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 four worst taxes in America

INTRODUCTION When we rank the “worst” taxes, we consider those that do the least good and cause the most harm to the American people and the economy. The U.S. federal government is unique. It is Monetarily Sovereign, unlike state and local governments, businesses, and individuals, which are monetarily non-sovereign.

It initially created the U.S. dollar—as many as it arbitrarily chose—and remains the only entity with the infinite ability to create dollars. The federal government cannot unintentionally run short of dollars. Even if it didn’t collect a penny in taxes, it could continue spending forever. Thus, no federal government agency can run short of dollars unless that is what the government wants. Anyone who claims otherwise either is ignorant about federal financing or lying. Often, you have seen and heard statements indicating the government or certain agencies of the government — Social Security, Medicare, et al. — are about to run out of dollars or that specific proposals — Medicare for All, increased anti-poverty benefits, etc. — are “unaffordable.” You will encounter questions like, “Who will pay for it?” or “When will the government run out of other people’s money?” Such statements deceive, intentionally or not. Sadly, even government employees, media representatives, and economists who should know better repeatedly promulgate disinformation. Sometimes, you will be treated with honesty, such as the following statements which have been repeated on this blog:

Former Fed Chairman Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”

Former Fed Chairman Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. It’s not tax money… We simply use the computer to mark up the size of the account.”

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

St. Louis Federal Reserve Bank: “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.”

Different entities are Monetarily Sovereign over other forms of money. For example, the European Central Bank (ECB) is sovereign over the euro: When asked, “Can the ECB ever run out of money?” Mario Draghi, the ECB president, replied, “No. We cannot run out of money.”

Uncle Sam has infinite dollars — **The U.S. federal government is Monetarily Sovereign. It cannot run short of U.S. dollars. It has infinite dollars.**

Unfortunately, such honesty is rare, and we are more likely to be subjected to misleading statements:

Molly Dahl, the Chief of Long-Term Analysis at the Congressional Budget Office (CBO), recently emphasized to the Senate Budget Committee that Social Security could run out of funds in about eight to nine years if no action is taken.

The Social Security Board of Trustees also projected that the trust funds could be depleted by 2035.

And,

The Medicare Board of Trustees has projected that the trust fund for Medicare Part A, which covers hospital insurance, could be depleted by 2031

Tricia Neuman, the executive director of the Program on Medicare Policy at KFF, has also highlighted the need for action to avoid severe Medicare cuts.

Additionally, Robert Emmet Moffit, co-editor of Modernizing Medicare, has pointed out the financial challenges due to factors like the rising number of older Americans and advanced medical technology.

These “experts” and many others fail to mention that the problems could be eliminated at the stroke of a President’s pen by approving a Congressional bill that would, in essence, say, “The federal government will fully fund All Medicare and Social Security expenses.” The federal government neither needs nor uses tax dollars to fund anything. All federal tax dollars are destroyed upon receipt. When federal taxes are taken from the public, they begin as checking account dollars in the M2 money supply measure. When they reach the U.S. Treasury, they suddenly cease to be part of any money supply measure. They simply disappear into the federal government’s infinite supply of money. Infinity plus any number equals infinity. Federal taxes do not provide the federal government with spending money. The government creates new dollars by paying creditors’ bills. To pay a creditor, the government sends instructions (not dollars) to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account. New dollars are added to the M2 money supply measure when the bank does as instructed. The bank balances its books by clearing the transaction through the Federal Reserve system. What, then, is the purpose of federal taxes?

Federal taxes assure demand for the U.S. dollar by requiring taxes to be paid in dollars.
Federal taxes allow the federal government to control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to reward.
Then, there is the real function of federal taxes: To help the rich become even wealthier by widening the gap between the rich and the rest.

It is the Gap that makes the rich rich. Without the Gap, no one would be rich; we would all be the same. The wider the Gap, the richer. To become richer, one must accomplish two things: gain more wealth for oneself and/or ensure those below have less. Federal tax laws accomplish the latter by granting tax exceptions for the kinds of income enjoyed by the wealthiest among us. Just one example:

Donald Trump on his federal tax returns declared negative income in 2015, 2016, 2017 and 2020, and that he paid a total of $1,500 in income taxes for the years 2016 and 2017. On their 2020 income tax returns, Trump and his wife Melania paid no federal income taxes and claimed a refund of $5.47 million.

Billionaire Donald Trump paid less income tax than you did from 2015 through 2020. And this is not an exception. It is a fundamental purpose of federal tax laws—the Gap-widening process for which the rich bribe Congress. THE FOUR WORST TAXES IN AMERICA Because the federal government neither needs nor uses tax dollars, three of the four worst taxes are federal. They take dollars from the private sector (also known as “the economy”) and transfer them to the government, where they are destroyed. Mathematically, federal taxes (but not state/local taxes), pay for nothing, reduce Gross Domestic Product, and are recessive.

the poor pay more sales taxes than the rich — **Relative to their income, the poor pay far more in sales taxes than the rich.**

4. The fourth worst taxes in America are the ones that are not federal: State and local sales taxes. Unlike the federal government, state/local governments are part of the U.S. economy. They deposit tax dollars into bank accounts, which become part of the M2 money supply measure. Thus, state/local taxes are not mathematically recessive. However, they are regressive. They negatively affect the rich much less than the rest of us simply because they use a smaller percentage of their income to purchase sales-taxable items. 3. The third-worst tax in America is the federal capital gains tax. In theory, this tax could be somewhat beneficial. On the surface, it should tax the rich more than others because they are far more likely to have capital gains. Further, the higher tax on short-term (one year or less) capital gains should encourage investment above speculation. The reality is far different. The rich have bribed Congress to include so many exceptions and caveats in this highly complex tax law that the rules allow the rich to escape most if not all, taxation (See Donald Trump). Though federal tax dollars are destroyed upon receipt, the tax could benefit the economy if it served a practical purpose: Narrowing the Gap between the rich and the rest. In practice, it does the opposite. 2. The second worst tax in America is the federal tax on Social Security benefits. While the notion that the federal government should provide benefits to the elderly and disabled makes sense, unnecessarily taxing those benefits is senseless and regressive. The people most in need of Social Security benefits have the least ability to pay taxes on the program’s already meager payments. Despite having the infinite ability to pay benefits and unnecessarily collecting taxes on benefits, the federal government repeatedly has raised the minimum age for receiving full benefits:

**Normal Retirement Age**
Year of birth	Age
1937 and prior	65
1938	65 and 2 months
1939	65 and 4 months
1940	65 and 6 months
1941	65 and 8 months
1942	65 and 10 months
1943-54	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 and later	67

Taxing benefits while raising eligibility ages is unconscionable but perfectly rational for a government that has been bribed to widen the income/wealth/power Gap between the rich and the rest. 1. The worst tax in America is FICA, the Federal Insurance Contributions Act. The federal payroll tax supposedly funds Social Security and Medicare programs. It is deducted from each paycheck and ostensibly provides financial and health care benefits for retirees, disabled Americans, and children. It does none of those things. Like all federal taxes, it is destroyed upon receipt by the Treasury. It is designed to impact salaried people in lower-income groups. It is not levied against the type of income the rich most enjoy, such as capital gains, interest, and other “non-income” income. It is limited to salaries below $168,600. A person earning a million dollars a year would pay almost* the same amount of FICA tax as a person earning $168,000 a year. (*An extra 2% of salaries above $299K) is deducted for Medicare.) Half of FICA supposedly is paid by businesses, but this is a charade. Businesses consider the cost of FICA when determining salaries, particularly for lower-paid employees. It is the lower-paid employees who ultimately suffer the full burden of FICA. However, FICA encourages businesses to hire workers as independent contractors liable for their retirement financing. This allows companies financial room to pay higher salaries, giving the illusion of more generous compensation. FICA and its sister taxes, the self-employment tax on individuals who work for themselves, and FUTA, the Federal Unemployment Tax Act that employers pay for unemployment insurance, are the worst taxes because they are the most regressive. They do the most to widen the Gap between the rich and the rest. Taxing employment discourages businesses and the economy from employing people, which is exactly the opposite effect one would desire for any government action. All federal employment taxes could and should be eliminated immediately. SUMMARY

Federal taxes do not fund federal spending. The federal government destroys all the tax dollars it receives.
Further, federal taxes reduce GDP, so they are recessive.
Federal tax laws, as currently written and enforced, are regressive widening the income/wealth/power Gap between the rich and the rest.
However, federal taxes support demand for the U.S. dollar and help the government control the economy by taxing what it wishes to limit and giving tax breaks to what it wishes to encourage.
State and local taxes fund state and local spending. They do not reduce GDP but are often regressive.
All federal taxes should be eliminated except where the government wishes to limit some activity.
Another means of federal control would be to use federal spending (rather than tax breaks) to support activities the government wishes to encourage.
The federal government could help reduce the regressive nature of state/local taxes by providing per capita aid to all states.

And yes, I know, federal spending supposedly causes inflation. That already has been debunked here, here, here, and elsewhere in this blog. Federal spending prevents and cures inflation when it acquires and distributes the scarcities causing 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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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY

What do you get when you blend economic incompetence, laziness, and malevolence? Ignorance of Monetary Sovereignty

Intelligent Professor Working at Project in College Writing Formulas on Chalkboard Wall, Stock Footage — Uh, 1 + 1 = uh, gimme a second.

Imagine you were in charge of the advanced mathematics department at a university. You would be expected at least to understand arithmetic.

Similarly, if you were the Secretary of the U.S. Treasury, Chair of the Federal Reserve, or President of the United States, you should understand what former Chairs seem to know, i.e., the difference between a Monetarily Sovereign entity and a monetarily non-sovereign one.

It’s that basic.

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.”

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.”

Alas, we are not so fortunate with our leadership’s knowledge:

In 2016, (former President) Trump said he could pay down the national debt, then about $19 trillion, “over a period of eight years” by renegotiating trade deals and spurring economic growth.

In 2018, he said, “We have $21 trillion in debt. When this [the 2017 tax cut] really kicks in, we’ll start paying off that debt like it’s water.

I’ve decided that what we successfully have done for the past 84 years, to build the world’s greatest economy, is unsustainable.

“Because of Tariffs we will be able to start paying down large amounts of the $21 trillion in debt that has been accumulated, much by the Obama Administration.”

Fed Chair Powell Warns Of ‘Unsustainable’ US Debt Path: “The level of debt we have is not unsustainable, but the path that we’re on is unsustainable,” Powell stated.

He urged policymakers to prioritize fiscal sustainability, warning that running large deficits during good economic times cannot continue indefinitely.“

In the longer run, we’ll have to do something sooner or later, and sooner will be better than later,” he added.

Notice that Powell uses the favorite word of debt fear-mongers: “Unsustainable.” (See here and in many other posts on this blog). Despite false claims since 1940 that the debt and deficits are “unsustainable,” we have sustained it.

The debt fear-mongers never learn from experience.

In 2022, President Biden said, “My Treasury Department is planning to pay down the national debt this quarter, which never happened under my predecessor.”

Every U.S. depression has 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.

Treasury Secretary Janet Yellen agrees that the federal debt is too high, but when a simple, non-recession solution was presented to her, she preferred austerity, i.e., the mathematical certainty of a recession or depression.

The solution demonstrated the federal government’s total sovereignty over the U.S. dollar:

Is minting a $1 trillion platinum coin the answer to the debt limit crisis?
Treasury Secretary Janet Yellen shot down the idea, calling it a “gimmick.”

By Michelle Stoddart
October 7, 2021, 11:27 AM

Legislation enacted in 2001 allows the treasury to mint platinum coins of any value without congressional approval.Under that law, the coin’s value could be anything, but it would have to be platinum, not gold or silver, nickel, bronze or copper, which are under Congress’ control.

President Joe Biden could order Treasury Secretary Janet Yellen to have a coin with the value of $1 trillion be minted and deposited into the Treasury, giving the government an extra trillion dollars to cover debts and prevent default.

The idea was floated before in 2011 when the government faced another debt ceiling crisis. Former President Barack Obama said in 2017, on the podcast “Pod Save America,” that he and his advisers discussed use of a trillion dollar coin as a safety valve.

“There were all kind of wacky ideas about how potentially you could …. have this massive coin.” Obama said in the 2017 interview. “I mean … it was some primitive — it was like out of the Stone Age or something and I pictured rolling in some coin.”

Thus, as usual, President Obama demonstrated his abject ignorance about federal finance. Remember, he was the one who created the Simpson/Bowles Commission that labored to create these recommendations:

1. Reduce the deficit by $4 trillion over ten years
2. Cap government spending at 21% of GDP
3. Reduce discretionary spending to 2008 levels, adjusted for inflation
4. Raise the retirement age and reduce Social Security benefits
5. Reduce Medicare benefits.

Fortunately, none of this was done; otherwise, we would have had the worst depression since the Great Depression. However, it reflects Obama’s economic ignorance (or intent?).

Getting back to the platinum coin solution to the debt ceiling idiocy:

Treasury Secretary Janet Yellen said Tuesday in an interview with CNBC that she is “opposed” to the idea, and doesn’t believe it should be considered seriously.

“It’s really a gimmick and what’s necessary is for Congress to show that the world can count on America paying its debts,” Yellen said Tuesday on CNBC’s “Squawk Box”.

And there you have it. Janet Yellen, Secretary of the U.S. Treasury, thinks there is a danger the Monetarily Sovereign U.S. government might not be able to “pay its debts” unless something is done about the federal debt (which isn’t federal and isn’t debt.

See: “Debt fear-monger takes opposite sides of the same issue.”

Yellen also raised concerns about how using a trillion dollar coin would affect trust in and independence of the Federal Reserve and treasury.

“The platinum coin is equivalent to asking the Federal Reserve to print money to cover deficits that Congress is unwilling to cover by issuing debt, it compromises the independence of the Fed conflating monetary and fiscal policy, and instead of showing that Congress and the administration can be trusted to pay, to pay the country’s bills, it really does the opposite,” Yellen said.

OMG, Secretary of the Treasury Yellen just gets worse and worse. She doesn’t seem to realize that U.S. dollars are debt, and every debt requires collateral.

The collateral for U.S. dollars is the full faith and credit of the United States government. This may sound nebulous to some, but it actually involves certain, specific, and valuable guarantees, among which are:

The government will accept only U.S. currency in payment of debts to the government
It unfailingly will pay all its dollar debts with U.S. dollars and will not default
It will force all your domestic creditors to accept U.S. dollars if you offer them to satisfy your debt.
It will not require domestic creditors to accept any other money
It will take action to protect the value of the dollar.
It will maintain a market for U.S. currency
It will continue to use U.S. currency and will not change to another currency.
All forms of U.S. currency will be reciprocal, that is five $1 bills always will equal one $5 bill and vice versa.

Why Janet Yellen Is About To Become Even More Powerful — Yellen doesn’t want the Fed to print money. Yet, her signature is on Federal Reserve Notes!~

As economist Hyman Minsky said, “A government that can issue Treasury bills can issue dollar bills.”

Look at the dollar bill in your wallet. At the top, it says, “Federal Reserve Note“, and it is signed by — that’s right — the Secretary of the Treasury and the Treasurer.

Janet Yellen complains that “the platinum coin is equivalent to asking the Federal Reserve to print money,” while she has her signature on dollar bills, which are Federal Reserve Notes!

Many experts are unsure about what the economic effects of the move would be given that it is unprecedented.

But experts cite concerns about inflation, saying that creating more money would weaken the value of existing money circulating in the economy.

We have been “creating more money” for 84 years. In some years, inflation was above the Fed’s target. In other years, it was below. Just before COVID, inflation was quite low. Then COVID created shortages and, thus, inflation.

Is the Trillion-Dollar Platinum Coin Clever or Insane? | Tax Policy Center — **A “gimmick” too simple for our leaders. They prefer the insanity of the debt ceiling.**

The platinum coin’s economic effects would relieve uncertainty about the extraordinarily ignorant Debt Limit. Economies don’t like uncertainty because it hinders investment in the future.

That would mean that existing dollars would have less buying power, which could affect American consumers.

I wonder why America hasn’t suffered that fate so far. Perhaps because it isn’t real??

Still, some Democratic lawmakers backed the idea. House Speaker Nancy Pelosi said that Rep. Jerod Nadler, D-N.Y., brought up the coin during a closed policy meeting last week as one of other “options” to prevent government default without congressional action.

And in case you miss your daily dose of debt fear-mongering about something that never happens, here’s a bit more.

US National Debt Hits $35 Trillion Milestone

In a historic fiscal milestone for the federal government, the national debt rose to $35 trillion for the first time, according to the latest Treasury Department data. Current debt levels are equal to $105,000 per person and $266,000 per U.S. household.

Washington accumulated $1 trillion in debt in less than seven months. Over the past year, the national debt has spiked by nearly $2.35 trillion, an average of about $6.4 billion per day.

The immense growth of red ink flooding the nation’s capital has captured the attention of public policymakers. Federal Reserve Chair Jerome Powell in February conceded that the federal government is “on an unsustainable fiscal path.”

Two of the big three credit agencies downgraded their outlook on the U.S. debt, citing fiscal deterioration, persistent debt ceiling negotiations, and ballooning interest payments. When these updates were released last year, the White House disagreed with the firms’ outlooks.

The two credit agencies referred to are likely Fitch Ratings and Moody’s. Fitch recently downgraded the U.S. government’s credit rating from AAA to AA+ while Moody’s has changed its outlook on U.S. debt to negative.

It’s ironic that two companies should downgrade the U.S. dollar. If the U.S. fails to pay it’s bills, not only will the dollar be worthless, but so will every business on earth, including Fitch and Moody’s.

But Yellen doesn’t want a simple solution to the crazy Debt limit, because “it’s a gimmick” that might (but almost sure will not) cause some inflation.

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The National Debt Hit $35 Trillion. Why This Matters

Economists told the Daily Caller News Foundation that persistent government spending under the Biden administration propped up U.S. economic growth in the second quarter of 2023.

Real gross domestic product (GDP) grew 2.8% in the second quarter of 2024, far higher than economists’ expectations of 2.1%,

However, a significant portion of the recorded growth in the quarter was driven by government spending, both directly through a rise in government expenditures and indirectly through growth in sectors that benefit heavily from taxpayer dollars.

Apparently, some economists believe that when the government spends, it is not true economic growth, but when the private sector spends, that is true growth.

However, exactly the opposite is true. When the government spends, new stimulus growth dollars are created and added to the economy. By contrast, when the private sector spends, dollars are just moved from one hand to another.

Private sector spending that is not financed by borrowing creates no money.

“Government spending has played a large role in much of the economic growth seen over the past few years,” Peter Earle, a senior economist at the American Institute for Economic Research, told the DCNF.

Government spending supposedly is bad because it adds dollars to the economy. It’s also supposedly bad because it just redistributes existing dollars. Huh??

“The problem with that, of course, is that government spending is redistribution: taxing certain citizens or floating more trillions of dollars in debt to send those dollars to other citizens.

It’s not innovative entrepreneurship or other productive commercial undertakings.”

Peter Earle has it exactly backward. Federal spending is done with newly created money, not with tax money.

The crazy part of Earle’s comment is that the debt fear-mongers take both sides of the same issue.

They claim that federal deficit spending adds to the money supply, and so, is inflationary.

Then they claim federal deficit spending is redistribution — i.e., doesn’t add to the money supply.

And they ardently believe both opposing statements.

E.J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the DCNF that even the increase in consumer spending, which totaled 2.3% in the second quarter — up from 1.5% in the previous quarter — was also partially driven by government expenditures.

That is exactly what federal spending is supposed to do. It puts spending money into consumers’ pockets. Why that is a bad thing is beyond all comprehension.

“Government purchases do not include all of government spending. When the government takes money from one person and gives it to another in the form of welfare, for example, it gets counted as consumer spending,” Antoni told the DCNF.

Trust the extreme right wing to come up with nonsense opposing welfare. No comments opposing the tax breaks given to the wealthy, however.

In any event, the federal government doesn’t give tax money to anyone. It destroys all the tax dollars it receives and creates new dollars to pay its bills.

“Currently, about $4.2 trillion of annual consumer spending is government transfers, illustrating how total government spending is much larger than the GDP report indicates.”

No federal spending is “transfers;” all state/local government spending is “transfers.”

That’s the difference between Monetary Sovereignty and monetary non-sovereignty. The former creates new dollars to pay its bills, while the latter uses borrowed money and taxes.

“What were the big things that contributed to the GDP number? You have a big increase in health care spending, which is consistent with all the jobs we’ve seen in health care, and a lot of that is paid for by government,” Faulkender told the DCNF.

“You have money going into transportation investment, which is deficit-funded [Inflation Reduction Act] money [and] you had the increase in government spending.”

Healthcare spending was responsible for approximately 16% of GDP growth in the second quarter, according to the BEA. In 2022, government sources accounted for just over 45% of healthcare spending, according to the Congressional Research Service.

The healthcare industry has also underpinned recent U.S. job gains, accounting for 49,000 of the 206,000 nonfarm payroll jobs added in June, and approximately 29% of all jobs added in the last twelve months, according to the Federal Reserve Bank of St. Louis (FRED).

In short, the government is spending heavily on transportation and healthcare, which in addition to helping people be healthy and get around, is creating jobs in these fields.

Is that supposed to be a problem?

“All — or nearly all — the apparent growth in the economy has really just been pulling future growth forward to today, at the expense of future growth,” Antoni told the DCNF. “It’s like when a consumer goes deeply into credit card debt to get a higher standard of living today, only to be drowning in debt payments tomorrow.”

No, Mr. Antoni, federal finances are not like personal finances. Not one word of the above paragraph is true. And really, how does today’s growth pull growth from tomorrow? It is nonsensical.

The federal government has been “drowning” in so-called “debt” since 1940, and here has been the result of all that deficit spending:

Real (inflation adjusted) GDP per person has moved up, up, up.

Americans as a group, are wealthier in real terms than ever. If this is what our government “drowning in debt” produces, please toss me in the pool.

The trick is to narrow the Gap between the rich and the rest, which the debt worriers seem to forget when they talk about cutting benefits and increasing taxes.

SUMMARY

Everything in economics eventually devolves to understanding Monetary Sovereignty. Our leaders either don’t understand the difference between Monetary Sovereignty and monetary non-sovereignty, or they don’t want you to understand.

In the latter category are those who want to widen the income/wealth/power Gap between the rich and you.

Rodger Malcolm Mitchell

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

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

MONETARY SOVEREIGNTY

AARP accidentally admits the government doesn’t need FICA

Your benevolent friend.

The AARP is the self-anointed protector of the aged. Its website says:

“AARP represents the needs of the more than 100 million older Americans with lifestyles and political views as diverse as any group in the United States.

“We concentrate on the issues most important to those in the 50+ community as they age: economic security; health care; access to affordable, quality long-term care; creating and maintaining livable communities; consumer protections; caregiving; and ensuring that our democracy works better for all.”

Unfortunately, AARP has long published articles claiming that the Medicare and Social Security trust funds are running short of dollars and soon will need to cut benefits or increase taxes – specifically FICA – which supposedly supports those trust funds. It’s all wrong:

1. The so-called “trust funds” are not real trust funds. They are merely bookkeeping notations that track dollars coming and dollars going out.

The federal government can raise, lower, or erase those numbers whenever it wishes.

2. Those “trust funds” don’t pay for anything. The government pays for Social Security and Medicare benefits like it pays for everything else: the military, roads, dams, Congress, the Supreme Court, the White House, NASA, etc.

It signs legislation that approves the creation of dollars and then pays for things with those newly created dollars. It can do this endlessly.

Here is a sample — a direct quote, actually — of what AARP has been telling people:

The trust funds from which Social Security benefits are paid won’t run short of money until 2035 — a year later than was predicted in last year’s report.

And, the Medicare trust fund for part A, which helps pay for inpatient hospital visits will cover all its bills until 2036 — five years longer than forecast last year.

And here’s the key paragraph. It contains facts you seldom are told by any of the media:

Other Medicare programs, including Part B doctor’s services and outpatient care and Part D prescription drugs, will have enough money indefinitely because premiums and federal contributions are automatically adjusted each year to cover costs.

That is the phrase to remember: ” . . . federal contributions are automatically adjusted each year to cover costs.” It states very simply and clearly that the government pays whatever is needed to keep Part B viable forever. It is a tacit admission that at least some part of Medicare is not beholden to “trust funds” or to tax collections. This begs the obvious question: If the government pays for some of Part B, why doesn’t it pay for all of Part B and Part A? I asked the Copilot AI this question, and this is what it said: ”

“The reason Part A is not fully funded by the government is likely due to the historical structure of Medicare and the way it was initially designed.

“Part B is partially funded by monthly premiums paid by beneficiaries and general tax revenue. The rationale behind this split may be to ensure that beneficiaries contribute to the cost of outpatient services while still receiving essential coverage.”

Those monthly premiums come out of your Social Security benefits. You need the money; the federal government doesn’t. The inevitable conclusions are:

1. Since federal contributions are automatically adjusted each year, no calculation is made about whether the federal government can afford these contributions; affordability is assumed.

2. When Medicare and Social Security were created (1935 and 1965, respectively), the U.S. was still on a form of gold standard. Its money-creation ability was limited by its gold supplies. It was only partially Monetarily Sovereign.

This ended in 1971, when the government became fully Monetarily Sovereign. As Alan Greenspan said during a 1985 congressional hearing, “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”

3. Thus, the federal government can pay for Social Security and Medicare without levying any taxes. Ben Bernanke said during an interview with Scott Pelley on March 12, 2009, when asked if the money the Federal Reserve (Fed) spends is tax money, “It’s not tax money… We simply use the computer to mark up the size of the account.”

4. From an affordability standpoint, the federal government could afford to fully fund a comprehensive, no-deductible Medicare and a far more generous Social Security—for all Americans of any age—without ever levying taxes.

This fact leaves doubters with two objections, both unmoored from fact:

Objection: Federal funding of Medicare and Social Security is Socialism.

Fact: Socialism is government ownership and control, not just spending. The above proposals would change nothing regarding ownership and control, so they would not move us any closer to Socialism.

Objection: Federal funding of Medicare and Social Security would cause inflation.

Fact: All inflations in history have been caused by shortages of crucial goods and services, not by federal spending. (See: If excessive federal deficit spending causes inflation, how do you explain this graph?)

The most recent inflation was caused by COVID-related shortages of oil, food, computer chips, lumber, metals, labor, and other necessities, not by low interest rates or excessive federal spending.

The shortages and inflation are being cured by additional federal spending to acquire and distribute the scarce goods.

Summary AARP acknowledges the easily and often proven fact that although state and local taxes fund state and local spending, federal taxes do not fund federal spending. The federal government easily could fund Medicare and Social Security for all and forever. The claims about the imminent need to limit benefits or raise taxes do not comport with reality, which is that the government should increase benefits and eliminate FICA forever. If you are tired of the dire warnings that serve only to widen the income/wealth/power Gap between you and the very rich, tell this to your Congressional representative. Do it today and every tomorrow, and tell your friends to do it too. As Galileo taught us, some truths take a while to be accepted. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell; https://www.academia.edu/

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

MONETARY SOVEREIGNTY

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