer growth dollars to the economy, so the economy sinks into recession. Curing the recession requires increased growth dollars.

Between 1950 and 1970, total debt (including government, household, corporate, and financial) was stable at about 150% of GDP. After Nixon did away with what was left of the gold standard in 1971, it was off to the races. Since then, total debt has grown by nearly 5,600%, more than double the U.S. economic growth rate.

This is another sleight-of-hand debt/GDP comparison that is meaningless. Nothing can be learned from comparing federal debt (i.e., the net cumulative total of deposits into Treasury Security accounts) vs. GDP (the total of all government and private spending in any given year). They are akin to comparing tons of butter eaten in the past 10 years with the number of butterflies born this year. Totally meaningless. If you don’t believe me, see Debt To GDP Ratio By Country. Scroll down to the middle of the page, where you will see every nation’s Debt/GDP ratio, from the highest (Japan) to tied for the lowest (Taiwan and several others). Look at those ratios, and you will see they tell you nothing about a nation’s ability to pay its bills.

There was a time, even in the middle of the Cold War, when government leaders, despite their international responsibilities and the onerous legacy of the New Deal and Great Society that nobody dared reverse, understood the need for fiscal discipline and containing the growth of government.

And there it is: The Libertarian belief in an “onerous legacy” of programs designed to aid middle and lower-income groups. That is the “onerous legacy” that gave us Social Security, Medicare, the War on Poverty, the Office of Economic Opportunity and the Economic Opportunity Act, a Job Corps for disadvantaged individuals, established work-study programs and community action initiatives, provided health insurance for elderly Americans, improving access to medical care, legislation addressing environmental concerns and conservation efforts, supported education, and Civil Rights Laws, focused on reducing racial injustice and promoting equality. Is it any wonder that a right-wing Libertarian should consider those “onerous?” After all, they cost dollars the government creates at the touch of a computer key, and much to Libertarian dismay, narrow the Gap between the rich and the rest.

The 12 years under Presidents Ronald Reagan and George H. W. Bush averaged a 4% deficit due to defense spending increases, abandonment of domestic restraint—a legacy of Johnson’s “bread and butter” years and the Nixon-Ford presidencies’ about-face on most of the economic principles they previously had espoused—and the unfunded tax cuts influenced by Arthur Laffer’s notion that tax cuts would pay for themselves.

Oh, yes, cut defense spending to weaken the military at a time when we are the last hope for democracy. And eliminate the “bread and butter” for the poor and disadvantaged. Perfect. And then there were the “unfunded tax cuts,” which is an oxymoron. Taxes need to be funded by the people. No one needs to fund tax cuts. They don’t need to be paid for, and the government doesn’t need or use taxes. In fact, it destroys all tax dollars it receives.

The new millennium distorted matters even further, with the annual deficit from 2002 to 2023 averaging 5% over the two decades, 20% higher than nominal economic growth, which averaged 4.2%.

And yet again he mentions the meaningless debt/GDP ratio. It never ends for the Libertarians.

President Obama, under whom the deficit was double the Congressional Budget Office’s original projections, got the spending spree started, with Presidents Trump and Biden taking it to new levels.

And the economy grew massively.

It’s now come down to this. Unless a new generation of leaders has the courage to cut such “untouchables” as the defense, education, justice, and homeland security budgets, and privatize the Social Security program (as more than 40 countries wisely have done), sooner or later, the current trajectory of federal finances will lead to an extremely ugly place.

The above is a perfect description of the effort to widen the Gap between the rich and the rest, while weakening our economy and our national defense.

If you think things are bad now, just wait.

If we ever elect a right-wing, Libertarian fool to be President, along with our current, right-wing SCOTUS, and right-wing governors, things can get much worse. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell

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

MONETARY SOVEREIGNTY

Religions, cults and the caste system come together in Gap Psychology

Gap Psychology dictates that to achieve superiority, one must claim inferiors and then distance oneself from those claimed inferiors. The greater the distance—i.e., the wider the “Gap,” the greater our superiority.

“Rich” and “poor” are comparatives, not absolutes. For one to be rich, someone else must be poor, or at least poorer.

A person with $100,000 is rich if everyone else has only $100, but he/she is “middle” if everyone else has $100,000. And he is poor if everyone else has $1,000,000.

Getting richer is not simply a matter of increasing one’s ownership of money. If a middle-income person has $100,000 and doubles that to $200,000, he still is “middle” if everyone else rises to $200,000.

Getting richer requires widening the Gap below and narrowing the Gap above. It is the Gap that measures wealth, not the wealth itself.

Gap Psychology describes the desire to widen the Gap below and to narrow the Gap above.

Gap Psychology enters into virtually all aspects of human existence, not only money or wealth. A person with an IQ of 130 is smart unless everyone else has an IQ of 170.

A 21-year-old man who can do 50 chin-ups is strong unless everyone else can do 150. A child who can read at age 4 is considered smart unless every other child can read at age 3. If you can run 100 meters in 9.5 seconds, you are blazingly fast unless you are a cheetah, which means you would be laughingly slow.

Self-improvement does not require improving yourself so long as you can widen the Gap below and narrow the Gap above.

You can be strong and do just two chin-ups if you hang a 300 lb. weight from everyone else’s ankles.

If you force everyone else to wear blindfolds, you can learn to read at age 8 and be considered smart. And if you tie everyone else’s legs together, you can be fast, running 100 meters in 20 seconds. Figuratively, that is how the rich treat the rest of us to widen the Gap. They falsely claim that the federal government “can’t afford” to provide benefits to the middle and lower classes while accepting tax benefits for themselves.

Gap Psychology even enters into the abortion controversy. The rich can easily obtain abortions and other medical procedures. It is the poor who must suffer from a lack of care. That is a Gap the rich wish to widen.

Gap Psychology leads to bigotry, classes, and the caste system. Here is an excellent summary:

Caste by Isabel Wilkerson

“The Eight Pillars of Caste” Summary

The Foundations of Caste: The Origins of our Discontents For more than half of American history, slavery was the dominant social institution in the South.

Wilkerson argues that even after emancipation, legally sanctioned violence, harassment, and displacement of African Americans remained—and still remains—an existential threat.

According to Wilkerson, these behavioral scripts and socially reinforced biases have become deeply encoded in the American psyche at all levels of society, which unconsciously perpetuates the system.

Her research demonstrates that all caste systems have the eight essential characteristics (Pillars) in common.

Pillar Number One: Divine Will and the Laws of Nature
Hindu cosmology holds that the caste system is an aspect of the birth of Brahma, the supreme god, who created and populated the world out of various parts of his body in a way corresponding to the social functions dictated by the traditional order.

The Judeo-Christian tradition has a contrasting story about the creation of the world’s different races descending from the three sons of the Old Testament patriarch Noah.

The two “good” sons who are rewarded for their honor become the fathers of the Eastern and Western races, while the cursed son, Ham, and his own son Canaan are fated to be people of the South, forsaken by God.

For there to be “good,” there must be “bad.”

All caste systems, religions, and cults (similar to religions but smaller and not as mainstream) identify members as “good” and outsiders as “bad” or lesser in some way.

At the time when Spain and Portugal were beginning their global circumnavigations, the native inhabitants of Africa and India were believed by Europeans to be descendants of the biblical outcasts and thus divinely ordained to suffering and subjugation.

Pillar Number Two: Heritability In India, caste is inherited through the father’s line, whereas the United States has historically determined caste through the mother.

In Judaism, to be Jewish, one must have a Jewish mother. The father can be Jewish or gentile.

Presidents Bush, father and son

Because enslaved mothers had no legal right to their own children, Black birth became a production process for slave labor, as Black children were regarded as valuable, durable commodities.

The major distinction between caste and class, Wilkerson writes, is that caste is predetermined, unchanging, and generationally upheld, whereas class implies an attainmentof certain conditions based on merit and effort and is much more inclusive within its respective caste “container.”

Yet we have the expressions “new” and “old” money, with “old money: considered superior by those whose ancestors were wealthy.

In the United States, the exclusion of African Americans regardless of their level of social or professional success—an exclusion based on superficial, inescapable, inherited characteristics—resembles in practice the treatment of India’s “untouchable” populations.

Pillar Number Three: Endogamy and the Control of Marriage and Mating It is essential for a caste system to separate and manage bloodlines in a way that preserves the impenetrability of the dominant gene pool by subordinate-caste DNA.

This protects the Gap between white and non-white. Most American parents prefer that their children marry within their religion and color.

To achieve this, miscegenation laws are passed that restrict marriage and reproduction along caste lines, a policy known as endogamy—and something Hitler admired about the American model.

The objective of this kind of social engineering is to achieve racial purity among the dominant caste, but it also concentrates resources, value, and empathy among the various levels of the dominant caste that are systematically denied to non-white subordinates.

America’s racial boundaries had been set from its earliest days, and coupled with the nation’s historic exclusion of non-European immigrants, endogamy laws effectively created a process of selective breeding that reinforced caste divisions while reserving for white men the ownership of Black reproduction.

Pillar Number Four: Purity Versus Pollution
The United States has its own unique system of gradations on a scale of racial purity that defines itself in opposition to an obsession with contamination by genetic material from a perceived inferior bloodline.

Not only was there the so-called “one-drop rule” that defined Blackness and which the Nazis found so extreme, but there was also an elaborate status-defining class subsystem within the subordinate caste based on skin tone and proportion of African ancestry.

Systems like the examples Wilkerson uses all share a rabid aversion to the idea of public spaces and utilities, particularly water and swimming pools, being similarly contaminated not by blood but by mere exposure to the skin, breath, sweat, or even shadow of the subordinate caste.

Hitler and Trump have spoken of those who “poison the blood” of the nation. Hitler primarily (though not exclusively) was talking about Jews.

Trump was talking about non-white immigrants.

Pillar Number Five: Occupational Hierarchy: The Jatis and the Mudsill Wilkerson returns to the architectural metaphor she introduced in chapter 2 to describe the house’s most important structural element, where the framing meets the foundation, known as a mudsill.

In the segregationist political tradition, the enslaved caste of African American servants and laborers constituted an analogous base to the American social order.

The lowly work they performed for lack of choice was seen as the limit of their capabilities and their purpose for existence, a permanent servile class upon which the American economy was built.

This is part of the belief that the poor are lazy, stupid, and cannot be trusted. It provides an excuse for widening the employment Gap.

It also alludes to benefits given to the poor, i.e., “Who is going to pick up the garbage if we give them money?”

One major difference between the subordinate Americans and Indian Dalit is that while the Indian system has many subdivisions, known as jatis, within each group that determined one’s work, the African American subordinate class has been limited in professional options with few chances to break out except as performers or athletes.

Until recently, even these luminaries were expected to reinforce popular racist stereotypes if they were to be accepted by the dominant culture.

Pillar Number Six: Dehumanization and Stigma In order to justify the extreme and often violent measures taken to maintain the oppressive status quo, dominant-caste authority invariably engages in a process of dehumanizing subordinate groups.

By denying subordinates equal regard for their virtue, dignity, and suffering, the dominant caste can so diminish subordinates’ humanity as to make them appear mere beasts of burden, pestilent scourges, or puppets on a string, insensitive to pain and humiliation.

The subordinate group thus becomes marked with pariah status, and their punishment is seen as just and moral, commensurate with the perceived bestiality and inhumanity that relegates them to ghettoization and marginalization.

This dehumanizing mindset is inculcated in generations of dominant-caste children who are raised believing in their superiority and entitlement, which desensitizes them to the victimization of others, even in brutal extremes.

Pillar Number Seven: Terror as Enforcement, Cruelty as a Means for Control Wilkerson describes the means necessary for the sustained oppression of an outcast group, which requires only that the members of the dominant class do nothing and remain silent, maintaining a complicity in which the order will thrive.

The image of the dreaded slaver’s whip encapsulates the violence and intimidation deemed necessary to hold the subordinates in their “container,” and the public complicity that allows the brutal enforcement of the order is the result of the racist attitudes bred into the dominant caste since childhood.

The savage business of terror seems like a part of normal life when it is tolerated by the majority of people.

Trump says he will deport a million undocumented immigrants. Imagine the terror these men, women, and children will feel waiting for their lives to be ripped apart when his brown shirts come banging on the door.

1. Ipsos Poll (2013): 30% think most illegal immigrants (with some exceptions) should be deported. 23% believe all illegal immigrants should be deported. Only 5% believe all illegal immigrants should stay legally, and 31% want most illegal immigrants to stay.

2. Pew Research Center (2021): 25% of adults say undocumented immigrants should not be allowed to stay legally, advocating for national law enforcement efforts to deport them.

3. Harris Poll (2024): Half of all Americans favor mass deportation of people who are illegally in the U.S.

Pillar Number Eight: Inherent Superiority Versus Inherent Inferiority
Wilkerson uses old Hollywood as an example of a cultural force that helped perpetuate popular stereotypes about African Americans’ inferiority and contributed to the same majority mindset that tolerated Jim Crow cruelty and injustice.

In the South, law and custom dictated at all levels of interaction between white and Black citizens that white people enjoy unquestioned superiority, while Black people were expected to treat the dominant caste with false deference and submission.

The consequence for African Americans is that these constant reminders from almost every aspect of American culture reinforce the generational effect of believing oneself inferior, resulting in defeatism and despair.

The eight pillars can be found not only in castes but in religions and cults.

Divine Will and the Laws of Nature
Heritability
Endogamy and the Control of Marriage and Mating
Purity Versus Pollution
Occupational Hierarchy: The Jatis and the Mudsill
Dehumanization and Stigma
Terror as Enforcement
Cruelty as a Means for Control, and Inherent Superiority Versus Inherent Inferiority

Look back at #1 through #8 and visualize religions and cults in America. They all implement some forms of the pollars, and all are related to Gap Psychology.

Gap Psychology is expressed secretly and overtly in various ways: Fear, hatred, disgust, avoidance, fanaticism, and the desire to inflict pain.

We each belong to groups that we view as extensions of ourselves. We find ways to view our groups as superior to others, which helps us feel superior.

These groups range from families to sports teams, cities, states, countries, political parties, tribes, social groups, religions, and cults.

What's the best and the worst thing about being a Bears fan? - Windy City Gridiron — Why is this so important to them? Gap Psychology

If our group “wins,” however that is defined, we win. And, if other groups “lose,” we win.

Personal note: In my younger days, I was a Chicago Bears football fan. I was nervous watching their games because winning meant so much. Finally, in 1985, they won a Super Bowl.

Crowds of screaming Bear fans clogged downtown Chicago. Logically, I had gained nothing, but I felt I had won. Gap Psychology is not based on logic.

When Donald Trump claims, against all evidence, that he won, MAGAs believe.

They disbelieve the 64 lawsuits he lost, the women who claim he attacked them, the criminality of Trump U. and the Trump Foundation, the many convicted criminals he surrounds himself with, and a trial’s 30+ criminal convictions.

To them, the evidence against Trump proves that someone else has committed crimes. (His attempts to overturn the election constitute the proof the election was stolen.)

That is an outcome of Gap Psychology. When Trump is compared to God, a huge branch of Christianity believes, because when your leader is Godlike, the superiority Gap between you and the non-believers widens.

Gap Psychology is not logical, but it is the single, most important factor ruling our lives. Centuries from now, if we encounter another intelligent species, we will wish to dominate them or fear they will dominate us.

That is Gap Psychology.

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

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

MONETARY SOVEREIGNTY

Translation of what you were told last year

Here is an article from last year, expressing the common sentiment. I’ve translated it for you so you can evaluate that common sentiment.

The US is paying a record amount of interest on its debt. It’s only going to get worse By Tami Luhby, CNN, Tue February 14, 2023

Translation: The US is pumping a record amount of growth dollars into the economy. It’s only going to get better.

Powell urges Congress to solve growing US debt ‘sooner, rather than later’

Translation: Powell urges Congress to blame federal “debt” for the inflation, so he doesn’t get blamed. We’ve had massive “debt” (See: The “National Debt” isn’t national, and it isn’t a debt) in the past without inflation. Powell doesn’t tell you that because he is a member of the “Federal Debt is a Ticking Time Bomb” culture.

Like many Americans, the federal government is shelling out a lot more money to cover interest payments on its debt after a series of Federal Reserve rate hikes over the past year.

Translation: The federal government is nothing “like many Americans.” The federal government is Monetarily Sovereign, while the American people are monetarily non-sovereign. But we want you to believe the government is just like you.

The Treasury Department paid a record $213 billion in interest payments on the national debt in the last quarter of 2022, up $63 billion from the same period a year earlier.

Translation: The Treasury Department pumped a record $213 billion growth dollars worth of interest payments in the last quarter of 2022. That is $64 billion added to Gross Domestic Product (GDP)from the same period a year earlier.

The fourth-quarter tab was also nearly $30 billion more than in the prior quarter, which is the largest quarterly increase on record, said Jerry Dwyer, an economics professor emeritus at Clemson University.

Translation: The fourth-quarter addition to GDP was nearly $30 billion more than in the prior quarter, the largest stimulus to the economy on record.

Borrowing costs are expected to become an increasingly heavy burden in coming years. The Congressional Budget Office is set to provide its latest estimate on Wednesday.

The surge is due mainly to the Federal Reserve raising interest rates by 4.25% between March and December. The central bank increased the rate another quarter point in February.

Translation: The Federal Reserve is raising interest rates by 4.25%, which will increase the price of everything, in its effort to combat increased prices. Think about that.

Until recently, it cost the federal government very little to issue debt to finance its operations.

Translation: Until recently, it cost the federal government very little to create the dollars to finance its operations. Just the press of a few computer keys.

“It was almost free money,” Dwyer said. “You could borrow a trillion dollars, and if you financed it with Treasury bills, you paid almost no interest.”

Translation (courtesy of former Fed 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.” Translation (courtesy of former Fed Chairman Alan Greenspan): “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.” So, why would the government borrow dollars? It doesn’t.

“But interest rates weren’t going to stay there forever.”

Translation: The Fed raises rates, which increases all prices, i.e., causes inflation, to fight inflation. It’s like a doctor bleeding a patient to cure anemia.

The national debt is once again in the spotlight now that the US has hit its $31.4 trillion debt ceiling, forcing Congress to take action or risk a catastrophic default.

Translation: The US has hit its $31.4 debt ceiling, which actually isn’t a “debt” ceiling. Everything has already been paid for, and nothing is owed. There is no debt. The dollars exist in T-security accounts. To pay off those accounts, the government merely returns the existing dollars. Congress created the fake “debt” ceiling to make itself look prudent to an ill-informed electorate.

Decreases in federal deficits (red) cause recessions (vertical gray bars), which are cured by increases in federal deficits.

Those who call for a decrease in deficit spending ignore the fact that economic growth relies on the federal government continuing to pump money into the economy.

The Treasury Department is taking extraordinary measures to allow the government to continue paying its bills in full and on time, which it expects to last at least until early June.

Translation (Courtesy of Alan Greenspan): “The United States can pay any debt it has because we can always print the money to do that.” so the “extraordinary measures” are a bunch of hokum. And so is the fake “debt ceiling.”

The spike in interest payments also contributed to the federal government hitting the debt ceiling that much faster.

And it adds to the pressure on Congress to raise taxes, cut spending or allow the government to borrow more to meet all its obligations.

Translation: The spike in interest payments added growth dollars to GDP much faster. This adds unnecessary pressure on Congress to take dollars out of the economy, thereby causing a recession.

Even if the Federal Reserve slows or stops raising rates this year, as many economists expect, the nation’s borrowing costs will continue to increase.

That’s because as the existing debt matures, the government issues new debt with the higher prevailing interest rates.

Translation: As existing Treasury Securities mature, the government will increase the amount of growth dollars it pumps into the economy.

The higher rates could increase the net interest cost on the national debt to about $9 trillion over the next decade, according to estimates by the Peter G. Peterson Foundation, a nonpartisan organization that seeks to raise awareness of America’s long-term fiscal challenges.

Translation: The higher rates could increase the amount of growth dollars pumped into GDP to about $9 trillion, according to the Peter B. Peterson Foundation, a right-wing organization that, on behalf of the rich, seeks to spread disinformation about America’s finances.

That’s up from the record $8.1 trillion that the CBO projected in May 2022 and the $5.4 trillion it projected in July 2021.

Translation: That’s up from a record $8.1 trillion growth dollars the CBO projected in May 2022, and the $5.4 growth dollars it tried to scare you about in July 2021.

By 2032, interest costs will triple to more than $3 billion per day and to at least $9,400 per household, on average, according to the foundation.

Translation: (Courtesy of Ben Bernanke) “It’s not tax money… We simply use the computer to mark up the size of the account.” By 2032, growth dollars will triple to more than $3 billion per day, and not costing any household a single penny. The federal government creates ad hoc every dollar it spends by pressing computer keys. No tax dollars are used.

They are on track to become the largest federal budget item, surpassing Social Security and Medicare by the middle of the century.

Translation: The government justifies paying too little to Social Security and Medicare by pretending it is short of money when, in fact, it has infinite money.

“Having rapidly growing interest makes it much more difficult for government to fund all the things that are important to our society,” said Michael Peterson, the foundation’s CEO.

Translation: To keep you from asking for benefits, we pretend that “Having rapidly growing interest makes it much more difficult for the government to fund all the things that are important to our society.” Why do we do that? Because the rich tell us to widen the income/wealth/power Gap between them and you. The wider the Gap, the richer they are. So, they bribe the main information sources to tell you the government can afford tax loopholes for the rich, but not Social Security and Medicare increases for the rest of you. Economists are bribed with university grants and promises of lucrative employment later. The media are bribed with advertising dollars and ownership. Politicians are bribed with political contributions and lucrative jobs in “think tanks.” All are bribed to tell you that increasing your benefits is unaffordable. SUMMARY The rich get richer when the income/wealth/Gap widens. So they promulgate the lie that your taxes pay for benefits, and your federal deficits are unsustainable. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell

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

MONETARY SOVEREIGNTY

The easy we make difficult, but it takes a long time.

The U.S. military has a motto: The difficult we do immediately. The impossible takes a little longer.

I suggest a motto for the science of economics: “The easy we make impossible, but it takes forever.”

I say that because of my 25 years critiquing economics articles, and most recently because of an article titled, “Do Budget Deficits Cause Inflation?”

The answer to the question is, “No, not for Monetarily Sovereign nations,” and the article comes to that “No” conclusion. Except:

It never differentiates between Monetarily Sovereign governments (which create and control the value and supply of the money they use) and monetarily non-sovereign governments (cities, counties, states, euro nations, nations that use another nation’s currency, and nations that peg their currency to another nation’s currency}.
It never mentions shortages of critical goods and services, most commonly oil, food, and labor, which are the real causes of inflation.
It complexifies a straightforward solution: To cure a problem, eliminate the cause of the problem. In the case of inflation, the cause is shortages. To cure inflations, eliminate the shortages.

Here are some examples from “Do Budget Deficits Cause Inflation?”, by Keith Sill.

In 2004, the federal budget deficit stood at $412 billion and reached 4.5 percent of gross domestic product (GDP).

Though not at a record level, the deficit as a fraction of GDP is now the largest since the early 1980s.

Moreover, the recent swing from surplus to deficit is the largest since the end of World War II.

Comment: The deficit as a fraction of GDP is irrelevant to inflation. Federal deficits are beneficial because they add GDP growth dollars to the economy.

Federal surpluses take dollars from the economy, causing depressions and recessions. Mr. Sill could have answered the title question with two simple graphs:

There is no relationship between federal deficit spending (blue line) and inflation.

There is a strong relationship between the oil supply (red line) and inflation.

Inflation is caused by shortages of critical goods and services, most often oil, food, and labor.

The flip side of deficit spending is that the amount of government debt outstanding rises: The government must borrow to finance the excess of its spending over its receipts.

Comment: The federal government, being Monetarily Sovereign, never borrows. Why would it? It has the infinite ability to create its sovereign currency, the U.S. dollar, at virtually no cost (aka, “seigniorage”).

Further, unlike state/local government taxes, which fund state/local spending, federal taxes do not fund federal spending.

Federal taxes are destroyed upon receipt, while state and local tax dollars remain in the economy’s private banks. To finance all its spending, the federal government creates new dollars ad hoc.

It does this regardless of taxes collected. Even if federal tax collection totaled $0, the government could continue spending forever.

For the U.S. economy, the amount of federal debt held by the public as a fraction of GDP has been rising since the early 1970s. It now stands at a little over 37 percent of GDP.

The debt/GDP fraction is meaningless. It has no predictive or analytical power and does not tell anything about an economy’s health.

Do government budget deficits lead to higher inflation? When looking at data across countries, the answer is: it depends. Some countries with high inflation also have large government budget deficits. This suggests a link between budget deficits and inflation.

Yet for developed countries, such as the U.S., which tend to have relatively low inflation, there is little evidence of a tie between deficit spending and inflation.

Mr. Sill falsely equates “developed” with Monetary Sovereignty. However, there are “developed” nations – for example, Italy, France, Greece, etc. that are monetarily non-sovereign. They use the euro.

Why are budget deficits are associated with high inflation in some countries but not in others? Government deficit spending is linked to the quantity of money circulating in the economy through the budget restraint, i.e. the relationship between resources and spending.

Money spent has to come from somewhere: In the case of local and national governments, from taxes or borrowing.

But, national governments can also use monetary policy to help finance the government’s deficits.

I believe that Mr. Sill’s use of “resources” means the amount of money a government can spend, which it gets from taxes or borrowing.

Since he doesn’t differentiate among Monetarily Sovereign, monetarily non-sovereign, and “nationally,” his comments are either partially or totally wrong. First, a reminder about the differences between monetary policy and fiscal policy:

Monetary policy involves changing the interest rate and influencing the money supply.
Fiscal policy involves the government changing tax rates and spending levels to influence aggregate economic demand. (“Aggregate demand” is Gross Domestic Product at a specific time.)

Here are the sources of confusion:

1. Raising interest rates causes prices to rise. The cost of every product includes the cost of interest. Amazingly, this is the Fed’s tool to combat inflation. The Fed’s theory seems to be that raising prices will reduce demand, causing a recession that supposedly will cure inflation.

In short, the Fed causes inflation to cure inflation while claiming to hope a recession doesn’t occur but secretly relies on recession to cure inflation. (Clear?)

Of course, a result can also be stagflation, a combination of recession and inflation, at which point Fed Chairman Jerome Powell, having no solutions, will hide in his closet and pray. (The cure for stagflation is federal deficit spending to obtain and distribute the scarce products while adding growth dollars to the economy.)

2. As the issuer of its money, only a Monetarily Sovereign government can change interest rates by fiat. It sets the lowest rate on its Treasury Securities.

Because a monetarily non-sovereign government is not an issuer of money, it cannot unilaterally change interest rates. It must rely on markets or the issuer of its money.

For example, Italy cannot arbitrarily raise interest rates on euro-based loans. It uses the euro but is not the issuer.

3. Monetarily Sovereign governments don’t borrow their own currency. The above-mentioned Italy, being monetarily non-sovereign, borrows euros.

In short, Sill, an economist at the Fed (!), is confused about what different kinds of governments can do. Next, he confuses households with our Monetarily Sovereign government:

Budget constraints are a fact of life we all face. We’re told we can’t spend more than we have or more than we can borrow.

The U.S. government “has” infinite dollars, so it does not borrow dollars. Those federal T-securities are not a form of borrowing, which is what a monetarily non-sovereign government does when it needs money.

Rather than providing the U.S. government with dollars, T-securities:

Provide a safe parking place for unused dollars — safer than any other storage place (i.e., bank accounts, safe deposit boxes, etc.) The government never touches those dollars. They remain the property of the depositors.
Assist the Fed in controlling interest rates by setting a floor rate.

In that sense, budget constraints always hold: They reflect the fact that when we make decisions, we must recognize we have limited resources.

See the confusion? “We” and the Italian government have limited resources (money), but the U.S. government does not. It has unlimited money. Next, Mr. Sill expressly shows us his confusion between federal finance and personal finance:

Imagine a household that gets income from working and from past investments in financial assets. The household can also borrow, perhaps by using a credit card or getting a home-equity loan.

The household can then spend the funds obtained from these sources to buy goods and services, such as food, clothing, and haircuts.

It can also use the funds to pay back some of its past borrowing and to invest in financial assets such as stocks and bonds.

The household’s budget constraint says that the sum of its income from working, from financial assets, and from what it borrows must equal its spending plus debt repayment plus new investment in financial assets.

Not one word of the above applies to the U.S. government.

The government does not borrow or use dollars obtained from any source. It creates ad hoc all the funds it spends. Any income the federal government receives is destroyed upon receipt. (See: “Does the U.S. government really destroy your tax dollars?“)

The only federal budget constraint is not a budget constraint at all. Federal agencies routinely exceed budgets. The restraint is whatever Congress and the President say it is at any given moment.

Congress and the President have the unlimited ability to create dollars and stimulate the economy, plus a strong, though not unlimited, ability to obtain and distribute the scarcities causing inflation.

Mr. Sill continues with an explanation that is irrelevant to federal financing.

The household’s sources of funds and spending are all accounted for, and the two must be equal. The household may use borrowing to spend more than it earns, but that funding source is accounted for in the budget constraint.

If the household has hit its borrowing limit, fully drawn down its assets, and spent its work wages, it has nowhere else to turn for funds and would, therefore, be unable to finance additional spending.

I have no idea what Mr. Sills hoped to accomplish by giving household finances as his explanation for federal finances. The two are fundamentally opposite.

Here, Mr. Sills makes sure to show you that he doesn’t understand the difference between the federal government’s Monetary Sovereignty and your household’s monetary non-sovereignty:

Just like households, governments, face constraints that relate spending to sources of funds.

Governments can raise revenue by taxing their citizens, and they can borrow by issuing bonds to citizens and foreigners. In addition, governments may receive revenue from their central banks when new currency is issued.

Governments spend their resources on such things as goods and services, transfer payments such as Social Security to its citizens, and repayment of existing debt.

Central banks are a potential source of financing for government spending, since the revenue the government gets from the central bank can be used to finance spending in lieu of imposing taxes or issuing new bonds.

No, the U.S. government is not “just like households. It does not raise revenue by taxing you. It doesn’t borrow from the central bank. It doesn’t have an existing debt to repay.

And it finances its spending not with taxes or bonds but by creating new money ad hoc. Who says so, Mr. Sill? Your former bosses:

Former Fed Chairman Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. 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.”

Former Fed 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. It’s not tax money… We simply use the computer to mark up the size of the account.”

Mr. Sill’s article continues for many more paragraphs, so I will just quote one more thought:

There may be limits on the government’s ability to borrow or raise taxes. Obviously, if there were no such limits, there would be no constraint on how much the government could spend at any point in time.

Congress and the president are the only constraints on federal spending. Unlike your checking account, There are no financial constraints. That is why net spending (spending vs. taxing) has risen to $32 trillion.

Certainly governments are limited in their ability to tax citizens. (That is, the government can’t tax more than 100 percent of income.) But are governments constrained in their ability to borrow?

Monetarily non-sovereign governments are constrained by their full faith and credit, i.e., their credit rating. Monetarily Sovereign governments have no need to borrow, so there is no constraint.

Indeed they are. Informally, the value of government debt outstanding today cannot be more than the value of the government’s resources to pay off the debt.

The U.S. government has the infinite ability to pay for anything. Just ask Fed Chairmen Greenspan and Bernanke.

How do governments pay their current debt obligations? One way is for the government to collect more tax revenue than it spends. In this case, the surplus can be used to pay bondholders.

Wrong. All a federal surplus does is reduce Gross Domestic Product, i.e., cause a recession or depression.

Another way to finance existing debt is to collect seigniorage revenue and use that to pay bondholders.

Half right, half wrong. “Collect seigniorage” is a fancy way to say “print money.”

Seigniorage is the difference between the face value of dollars and the cost of creating them, which comes close to zero. However, holders of U.S. Treasury bonds are paid in two ways: Seigniorage pays the interest, and the principal is paid by returning the bondholder’s deposit.

Finally, the government can borrow more from the public to pay existing debt holders.

Wrong again. The federal government does not borrow, though monetarily non-sovereign governments do borrow.

SUMMARY

It is discouraging to read an article written by the Senior Vice President of Research and Director of the Real-Time Data Research Center for the Federal Reserve that displays so little understanding of Monetarily Sovereign finance.

The article claims that federal finance is similar to personal finance, but it does not demonstrate any knowledge of the vast differences.

Cities, counties, states, businesses, and euro nations can run short of money. The federal government cannot, and a key figure in the Federal Reserve seems to not understand that.

The answer to the title question is, “No, deficits do not cause inflation. Inflation is caused by shortages of key goods and services, most often oil, food, and labor.

Deficit spending can cure inflation by paying for scarce goods and services and ending shortages.

Rodger Malcolm Mitchell

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

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

MONETARY SOVEREIGNTY

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