Tag: all money is debt

–The Fed’s $500 billion bond purchase

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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Rumor has it the Fed soon will announce approximately $500 billion in Treasury bond purchases, with possibly more purchases in the future. The effect of the Fed buying government bonds will be to add dollars to the economy.

This is in recognition of two realities:

1. The economy has been starved for dollars by the economically suicidal, debt-hawk mantra of “lower federal deficits and less federal debt.” Bernanke and the Fed now will officially have acknowledged the economy needs more dollars and the federal government has to supply them.

2. Congress and the President either are ignorant of this economic fact or, more likely, are too afraid of the debt hawks to add dollars to the economy via deficit spending, and instead have passed that hot potato to the Fed.

The question now is whether adding $500 billion is sufficient to pull us out of this economic funk. I suspect it is not, and that something north of $1-2 trillion in actual spending will be needed.

Rather than relying on the indirect effect of bond purchases by the Fed, and hoping that somehow the dollars will find their way into the hands of business and consumers, Congress and the President should use a direct approach. They should reduce all tax rates and specifically eliminate FICA. That would provide both an immediate and long-lasting economic stimulus, resulting in stronger business and more jobs.

Yes, that would add to the dreaded and much maligned federal deficit and the debt, which is exactly what a growing economy needs. It also might bring the debt hawks to their senses, and finally we could stop, for instance, cutting Medicare payments to doctors and reducing Social Security benefits.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind one of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–How to end federal debt and create prosperity in two simple steps

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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Now comes protectionism. To quote today’s AP article titled, “Bickering political parties share China as target”: “Democrats and Republicans are accusing each other of cozying up to Beijing and backing policies that send U.S. jobs and IOUs to the world’s second-largest economy.”

So China is today’s whipping boy, deflecting the blame from our politicians. Nothing ever is their fault. The problems always are caused by some other country, or the Fed, or the banks, or the “other” party, or the rich, or the poor, or the unions, or the corporations, or the PACs, or the lobbyists, or the war, or the right wing, or the left wing, or the Communists, or the terrorists.

No folks, our economic problems lie squarely on the shoulders of Congress and the President, and much (not all) boils down to one false belief, that taxes pay for federal spending. Amazing isn’t it, how many problems result from this one giant misunderstanding?

If the federal government simply stopped creating T-securities from thin air, there would be no debt, therefore no IOUs. And if the federal government simply eliminated FICA, millions of American jobs would be created and saved.

In 1971 we ended the gold standard and no one remembers why. Instead, the uninformed are led by the ignorant (or is it the other way around?), as we continue to act as though we were part of the European Union, with its stultifying limitations on money creation.

Two simple steps – end T-securities and end FICA – would eliminate debt and tax concerns and create instant prosperity. Can it get any easier? Tell your Congress people.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–How the Republican strategy won

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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If the Democrats take a beating this coming election, as is predicted, they have only themselves to blame. The Republicans want the economy to stay weak, giving them the opportunity to remove the recession blame from President Bush and to hang it on President Obama. So they have directed their efforts toward reinforcing the myth that federal deficits are bad, the federal debt is worse, and anything that is not austerity is worst of all.

This wonderful, though cynical strategy guaranteed a weak recovery, hurting the Democrats, while hurting the American people, worse. But hey, who cares about that?

The Democrats, rather than educating the public about federal finance, allowed the Republicans to stigmatize any recovery effort that required deficit spending. Either through ignorance or spinelessness, they fell right into the Republicans’ trap, thereby guaranteeing not only a continuation of economic weakness, but a loss this coming Tuesday. They now suffer, and we the people, suffer, though most of the people don’t know why.

The only thing that can create a recovery is deficit spending, the more the better, but the Democrats never tried to get that message across. They even agreed with the Republicans about the evils of federal debt. Talk about slashing your own throat.

The Republicans have succeeded. Deficit spending has been too little, too late, as I predicted way back in Letter dated April, 2008. The Democrats struggled to spend while not spending, the Republicans threatened to filibuster everything that smacked of deficit, the Democrats cowered in terror, and the economy languished.

What should the Democrats have done? Simple. Tell the truth. Rather than believing the voting public is too stupid to understand facts, the Democrats should have instituted a two-year educational program, starting immediately after the Obama election. Yes, at first the public would have rejected the counter-intuitive ideas that deficit spending is absolutely necessary for growth, our children and grandchildren will not pay for federal spending, and inflation is not a serious threat. But over time, these fact-based ideas would seem less radical, more acceptable and ultimately, desirable, because well . . . they’re fact-based.

That would have allowed the Democrats to improve Social Security, enhance Medicare, provide universal health care, save the economy and win the election. Oh well, there’s another election in two years. Maybe the Democrats will smarten up or “courage-up” in time.

On second thought, doubtful.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–Which adds to federal debt — federal spending or federal borrowing?

The debt hawks are to economics as the creationists are to biology.

Which adds to the federal debt — federal spending or federal borrowing? Before you read further, think about this question and your answer.

The federal government’s finances are nothing like yours and mine, which is why the economy is so counter-intuitive. Most people worry about the federal debt. They are influenced by the media and the pundits, who also worry about the federal debt. And in turn, they are influenced by mainstream economists, who as college students, were taught to worry about the federal debt. This “debt-worry” translates into “spending-worry,” so we hear continual calls for less government spending. But does federal spending really add to federal debt?

You and I cannot print money. So, before we spend, you and I must have sources of money. We either must have money in hand or we must have a ready source of borrowing, the most popular of which is a credit card. Without a source of money, you and I cannot spend. The states counties and cities are in the same predicament. Without a source of money, they cannot spend.

The federal government is different. Or it can send you a check, and when you deposit that check, your bank will mark up your account and the federal government will mark up the bank’s account, and it can do this endlessly, without having any source of money.

When the federal government spends, money is created from nothing. But no debt is created, at least not the federal debt referred to in “debt clocks” or by media editors.

So what does create the federal debt? The creation and sale of T-securities. The federal government not only has the unlimited power to create money from thin air, it also has the unlimited power to create T-securities from thin air, and then exchange these T-securities for dollars it previously created from thin air.

There are two separate processes, unrelated by function, though related by law. Process #1 is federal spending, which requires the creation of dollars by printing currency or by crediting bank accounts. Process #2 is federal borrowing, i.e. the creation and sale of T-securities. Functionally, either of these processes can take place without the other. The federal government can spend without borrowing, and it can borrow without spending.

While federal spending leads to the Deficit (the difference between spending and tax receipts), federal borrowing leads to the Debt (the total of outstanding T-securities). In this way, the federal debt would not necessarily be the total of federal deficits, except for an obsolete law that requires it.

By law, the U.S. Treasury must sell enough T-securities to equal the deficit – the difference between federal spending and federal tax receipts. This law is a relic of gold standard days, when the federal government did not have the unlimited ability to create money. Back then, dollars had to be matched by gold, and so were limited by gold supplies.

But for this law, there would be no need for federal borrowing and there would be no federal debt. The government simply would spend by creating money, i.e. by crediting bank accounts.

In summary, federal spending does not add to the much feared, often maligned federal debt. Instead, the federal debt is created by an obsolete law, which requires T-security creation to equal federal deficits. So debt-worriers, there is no need to cut federal spending. Merely change that needless law. No law; no debt.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”