Ignorance is suicide

In economics, as in most other fields, ignorance leads to failure and to further ignorance. Nowhere is this more evident than in discussions about the so-called “national debt,” which is neither national nor debt.

The following article appeared in the June 2, 2025 Florida Sun Sentinel:

Can Trump manage national debt? Several investors, GOP senators and Musk have doubts By Josh Boak Associated Press

WASHINGTON — President Donald Trump faces the challenge of convincing Republican senators, global investors, voters and even Elon Musk that he won’t bury the federal government in debt with his multitrillion-dollar tax breaks package.

The response so far from financial markets has been skeptical as Trump seems unable to trim deficits as promised. The overall national debt stands at more than $36.1 trillion.

Mr. Josh Boak seems to misunderstand the difference between federal financing and personal financing. He insists our Monetarily Sovereign federal government is at risk of being “buried in debt.“

The federal government is Monetarily Sovereign. That means it never can run short of dollars. It could continue spending at its current rate, or even at three times its current rate, forever.

Your city, county, and state can be buried in debt. Your business can be buried in debt. You can be burning in debt, as can I. We are monetarily non-sovereign. We cannot create unlimited dollars.

But the U.S. federal government cannot be “buried in debt.” Not now. Not ever.

Why would anyone want to reduce annual deficits? The government never can run short of dollars, and federal deficits are essential for economic growth.

The most common measure of economic growth is Gross Domestic Product (GDP). The formula for GPD is:

GDP = Federal Spending + Nonfederal Spending + Net Exports

“Nonfederal” is the private sector.

Simple algebra shows that cuts to Federal Spending reduce economic growth. Federal Spending increases GDP directly, but also tends to increase Nonfederal Spending by sending dollars into the private sector, which spends them.

“All of this rhetoric about cutting trillions of dollars of spending has come to nothing — and the tax bill codifies that,” said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank.

It is surprising that someone titled “Director of Economic Policy Studies” does not understand the fundamentals of federal finance. Mr. Strain appears to misunderstand the differences between monetary sovereignty and monetary non-sovereignty.

“There is a level of concern about the competence of Congress and this administration, and that makes adding a whole bunch of money to the deficit riskier.”

Yes, there is a level of concern about the competence of people who believe the government can run short of its own sovereign currency.

The White House has viciously lashed out at anyone who has voiced concern about the debt snowballing under Trump, even though it did exactly that in his first term after his 2017 tax cuts.

Trump often attacks anyone who disagrees with him, despite his limited understanding of economics.

White House press secretary Karoline Leavitt opened her briefing Thursday by saying she wanted “to debunk some false claims” about his tax cuts.

Leavitt said the “blatantly wrong claim that the ‘One, Big, Beautiful Bill’ increases the deficit is based on the Congressional Budget Office and other scorekeepers who use shoddy assumptions and have historically been terrible at forecasting across Democrat and Republican administrations alike.”

Here is the irony. Rather than imitating Trump by lying, insulting, and criticizing, Leavitt should have stated, “Yes, we increase the deficit because it stimulates economic growth. We draw from the federal government, which has an infinite supply of dollars, and give support to the economy, specifically, the private sector.”

In summary, she apologizes for unintentionally doing the right thing while believing it to be wrong, and then she denies that she is doing it.

House Speaker Mike Johnson piled onto Congress’ number-crunchers Sunday, telling NBC’s “Meet the Press”: “The CBO sometimes gets projections correct, but they’re always off, every single time, when they project economic growth. They always underestimate the growth that will be brought about by tax cuts and reduction in regulations.”

Tax cuts bring about growth because they leave more dollars in the private sector, which is exactly what federal deficit spending does. So why does Johnson promote tax cuts but oppose federal deficits, both of which accomplish the same thing?

Is he really that ignorant about economics, or is he just trying to defend Trump no matter what?

But Trump has suggested that the lack of sufficient spending cuts to offset his tax reductions came out of the need to hold the Republican congressional coalition together.

“We have to get a lot of votes,” Trump said last week. “We can’t be cutting.”

Get it? Trump is saying, in effect, that “we should cut spending, but the Republican coalition seems to know that spending cuts are harmful, so we’ll keep spending, which will grow the economy.”

That gibberish is what passes for wisdom in Washington.

That has left the administration betting on the hope that economic growth can do the trick, a belief that few outside of Trump’s orbit think is viable.

“Economic hope can do the trick?” What trick? Is Boak saying that the Republicans hope economic growth can cure the federal deficit?

How does that work? The deficit is the private sector sending fewer dollars to the government than the government sends to the private sector. How does economic growth cure that? It’s mathematical nonsense.

In the equation, GDP = Federal Spending + Nonfederal Spending + Net Exports, the Republicans hope that GDP goes up, while Federal Spending and Nonfederal Spending go down!

Would someone please find a 5th grader who will explain algebra to the politicians and Mr. Boak?

Most economists consider the nonpartisan CBO to be the foundational standard for assessing policies, although it does not produce cost estimates for actions taken by the executive branch, such as Trump’s unilateral tariffs.

Tech billionaire Musk, who was until recently part of Trump’s inner sanctum as the leader of the Department of Government Efficiency, told CBS News: “I was disappointed to see the massive spending bill, frankly, which increases the budget deficit, not just decreases it, and undermines the work that the DOGE team is doing.”

Musk may understand business finance, but he has no clue about federal finance. The goals are different. The goal of business is to increase income compared to outlay, thus increasing profits. So cost cutting is a viable, even necessary, option.

The goal of the federal government is to increase benefits to the people (by pumping more dollars into the economy). So taxing less and spending more are the best options — exactly the opposite of what a business should do.

In short, the sole purpose of any government is to improve the lives of the people. The purpose of a business is to improve its own life. Totally different goals and totally different abilities. Musk repeatedly proved he didn’t understand that.

To him, “government efficiency” means taking more dollars from the people and giving fewer dollars to the people.

Why do we need a government for that?

The tax and spending cuts that passed the House last month would add more than $5 trillion to the national debt in the coming decade if all of them are allowed to continue, according to the Committee for a Responsible Financial Budget, a fiscal watchdog group.

Translation: The tax cuts primarily benefiting the wealthy, along with spending cuts that hurt middle- and lower-income groups, are projected to inject 5 trillion growth dollars into the pockets of the rich over the next decade.

This estimate comes from the Committee for a Responsible Federal Budget, which is a Libertarian organization that opposes providing benefits to people who are not affluent.

To make the bill’s price tag appear lower, various parts of the legislation are set to expire. This same tactic was used with Trump’s 2017 tax cuts and it set up this year’s dilemma, in which many of the tax cuts in that earlier package will sunset next year unless Congress renews them.

But the debt is a much bigger problem now than it was eight years ago. Investors are demanding that the government pay a higher premium to keep borrowing as the total debt has crossed $36.1 trillion.

The interest rate on a 10-year Treasury Note is around 4.5%, up dramatically from the 2.5% rate being charged when the 2017 tax cuts became law.

Tell me this. Why would an entity, with the endless ability to create dollars by simply pressing a few computer keys, ever need to borrow dollars? Think about it.

The federal government, unlike state and local governments, does not borrow dollars. Federal bonds are completely different from state and local bonds, though they use the same word, “bonds.”

State and local governments do borrow dollars, when tax income is not sufficient to pay bills.

The federal government always can pay its bill simply by creating more dollars.

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.”

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.

Fed Chairman Jerome Powell stated, “As a central bank, we have the ability to create money digitally.

Statement from the St. Louis Fed: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent,i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.” You can find it in their publication titled “Why Health Care Matters and the Current Debt Does Not” from October 2011.

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, key influence on MMT) “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.”

Every knowledgeable economist knows the federal government cannot run short of dollars and does not borrow (i.e., “dependent on credit markets” as the St. Louis Fed confirmed).

So what about T-bonds, T-notes, and T-bills? Aren’t they borrowing?

No. They are interest-earning deposits, the purpose of which is not to provide spending money to the government. Instead, they provide a safer place (compared to banks and insurance companies) for people and countries to store unused dollars.

The federal government never touches those dollars. So they are not borrowed. They are just held for safe-keeping, and at agreed-upon dates, the dollars, plus interest, are returned to their owners.

Think of them as similar to bank safe-deposit boxes, where the bank never touches the contents.

The confusion arises because the word “bonds” describes state and local government borrowing, while the same word, “bonds,” means federal safety-deposit accounts.

The idea that the U.S. federal government, which created the U.S. dollar, would need to borrow its own dollars from China or anyone is absurd.

(It’s equally absurd to believe that the federal government would need to levy taxes so it could have dollars for spending.)

The White House Council of Economic Advisers argues that its policies will unleash so much rapid growth that the annual budget deficits will shrink in size relative to the overall economy, putting the U.S. government on a fiscally sustainable path.

As the quotes from knowledgeable individuals indicate, the U.S. government always is on a fiscally sustainable path.

White House budget director Russell Vought said the idea that the bill is “in any way harmful to debt and deficits is fundamentally untrue.”

“Harmful to debt and deficits”? Does he mean that increasing the so-called “debt” and deficits is true, but it could be beneficial to the economy (if it were not so skewed in favor of the rich)? Hard to know exactly what he means.

Most outside economists expect additional debt would keep interest rates higher and slow economic growth as the cost of borrowing for homes, cars, businesses and even college educations would increase.

Additional debt (which, as you have seen, is not “debt’) does not keep interest rates higher or lower. The Fed sets the rates arbitrarily in its misguided effort to fight inflation. Accepting deposits into Treasury Security accounts does not affect interest rates.

( Raising interest rates to fight inflation is misguided because it raises business costs, thus raising prices.)

“This just adds to the problem future policymakers are going to face,” said Brendan Duke, a former Biden administration aide now at the Center on Budget and Policy Priorities, a liberal think tank.

Duke said that with the tax cuts in the bill set to expire in 2028, lawmakers would be “dealing with Social Security, Medicare and expiring tax cuts at the same time.”

It’s quite easy for an informed economist to solve the “problems” of Social Security, Medicare, and tax cuts. Just create the needed dollars by pressing computer keys.

The government would need $10 trillion of deficit reduction over the next 10 years just to stabilize the debt, Tedeschi said. Even though the White House says the tax cuts would add to growth, most of the cost goes to preserve existing tax breaks, so that’s unlikely to boost the economy meaningfully.

“It’s treading water,” he said.

If the government wanted to stabilize the misnamed “debt,” it has plenty of simple options.

Simply refuse to accept any more deposits into T-security accounts. The government neither needs nor uses the dollars. They just sit there, safely earning interest.
Enact legislation to add $10 trillion to the General Account, which is the account used for federal payments.
Have the Treasury mint a $10 trillion coin, as it has the legal authority to do so, and deposit the coin with either the Federal Reserve or the General Account.

If It’s So Simple, Why Don’t They Do It?

Here’s why so many smart people can’t seem to solve a simple problem: They don’t want to.

America is run by the very wealthy. What does “wealthy” mean?

“Wealthy” does not mean having a thousand, a million, a billion, or a trillion dollars. “Wealthy” means having substantially more wealth than 95% or 99% (pick your percentage) of the country.

Look at this table of the amount of wealth required to be in the top 1% of Americans:

In the year 2000, having $5 million would have put you in the upper 1%, but only 2o years later, you would have needed to more than double your wealth to be as wealthy.

So, to remain wealthy, you had two options.

Dramatically increase the amount of money you have, and/or
Make sure those below you don’t increase their wealth

If it is difficult to double your money in twenty-five years, consider ensuring that those beneath you do not increase their wealth. This way, your top 1% ranking would remain secure.

How do you prevent them from rising? By convincing them with the false notion that the government cannot afford to provide benefits.

Make them pay for their own healthcare. Keep Social Security benefits low. Don’t help them financially with college, so they either pay the tuition or are forced to work lower-paying jobs.

Consider the FICA tax. You might think you pay half, but in reality, you pay the full amount. Your employer takes FICA into account when determining salaries. FICA represents a significant percentage of your income.

For the wealthy, FICA taxes are insignificant or nonexistent. Why is this the case? To ensure that the Gap between you and the top 1 percent does not narrow.

You hear the government claim that it “can’t afford” Medicare for everyone, Social Security for everyone, or college for anyone who wants to attend. They say this is because the federal debt (which isn’t truly federal and isn’t really debt) is too large, and that deficits need to be reduced. Meanwhile, tax loopholes for the wealthy are being widened.

And government spending causes inflation, so any increase in spending must be paid for by your taxes.

And it’s all a lie, a Big Lie, for federal tax dollars are not used to fund federal spending.

That’s what the rich want you to believe. It’s how they stay rich. Or get even richer.

IN SUMMARY

Unlike state and local governments, the federal government is Monetarily Sovereign. It has infinite money.
It does not borrow the currency it originally created and continues to create by passing laws.
“Federal debt” is neither federal nor debt. It is deposits in T-security accounts, wholly owned by depositors and never used by the government. The purpose is to provide a safe place to store unused dollars. This stabilizes the dollar.
Federal deficits are necessary for economic growth.
Federal spending does not cause inflation; it results from shortages of essential goods and services. Federal spending can alleviate inflation by acquiring these scarce assets.
The Big Lie in economics is that the federal financing is like personal financing. The federal government needs no income. It creates all its income.
The Big Lie aims to benefit the wealthy by increasing the income, wealth, and power Gap between the rich and the rest.

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

Starving with a loaf of bread under your arm. The end of Social Security

The U.S. federal government is unlike state and local governments. It uniquely is Monetarily Sovereign. That means it has the infinite ability to create dollars simply by passing laws and pressing computer keys.

While state and local government can run short of dollars, the federal government cannot unintentionally run short. Not now. Not ever.

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.”

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.”

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

Statement from the St. Louis Fed: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”

Social Security is a federal agency. Like all federal agencies, including Congress, the Supreme Court, the White House, the military, et al, Social Security cannot run short of dollars unless Congress and the President will it.

Congress has the infinite power to create laws, and some of these laws create dollars from thin air. So long as Congress can create laws, the U.S. always will have enough dollars for any expenditure.

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.”

The so-called Social Security “trust fund” (which is not a real trust fund) never has assets other than “promises of the good faith and credit of the United States government.”

Those promises are what we call “dollars.”< /br>< /br>

Look at a dollar “bill.” At the very top it says, “FEDERAL RESERVE NOTE.” Bills and notes are promises of payment.

All dollars are promises by the federal government that it will accept dollars as payment, and so will everyone else in America. In fact, that is stated on the dollar bill: “This note is legal tender for all debts, public and private.”

The federal government has the infinite ability to create legal tender to pay all debts.

Man standing amidst a sea of oranges, expressing surprise or excitement, in a vibrant orange environment. — **If I were the federal government, some people would tell you I could run short of oranges. Those are the people who tell you Social Security, Medicare, and Medicaid can run short of dollars.**

Because the federal government cannot unintentionally run short of dollars, how can we explain the following article from MSN?

The most controversial changes proposed to save Social Security
Story by Gabriela León

As Social Security teeters on the brink of insolvency, the government is exploring various proposals to ensure its sustainability.

While the program is not expected to disappear, the amount future retirees will receive is uncertain.

Have you ever heard that the White House, Congress, or the Supreme Court are “teetering on the brink of insolvency“?

No?

For the fiscal year 2024, the United States Supreme Court had a discretionary budget request of $161.3 million. Where did it get the money? There is nothing like a FICA tax to supposedly support this federal agency.

For the fiscal year 2025, the U.S. Congress has an approximately $5.9 billion budget. This budget covers the operational expenses of the House of Representatives and the Senate, including salaries, office expenses, and other administrative costs. Where did it get the money? There is nothing like a FICA tax to supposedly support this federal agency.

The White House’s annual operating budget is part of the overall budget of the Executive Office of the President (EOP). For the fiscal year 2025, the EOP has a budget request of approximately $714 million. Where did it get the money? There is nothing like a FICA tax to supposedly support this federal agency.

The answer to the questions: All federal agencies get their spending money the same way. Congress votes; the President approves; and magically, the dollars are created from thin air.

Social Security is a federal agency. Like all other federal agencies, Social Security gets its money from Congress’s votes and the President’s approval.

Contrary to popular wisdom, Social Security does not get its spending money from the FICA tax or any other source. Those FICA dollars ripped from your paycheck are destroyed the moment they reach the U.S. Treasury.

The dollars originate in checking accounts as part of the “M2 money supply measure.” When they reach the Treasury, they instantly cease to be part of any money supply measure. Effectively, they are destroyed.

Among the proposed changes, some have sparked significant controversy and resistance among the American public. A survey by the National Academy of Social Insurance (NASI) highlights six proposals that have met with strong opposition.

One of the most debated proposals involves the taxable earnings cap. This cap determines the portion of a person’s income subject to Social Security payroll taxes.

In 2025, the cap is set at $176,100. Most Americans earn below this threshold, paying taxes on their entire income, while wealthier individuals do not.

Many advocate for raising or eliminating this cap to increase contributions from the wealthiest, though this alone won’t resolve the funding crisis. The NASI survey indicates that maintaining the current cap, with only minor inflation adjustments, is unpopular.

The taxable earnings cap is an invention of the rich, to widen the income/wealth/power Gap between the rich and the rest.

Another contentious proposal is gradually raising the full retirement age (FRA) to 69. The FRA, which determines eligibility for full benefits, was previously increased from 65 to 67.

Raising it further would effectively reduce benefits for younger workers by increasing penalties for early claims and decreasing delayed retirement credits. This change is seen as a benefit cut, particularly affecting those who claim benefits in their early-to-mid-60s.

This is the “work-’til-you-die” provision that Republicans love. It penalizes those who are not rich, because they are the ones who rely on SS to survive.

Reducing cost-of-living adjustments (COLAs) is also on the table. COLAs are annual adjustments to help benefits keep pace with inflation but also increase program costs. Many seniors oppose reducing COLAs, as Social Security’s buying power has already declined.

The Senior Citizens League reports a 20% loss in buying power since 2010. There’s a push to calculate COLAs based on the Consumer Price Index for the Elderly (CPI-E), which would likely result in higher adjustments but also increase expenses.

If you are hoping to receive SS, and are not rich, but you voted for Trump, you’re getting what you voted for: Delayed SS benefits.

Increasing benefits by $250 per month for all new beneficiaries is another proposal that hasn’t gained much support. This increase wouldn’t benefit current recipients or address the issue of COLAs not keeping up with inflation.

The NASI survey found this proposal less popular than others, such as raising COLAs.

It’s not clear how this would address the phony Social Security Trust Funds so-called “insolvency.” But handing out money is a good idea.

Raising the taxable earnings cap to $ 350,000, while paying wealthier beneficiaries more, is another controversial idea. Although many support raising the cap, they oppose larger checks for high earners.

The current benefit formula replaces a smaller portion of pre-retirement income for high earners. Altering the formula to prevent larger checks for those paying more into the program would require congressional action.

The real problem is with the words, “taxable earnings.” Currently, FICA is calculated against salaries but not other taxable earnings, such as capital gains. Most of the rich do not receive significant salaries. They are too smart for that. Their income is from capital gains, stock swaps, etc. — stuff you middle-class workers seldom enjoy.

Lastly, a bridge benefit for retired workers with declining health has been proposed. This would reduce early claiming penalties for those in physically demanding jobs.

While there’s demand for this change, details on its implementation and criteria are lacking.

Ultimately, the solution to Social Security’s challenges may involve some or none of these proposals, as Congress decides the best course of action.

The solutions to “Social Security’s challenges” are:

Learn the facts about federal finance and acknowledge the federal government’s infinite ability to create dollars and to determine their value (i.e. control inflation).
Eliminate FICA. Fund Social Security by Congressional vote, like nearly all federal agencies are funded. Get rid of the fake Social Security “trust fund.” It’s not a source of dollars but rather a limit on dollars and an excuse for cutting benefits to those who are not wealthy. It’s as illogical as the current debt-limit laws.
Pay everyone of all ages a Social Security benefit, regardless of income. Elon Musk would receive the same benefits as the poorest, homeless adult. It would mean nothing to Musk but be a life saver to the poor person. (My current suggestion is about $3,000 per month for each adult and $1,500 per month for each child, with subsequent additions for 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

A summary of what you should know about America’s economy.

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. 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.

This is an update of a post that ran in 2009.

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.

Gross Domestic Product = Federal Spending + NonFederal Spending + Net Exports.

Thus, by formula, a cut in federal spending cuts GDP.

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.

Recessions repeatedly come on the heels of deficit growth reductions, and are cured with deficit growth increases.

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.

When they reach the Treasury, they cease to be part of any money supply measure. They effectively are destroyed. To pay its bills, the federal government creates new dollars, ad hoc.

6. Fact: Federal “debt” is the total of outstanding Treasury Securities. Here is how 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 bank 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 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.)

The most important purpose of T-securities is to provide a safe place to store unused dollars. This stabilizes the dollar while increasing its value.

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.

The federal government could pay off the entire so-called “debt” today, merely by returning the dollars to the T-security depositors.

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 decides 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)

The price and supply of oil parallels inflation

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 Zimbabwe inflation was caused by food shortages. (The government stole land from farmers and gave it to non-farmers.) Money “printing” was the faulty response to inflation, 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.

WWII Context: During World War II, many consumer goods were in short supply because production was focused on the war effort. When the war ended, the supply of goods resumed, and the previously unmet demand was suddenly able to be fulfilled.
Oil Crises: Similarly, during the oil crises of the 1970s, the reduced supply of oil caused prices to spike, not because of a sudden increase in demand, but because the existing demand couldn’t be met.
COVID-19 Pandemic: Supply chain disruptions and production bottlenecks during the pandemic created shortages in various goods, leading to price increases once supply constraints eased and the pent-up demand was met.

While the underlying demand might have been consistent, the ability to fulfill that demand was constrained by supply issues. When supply bottlenecks were removed, the previously suppressed demand could finally be expressed, leading to price increases.

Latent Demand: The concept of latent demand suggests that consumers’ desire for goods remains constant, but it is the availability of those goods that fluctuates.
Supply Constraints: Supply-side constraints create temporary mismatches between demand and supply, leading to inflationary pressures once those constraints are lifted.

Observing changes over time can reveal the true causes of economic phenomena. By examining what happens just before and during an inflationary period, we often find that supply-side disruptions are the primary drivers.
Gradual Demand Changes: Demand usually changes slowly, giving the economy time to adjust. This gradual change rarely leads to significant price fluctuations on its own.
Sudden Supply Changes: Supply-side shocks, such as natural disasters, geopolitical events, or production bottlenecks, can occur rapidly and unpredictably. The economy struggles to adjust quickly to these disruptions, leading to price increases as a balancing mechanism.

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:

**The interest rate and economic growth lines move in opposite directions.**

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

The Fed increases interest rates to fight inflation. But increasing interest rates increases the prices of goods and services, i.e. causes inflation.

The Fed, in a sense, is using leeches to fight anemia.

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.

The peaks and valleys of federal deficits (blue) generally correspond to the peaks and valleys of real (inflation adjusted) Gross Domestic Product growth. The reason: GDP = Federal Spending + Nonfederal Spending + Net Exports

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/

The prevention and cure for a loss of democracy is an informed and energized electorate.

With Donald Trump ripping the government and the economy apart, here is what you should know during the two years before casting your vote in the next Congressional elections.

the federal government created out of thin air.

If federal deficits are bad, why do we run deficits to cure recessions?

While Trump’s and the Republican ascendency in power may be a disaster for American democracy, such as it is, a few tiny glimmers of financial sunlight peek through the darkness. For the purposes of this post, we’ll ignore the astounding parallels between Trump and Hitler while focusing on the few near-term benefits. Here are a few excerpts from an article in USA TODAY:

Stocks soared on news of Trump’s election. Bonds sank. Here’s why. Story by Daniel de Visé, As Donald Trump emerged victorious in the presidential election Wednesday, stock prices soared. As the stock market rose, the bond market fell. Stocks roared to record highs Wednesday in the wake of news of Trump’s triumph, signaling an end to the uncertainty of the election cycle and, perhaps, a vote of confidence in his plans for the national economy, some economists said. On the same day, the yield on 10-year Treasury bonds rose to 4.479%, a four-month high. A higher bond yield means a declining bond market: Bond prices fall as yields rise. While stock traders rejoiced, bond traders voiced unease with Trump’s fiscal plans. Trump campaigned on a promise to keep taxes low.

It will be great news for the economy if he keeps that promise. Federal taxes are recessive. They remove dollars from the private sector and transfer them to the federal government, where they are destroyed. Taxes are paid with dollars from the M2 money supply measure. When they reach the Treasury, they cease to be part of any money supply measure. Effectively, they are destroyed. Destroying M2 dollars is recessive. Because the federal government can infinitely create dollars at the touch of a computer key, a money supply measure of federal dollars would make no sense. No matter how many tax dollars you send to the federal government, the federal money supply measure will always be the same: infinite. That is because the U.S. government, unlike state and local governments, is Monetarily Sovereign. It is 100% impossible for the federal government to unintentionally run short of its own sovereign currency, the dollars it created from thin air in the early 1800s.

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.”

He also proposed sweeping tariffs on imported goods.

This will be bad news for the economy. Import tariffs are federal taxes. Like all other federal taxes, they are paid with M2 dollars that are destroyed when they reach the Treasury. Destroying dollars is recessive.

Economic growth is measured by Gross Domestic Product (GDP). **GDP=Federal Spending + Non-Federal Spending – Net Imports. GDP growth requires money supply growth.**

Worse, tariffs increase consumer prices, which means they add to inflation. Even worse, tariffs invite retaliatory tariffs. They also reduce exports, which are part of the Gross Domestic Product.

Economists predict a widening deficit in Trump presidency Economists warn that Trump’s plans to preserve and extend tax cuts will widen the federal budget deficit,which stands at $1.8 trillion.

Contrary to popular wisdom, widening the federal budget deficit is good news for the economy. It means the government is pouring more growth dollars into the economy than it is taking out.

Deficits are the net amount of growth dollars the federal government adds to the economy. The federal debt is the net total of all previous deficits, i.e. the net total of all growth dollars the federal government has added to the economy.

Tariffs, meanwhile, could reignite inflation, which the Federal Reserve has battled to cool.

To summarize, import tariffs have two bad outcomes: They increase inflation and remove growth dollars from the economy. Their ostensible purpose is to protect U.S. industry. A far wiser approach would be to cut federal taxes on businesses and support designated businesses with federal cash and favorable laws. One example is federal farm subsidies, which boost farm profits without increasing consumer costs.

For bond investors, those worries translate to rising yields. The yield is the interest rate, the amount investors expect to receive in exchange for lending money: in this case, to the federal government.

Technical point: Because the federal government has the infinite ability to create dollars, it never borrows dollars. Though corporate bonds do represent corporate borrowing, federal bonds do not represent federal borrowing. The same word has two different meanings. These bonds represent dollars deposited into T-bond accounts for safekeeping. The government never touches the money; it remains the property of the depositor. The purpose is to provide a save place for money holders to keep unused dollars. The Chinese, for example, would be loath to store their billions of unused dollars in private banks.

In the current economic cycle, bond investors “might perceive there to be more risk of holding U.S. debt if there’s not an eye on a plan for reducing spending.

False. There is no spending-related risk for storing dollars in T-security accounts. The dollars always are 100% safe. This is diametrically the opposite with private sector bonds, which do suffer repayment risk.

The 10-year Treasury bond is considered a benchmark in the bond market. The yield on those bonds “began to climb weeks ago, as investors anticipated a Trump win,” The New York Times reported, “and on Wednesday, the yield on 10-year Treasury notes jumped as much 0.2 percentage points, a huge move in that market.”

This all was mere speculation, having nothing to do with real risk. Bond traders anticipated that other bond traders would think there was more risk, so they acted accordingly. It was a lemming-like approach to trading — trying to do what everyone else was going to do, before they did it.

When deficit growth decreases, we have recessions (vertical gray bars) which are cured by deficit growth increases. The reason: A growing economy requires a growing supply of money.
Long-term bond yields are rising because “many investors expect that the federal government under Trump will maintain high deficit spending,” according to Bankrate, the personal finance site.

The federal government could double or triple its spending without accepting one additional dollar in deposits. Federal spending is not contingent on non-existent federal “borrowing.”

In a broader sense, bond investors worry that “we’re living beyond our means in the United States, and we have been for a very long time,” said Todd Jablonski, global head of multi-asset investing for Principal Asset Management.

This is utter nonsense. The U.S. federal government has infinite “means.” It cannot run short of dollars.

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.”

Over the long term, Jablonski said, investors “fear that the United States’s creditworthiness is not as impeccable as it was once considered to be.” As the federal deficit grows, investors take on greater risk, and they expect to be paid a higher interest rate for loaning money to the government.

That is absolutely untrue. In 1940, when the federal debt (deposits) totaled only $400 Billion, pundits called it a “ticking time bomb.” Exactly the same language has been used every year since. Today, after 84 years of hand-wringing, the pundits still make the same claim about our $30 Trillion debt, and we are no closer to insolvency than we were then. This is part of the Big Lie in economics, where even respected economists continue to make the same “Earth-is-flat.” statements. Perhaps it is taught in high schools or discussed over drinks. I can’t say, but it seldom is questioned. Strange. If you would like to watch economists stutter, ask them:

“If federal deficits are bad, why do we run deficits to cure recessions?”

Neither Trump nor Democratic presidential candidate Kamala Harris offered a convincing plan to reduce the deficit on the campaign trail, economists said.

Politicians don’t reduce the deficit because it involves two steps—both economically bad: tax increases and/or spending reduction. Both are recessionary.

Harris promised to raise taxes on the wealthiest Americans and corporations as a source of new revenue.

Raising taxes on the wealthiest Americans has some value, but not for revenue generation. The beneficial purpose would be to narrow the income/wealth/power Gap between the rich and the rest.

Trump, by contrast, pledged to extend and even deepen his previous tax cuts. Trump has made a case that economic growth and job creation would naturally boost revenue.

Trump is correct on both counts. Deepening tax cuts benefits the economy, though he probably would again deepen them for the rich, thereby widening the income/wealth/power Gap, a terrible outcome. Depending on the details, revenue might be boosted, but that would be bad for the economy.

The bond market may not be convinced. “If there’s a Republican sweep of House, Senate and the presidency, I expect the bond market to be wobbly,” said Jeremy Siegel, finance professor at the Wharton School of the University of Pennsylvania, speaking to CNBC on Election Day.

Yes, the bond market might be “wobbly” (whatever that means), not for functional reasons, ut rather because the Jeremy Siegels of the world predict wobbliness. In Summary:

The federal government is uniquely Monetarily Sovereign over the U.S. dollar. It cannot unintentionally run short of dollars.
The federal government does not borrow dollars or owe so-called “debt.” The dollars deposited in T-security accounts are wholly owned by depositors, whom the government pays merely by returning their dollars.
The purpose of federal bonds is not to provide the government with spending money. The purpose is to provide a safe place for dollar holders to store unused dollars. This stabilized the value of the dollar.
Federal deficit spending and “debt” are not a burden on the government or taxpayers, nor are they a risk to depositors.
Economic growth requires federal deficit spending, which adds growth dollars. When deficits are too low, we have recessions, which are cured by increased deficits.

……………………………………………………………………..

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

MONETARY SOVEREIGNTY

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