Economics, the “science” that doesn’t believe in data.

As “everyone” knows, the federal debt is way too high.

In the previous post, “Veronique de Rugy has a PhD in economics. So why doesn’t she understand Monetary Sovereignty?“, we quoted Ms. de Rugy:

“As the U.S. faces the consequences of runaway pandemic spending and deficits that could add $25 trillion to our existing $36 trillion national debt over the next decade, “neither party is serious” about tackling the problem.”

“The so-called ‘debt’ is nothing more than the total of deposits in T-security accounts at the Federal Reserve—a form of savings for the private sector, not actual borrowing.”

So, calling it a “national debt” is actually misleading. It’s not something the U.S. must “repay” in any traditional sense. It’s more accurate to think of it as net financial assets that the federal government has injected into the private sector.

The so-called debt has risen, as the above graph demonstrates. It was very high during World War II, then fell to nearly nothing post-war.

But to cure the 2008 recession, it began its dramatic rise, which has Ms. de Rugy and virtually every other economist all aflutter. As she said:

“With Washinton in a state of bipartisn denial,’ the debt crisis will only get worse.’”

What exactly is the “debt crisis”? She never says. Actually, no one ever says what that “crisis” is. In fact, all the data seem to show that as the “debt” rises, the economy grows:

Gross Domestic Product grew dramatically as federal “debt” rose.

Along with fears about the federal “debt,” economists seem to shudder about the Debt/GDP ratio. We often have been told that when the ratio reaches 50%, 80%, 100%, or some other arbitrary number, then awful things will happen.

But they never happen.

The debt/GDP ratio now has exceeded 100%, and the economy continues to grow.

In our earlier posts, we demonstrated that the debt-to-GDP ratio is not a meaningful indicator. It does not predict the federal government’s ability to pay its debts (Its ability is infinite). The ratio does not show anything. See: “Enough already with the Debt/GDP ratio“)

The federal “debt” also has been called a ticking time bomb since 1940, and we’re waiting for it to go off. It’s proven to be a dud. (See: “Historical BULLSHIT Claims the Federal Debt Is a “Ticking Time Bomb”: From Sept. 26, 1940 to October 10, 2024“)

What has been missing from all those claims is specificity. What exactly is the problem with high federal debt?

Here are some general claims, none of which is supported by data:

  • Higher Interest Rates

    Claim: As the government “borrows more,” it competes with private borrowers, driving up interest rates (the “crowding out” argument).

    No data supports this. The Fed sets interest rates. The U.S. doesn’t borrow in a market-driven way; it issues currency. So interest rates are a policy choice, not a supply-and-demand issue. There is no evidence that the vastly increased debt has forced interest rates up.

  • Inflation

    Claim: More government spending = more money = inflation.

    No data supports this: All inflations are caused by shortages, not “too much money.” Deficit spending that eases shortages (labor, housing, energy) can reduce inflation. The solution to inflation is targeted spending, not austerity. There is no relationship between federal spending and inflation. See: “At long last, let’s put this inflation question to bed.“

  • Debt Service Becomes Unsustainable

    Claim: As debt rises, so do interest payments, “crowding out” other spending.

    No data supports this: The federal government can always pay interest in its own currency. And again, it chooses interest rates. There’s no risk of involuntary default. There is no evidence that the vastly increased debt has crowded out private borrowers.

  • Burden on Future Generations

    Claim: Today’s borrowing saddles future taxpayers with repayment.

    No data supports this: Taxes don’t fund federal spending. “Paying off the debt” is just swapping Treasury securities (savings) for cash. No burden is passed on—future generations inherit the assets, not a liability.

  • Loss of Investor Confidence / Currency Collapse

    Claim: If debt gets too high, investors may stop buying Treasuries, or the dollar could collapse.

    No data supports this. Treasuries aren’t “bought” to fund the government—they’re offered as a place to park dollars that already exist. The government doesn’t need to entice buyers—it creates the dollars it spends. Plus, confidence in the dollar is based on productive capacity and stability, not some debt-to-GDP ratio.

SUMMARY

The so-called “federal debt” isn’t federal (the dollars in Treasury Securities are owned by the depositors, not by the government) or debt (the government merely holds the dollars for safekeeping, as with a bank safe deposit box).

It poses no threat to, or burden on, the government or the public. 

The entire debt story is designed to convince the public to forego some of the benefits the federal government provides.

As Ms. de Rugy claims, “Republicans, for their part, try to convince voters they care about the deficit but feed the delusion that they can balance the budget through discretionary spending cuts that leave Social Security and Medicare untouched.”

That is the story the wealthy tell. They want to cut social programs to widen the income/wealth/power Gap between them and the rest of America. The wider the Gap, the richer are the wealthy.

I can’t say whether Ms. de Rugy is in cahoots with the rich or merely ignorant of Monetary Sovereignty. Still, articles like hers greatly damage the nation’s economy and people.

Economics is a science loaded with data, but economists don’t believe the data.

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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A Government’s Sole Purpose is to Improve and Protect The People’s Lives.

MONETARY SOVEREIGNTY

Veronique de Rugy has a PhD in economics. So why doesn’t she understand Monetary Sovereignty?

Veronique de Rugy is the George Gibbs Chair in Political Economy and Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist. Her primary research interests include the US economy, the federal budget, taxation, tax competition, and cronyism. She received her MA in economics from the Paris Dauphine University and her PhD in economics from the Panthéon-Sorbonne University.

de RUGY
The following article came from the April 4, 2025, The Week Magazine
Veronique de Rugy National Review

“Washington’s so-called debate over deficit spending is a complete joke,” said Veronique de Rugy.

As the U.S. faces the consequences of runaway pandemic spending and deficits that could add $25 trillion to our existing $36 trillion national debt over the next decade, “neither party is serious” about tackling the problem.

Presumably, Ms. de Rugy believes “the problem” is federal debt and deficits, which as you learned in previous posts is no problem at all.

Debt and deficits may be problems for monetarily non-sovereign individuals, state and local governments, and businesses, but they do not burden the Monetarily Sovereign federal government.

It seems that Ms. de Rugy is ignorant of Monetary Sovereignty or wants you to be ignorant.

We all are monetarily non-sovereign. We cannot create dollars at will. However, the U.S. government is monetarily sovereign and can create dollars with the touch of a computer key.

It would be amazing if Ms. de Rugy didn’t know this, yet here we are.

Democrats refuse to acknowledge” the crisis even exists, instead pretending “the fix for every economic problem is more government spending paid for by rich people.”

No, the fix really is “more government spending,” not “paid for by rich people.” Federal spending- ALL federal spending- is paid for by money creation, that touch of a computer key.

As we said, you can’t do it, I can’t do it, and even Elon Musk can’t. But the federal government can, and in fact, it does it every day with every payment of every financial obligation.

Meanwhile, they label any suggestion on taming Social Security and Medicare as “devastating and, hence, unacceptable,” even though those programs will account for half of all non-interest federal spending by 2035.

If by “taming” she means cutting benefits, then she is spouting misinformation that the rich love. Cutting Social Security and Medicare benefits pleases the rich by widening the income/wealth/power Gap between the rich and the rest.

No agency of the federal government can become insolvent unless Congress and the President want it to. So the only debt crisis is the crisis of misinformation (or disinformation, the intentional form of misinformation).

The claims that the Social Security and Medicare trust fund will run short of money are- let me be clear here- dirty, stinking, rotten lies. This can happen only if Congress and the President want it to happen.

If Congress weren’t beholden to the rich, it would vote to add a trillion dollars (or $100 trillion, for that matter) to the trust funds or simply pay for Social Security and Medicare directly without the useless trust funds.

But that is the last thing Congress’s wealthy donors want, so they bleat sadly about the “debt crisis” and their inability to “find the money” to keep these programs solvent.

Republicans, for their part, “try to convince voters they care about the deficit” but feed the delusion that they can balance the budget through discretionary spending cuts that leave Social Security and Medicare untouched.
The delusion is that balancing the federal budget, i.e., eliminating the deficit, would benefit anyone. It wouldn’t. It would be a financial disaster.

Gross Domestic Product (GDP) is a measure of the economy. The formula for GDP is:

GDP = Federal Spending + Nonfederal Spending + Net Exports

Even the most basic understanding of algebra tells you that reduced federal spending reduces GDP, i.e. cuts the economy, while increases in Federal Spending grow the economy. And with even the tiniest inflation, a balanced budget instantly would reduce GDP.
A party that really did “care about fiscal responsibility” also wouldn’t claim that President Trump’s 2017 tax cuts can be extended with no budget cost, or have pushed through the recent continuing resolution that authorized 1.7 trillion in spending – 47 percent more than President Barack Obana’s last budget.

A writer who really ” cared about fiscal responsibility” would take the trouble to learn about Monetary Sovereignty and what it means for federal finances rather than assuming the federal government has the same financial limits we do.

With Washinton in a state of bipartisn denial, “the debt crisis will only get worse.”

Yes, the “debt crisis” is worsening, but it’s not a crisis about federal agency insolvency. It’s a crisis of ignorance, intentional or otherwise, about federal government finances.

THE FEDERAL GOVERNMENT CANNOT RUN SHORT OF U.S. DOLLARS. PERIOD. Someone, please, please inform economics PhD Veronique de Rugy.

And oh yes, if she says, “What about inflation?” Tell her to read, “At long last, let’s put this inflation question to bed.”

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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A Government’s Sole Purpose is to Improve and Protect The People’s Lives.

MONETARY SOVEREIGNTY

At long last, let’s put this inflation question to bed

You may have heard that inflation is too much money chasing too few goods and services. You’re about to learn that it simply is not true. Question: Does massive federal spending cause inflation? First, let us answer the intermediate question: Can our Monetarily Sovereign federal government massively spend without raising taxes?

Alan Greenspan, former Federal Reserve Chairman: “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.”

Ben Bernanke, former Federal Reserve Chairman: “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.”

Jerome Powell, Federal Reserve Chairman: “As a central bank, we have the ability to create money digitally.

St. Louis Fed, in their publication titled “Why Health Care Matters and the Current Debt Does Not”: “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.”

Paul O’Neill, former Secretary of the Treasury:  “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.”

Mario Draghi, former president of the (Monetarily Sovereign) European Central Bank, asked, “Can the ECB ever run out of money?” Mario Draghi: Technically, no. We cannot run out of money.

Paul Krugman, Nobel Prize–winning economist: “The U.S. government is not like a household. It literally prints money, and it can’t run out.”

Hyman Minsky, Economist: “The government can always finance its spending by creating money.”

Eric Tymoigne, Economist: “A sovereign government does not need to collect taxes or issue bonds to finance spending. It finances directly through money creation.”

Three Federal Reserve Chairmen, the Secretary of the Treasury, the President of the European Central Bank, and three economists agree that the Monetarily Sovereign U.S. can never run short of dollars. This means it can always pay all its debt without borrowing or taxing.

Warren Mosler (MMT Founder): “Federal taxes don’t pay for anything. They function to remove money from the economy. The government doesn’t need taxes to spend—it taxes after spending to manage demand.

Frank Newman (Former Deputy Secretary of the U.S. Treasury): “The government creates money when it spends. Taxes are just a way to remove money.”

Stephanie Kelton (Economist, former Senate Budget Committee Chief Economist): “The U.S. government is not like a household. It is the issuer of the currency. It doesn’t need to ‘get’ money from anyone else—not from taxpayers, not from China.”

 James Galbraith (Economist, advisor to Congress): “The U.S. government spends money into existence. It does not need to collect taxes to spend.”

Federal deficits and debt (i.e., the total of deficits) are not burdens on the federal government.

Concerns about the size of a federal deficit or the federal debt are misplaced. The federal debt, no matter how large, never is a burden on the government or on taxpayers.

Even if federal tax collections fell to $0, the government could continue spending forever. Think about this the next time someone says Medicare and Social Security are running short of money. This cannot happen unless Congress and the President want it to.

Why then does the government collect taxes, if not to pay for spending:

  • To control the economy by taxing what it wishes to discourage and by giving tax breaks to what it wishes to reward.
  • To assure demand for the U.S. dollar by requiring taxes be paid in dollars.

All those articles you read and speeches you hear expressing horror at the size of a federal deficit or the U.S. debt result from ignorance or an attempt to mislead you.

Federal deficits and debt are necessary to grow the economy. When the federal government runs a deficit, it pumps growth dollars into the economy.

Recessions occur when deficits are too small for economic growth.

Recessions (vertical gray lines) immediately follow declines in federal deficit spending growth. Recessions are cured by increases in federal deficit spending growth.

Federal deficit spending adds growth dollars to the economy. Rather than calling it a “federal deficit,” it should be called an economy’s surplus.

This brings us to the central question: Does massive federal spending cause inflation?

Here are the inflations that have occurred since 1940, the start of  World War II

U.S. Inflations Since 1940 — Causes Explained

1941–1947, Inflation Peak: ~20% in 1947 Cause: World War production and rationing replaced production for the economy, causing shortages of oil, food, rubber, steel, and other war goods. Consumer goods were scarce. The inflation was not caused by “too much money” but by total war mobilization stretching supply chains.

1950–1951 – Korean War Inflation Inflation Peak: ~9% in 1951 Cause: Sudden demand surge for military goods. Civilian supply shortages as factories shifted to war production. Another classic case of resource reallocation causing shortages.

1966–1969 – Vietnam War + Great Society Buildup Inflation Peak: ~6% by 1969 Cause: High military spending. Shortages of labor created wage/price pressures. Fed kept rates too low, allowing demand to overrun capacity.

1973–1975 – First Oil Shock Inflation Peak: ~12% in 1974 Cause: OPEC oil embargo caused energy shortages. Gasoline, transportation, and heating costs soared. Knock-on effects on food prices and shipping. Classic inflation from a shortage of a critical resource—oil.

1979–1981 – Second Oil Shock + Supply Constraints Inflation Peak: ~14.8% in 1980 Cause: Iranian Revolution disrupted oil supply. Ongoing energy bottlenecks from the 1970s. Rising wage expectations and commodity prices. Again, a supply-side crisis, not monetary excess.

1990 – Gulf War / Oil Price Spike Inflation Peak: ~6% in 1990 Cause: Oil price spike due to Iraq’s invasion of Kuwait. Temporary, short-lived inflation driven by energy costs. Again, a supply-side external shock—oil.

1992–2019 – Low and Stable Inflation Cause: Globalization, technology, slack labor markets, and stable commodity supply kept inflation low. Despite massive federal deficit spending, the Fed met its 2% inflation target (or missed below it) for most of this era. No notable inflation episodes for ~30 years because there were no serious shortages.

2021–2022 – Pandemic Inflation Inflation Peak: ~9.1% in June 2022 Cause: COVID-19 supply chain disruptions. Labor shortages and shipping bottlenecks. Oil/gas price surge from Russia–Ukraine war. Housing and car shortages (semiconductors, construction delays). Not simply “too much stimulus”—inflation started after supply chains snapped, not when money was spent.

2023–2025 – Disinflation (Monetary Sovereign view fits here: shortage-driven, not money-driven.Inflation Falling) Inflation has been falling steadily, despite continued government spending. Supply chains have recovered, and energy prices normalized.  A strong example of how inflation eases when shortages ease—even with ongoing deficits.

There is no relationship between federal deficit spending (green) and inflation (red). Deficit spending does not cause inflation.

However, there is a strong relationship between an oil shortage and inflation.

Oil prices respond quickly to oil shortages, and because oil prices affect all other pricing, oil shortages cause inflation.

While oil shortages are important, shortages of other products can also affect inflation: Other energy sources, food, transportation, steel, lumber, labor, housing, and computer chips all contribute to inflationary pressure.

And it’s not only in America. Here are a few foreign hyperinflations and their causes:

Weimar Germany (1921–1923) Cause: War reparations from the Treaty of Versailles had to be paid in foreign currency. The shortage of foreign currency plus shortages caused by the loss of industrial capacity in the Ruhr region after French and Belgian occupation.

Zimbabwe (2007–2008) Cause: The land reform program disrupted agricultural production, especially of tobacco and maize, key exports. There was a massive drop in food and export production. Severe shortages of food and essential goods caused inflation to spiral.

Hungary (1945–1946) Cause: After World War II, Hungary’s infrastructure and economy were destroyed, leading to shortages of goods, services, and production capacity.

Yugoslavia (1992–1994) Cause: War and sanctions after the breakup of Yugoslavia led to the loss of industrial output and massive shortages.

Venezuela (2016–present) Cause: The collapse of oil production and exports, which were the main source of foreign exchange. The import-dependent economy faced extreme shortages of food, medicine, and goods.

In every case, shortages caused prices to rise. However, rather than address the scarcities, the governments printed currency, which gave the illusion that the currency caused inflation.

SUMMARY 

While “excessive federal spending” is often blamed for inflation, the data do not support that common belief.

The data show that inflation is caused by shortages and is cured by addressing them. Printing currency merely pours gasoline on the fire that would be quenched by removing the fuel—the shortages.

So the next time you read or hear that the federal debt or deficit is too big, write or ask the authors to show you proof. If they say that Germans pushed wheelbarrows filled with money or merely claim that Zimbabwe is an example, show them this article and see if they can pick it apart.

Inflation is most definitely not “too much money” chasing anything. Inflation is too few goods and services. Cure the shortages, and you cure the inflation.

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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A Government’s Sole Purpose is to Improve and Protect The People’s Lives.

MONETARY SOVEREIGNTY

The choice between punishing foreigners vs. rewarding Americans.

Donald Trump has offered five reasons to raise tariffs:

  1. He claims that tariffs will force foreign manufacturers’ prices up, which will help American manufacturers compete.

  2. He claims many countries, notably China, manipulate currencies and dump products at below-market prices. Tariffs supposedly force these countries to raise their prices.

  3. He claims that tariffs can help reduce the U.S. trade deficit and encourage the domestic consumption of American-made products.

  4. He claims the tariffs will make us less reliant on foreign suppliers of critical sectors like steel and aluminum.

  5. He claims the federal income from tariffs will provide money for tax cuts to offset inflationary price increases.

The problem is that these are not only mutually incompatible but individually false.Reward vs. Punishment as Workplace Tools: You Think You Know How to Use Them?

MUTUALLY INCOMPATIBLE

Consider #1 and #4. Suppose our tariffs successfully force foreign manufacturers to raise prices, making them less able to compete with American manufacturers (#1).

In that case, our government will have less tariff income thought to offset inflation with tax cuts (#5).

The more successful is #1, the less successful will be #5.

Further, because all U.S. tariff money comes not from foreign exporters but from U.S. citizens, the reduction in the trade deficit would be funded by Americans, not by foreigners.

Since the lower 80% of Americans purchase most foreign goods, the proposed tax cut would benefit the rich, not the average American.

All tariffs are transfers of money from the poor and middle to the rich—a right-wing, reverse Robin Hood approach.

The whole point of tariffs is to force prices up. By design, tariffs are inflationary. Inflation will require domestic manufacturers to pay more for supplies.

Workers, paying more for goods and services, will demand higher wages, thus forcing American manufacturers to pay more for labor.

INDIVIDUALLY FALSE

Trump’s claim that tariffs will increase foreign manufacturers’ prices is incorrect. Tariffs will add a sales tax to the foreign manufacturers’ prices. Like all sales taxes, the sales tax will be paid by the buyers, in this case, Americans.

The so-called “trade deficit” is not a real deficit. It is an even exchange. America pays with dollars; they pay with goods and services.

The U.S. creates money effortlessly by pressing computer keys, while others produce goods and services through physical labor and resources.

In that exchange, we receive the better of the bargain.

Tariffs only can make us “less reliant” on foreign suppliers of critical sectors like steel and aluminum by increasing the prices of steel and aluminum.

Paying a higher price for steel and aluminum does not benefit America.

Finally, the biggest lie of all: Trump’s claim that the federal income from tariffs will provide money for tax cuts. The federal government already has infinite money to provide tax cuts.

In fact, if the federal government collected zero taxes, it still could continue to deficit spend endlessly.

Being Monetarily Sovereign, the government never can run short of dollars.

THE BETTER SOLUTION

Strangely, when faced with a problem where the solution involves reward or punishment, Trump always chooses punishment (except for himself). If the problem is how to protect American industry and the American economy in competition with foreigners, the solution is not to punish the foreigners but to reward America.

If foreign companies price their products too low for American industry to compete, the solution is for the U.S. federal government to reward American industry via tax credits and direct payments.

That is what we have already done for many industries:

The U.S. agriculture sector is one of the most heavily subsidized in the U.S. Government support here includes direct payments, crop insurance, and various subsidies aimed at stabilizing farm income and ensuring food security. Rather than increasing consumer prices, as tariffs do, these support lower consumer prices.

Oil, natural gas, and coal industries have historically benefited from tax breaks, deductions, and other financial incentives that lower production costs and encourage domestic energy production.

Renewable energy sectors, such as solar and wind energy, have received substantial federal and state support through tax credits, grants, and loan guarantees to help drive the adoption of cleaner energy sources.

Elon Musk should appreciate this: The U.S. government has offered incentives and funding for developing and manufacturing electric vehicles and related technologies.

Substantial government support is provided to the aerospace and defense industries, including direct contracts for research, development, and procurement, which are essential for maintaining technological leadership and national security.

The semiconductor industry has seen increased government support (such as through the CHIPS Act) via grants and tax incentives. These measures aim to reduce reliance on foreign suppliers, enhance domestic manufacturing capabilities, and secure critical technology supply chains.

SUMMARY

The federal government has the infinite ability to create dollars. Rather than trying to punish other nations with tariffs, which in reality punish Americans and cause inflation, the federal government should reward Americans and simultaneously fight inflation by addressing the shortages that cause it.

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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A Government’s Sole Purpose is to Improve and Protect The People’s Lives.

MONETARY SOVEREIGNTY