Recession: Not If, But When

Raj Subramaniam | FedEx
Raj Subramaniam

FedEx CEO says he expects the economy to enter a ‘worldwide recession’
PUBLISHED THU, SEP 15 20226:38 PM EDTUPDATED THU, SEP 15 20228:25 PM EDT
Krystal Hur

FedEx CEO Raj Subramaniam told CNBC’s Jim Cramer on Thursday that he believes a recession is impending for the global economy.

The CEO’s pessimism came after FedEx missed estimates on revenue and earnings in its first quarter. 

As we have been telling you for months (years, actually), Jerome Powell will fail to stop inflation and instead will cause a recession or depression. There are two reasons.

  1. He has no idea what causes and what cures inflations, and
  2. He doesn’t have the tools, even if he knows.

So, today he, in essence, is using a chainsaw to slice the wedding cake and applying leeches to cure anemia. And then, when the chainsaw and the leeches make things worse, what will Powell do? He will use a bigger chainsaw and apply more leeches.

As I predicted, his interest rate increases have failed to end inflation. So, what will he do? He will raise interest rates again and again, of course. (The definition of insanity is doing the same thing repeatedly and expecting a different result.)

He refuses to learn from failure.

The primary reason why prices — any prices — rise is scarcity. It would be quite rare for overall prices to increase because consumers suddenly have more money in their pockets and spend more on everything.

When something prevents the supply of any one product (other than oil) from growing, we have an increase in that product’s price. (Oil is a special case because it has universal use.) To cause inflation — a general rise in prices — a general restriction in supply is required.

And that general supply restriction was provided by COVID., which caused so many supply disruptions that recovery is difficult. And to some degree, the pandemic still is with us.

Our recovery from covid is delayed COVID partly because the GOP didn’t want us to recover. They denied the need for masking, and vaxing, so they continued to spread the disease.

They wanted to be able to complain about Biden and the Dems.

Not that the Dems are entirely innocent. They still join the GOP in promulgating the false notion that federal deficit spending causes inflation.

Not only does federal deficit spending not cause inflation, but targeted deficit spending, to acquire and distribute scarce goods and services is the only government solution to inflation.

Powell thinks consumer demand is causing inflation. He wants to force consumers to demand less by making borrowing more expensive. But demand less what? Should we demand less oil? Less food? Less housing? Fewer cars?

If he fails to quell demand, which is likely, inflation will continue. If he succeeds in reducing demand, we will have a recession, for that is precisely what a recession is: Lack of demand.

In short, Powell is trying to fight inflation by causing a recession. Stagflation next? Then depression?

Inflations are caused by shortages. PERIOD. The only way to cure inflation is to remedy the shortages.

Today, we face many shortages ranging from oil to food, computer chips, lumber, paper, and the entire supply chain, including shipping containers, port facilities, and labor.

Some of the foods in short supply (and therefore experiencing price increases) are meat, poultry, dairy, eggs, and many vegetables. Will interest rate increases cure those shortages? Of course not. 

Will interest rate increases cure the oil, food, computer chip, lumber, paper, supply chain, shipping container, port facility, and labor shortages?

The whole Powell concept is based on ignorance.

Interest rate increases will exacerbate shortages by making production more difficult. Businesses will be less likely to borrow for upgrading machinery or hiring more and better quality labor.

As a result, production will not grow sufficiently, which means more shortages.

It will be the “leeches-to-cure-anemia” situation, where the supposed solution makes the problem even worse.

Eventually, inflation will end, but not because of Powell (who will claim credit). Inflation will end because businesses will catch up and begin to produce more, sell more, and ship more.

Meanwhile, we’ll have to suffer through sky-high interest rates, continual nonsense from Congress and Powell, ever more inflation, and excuses for cutting benefits to the not-rich. (There still will be plenty of tax benefits for the rich. Deficit worries don’t apply to them.)

 

Recessions (vertical gray bars) follow reductions in federal deficit growth (red) and are cured by increased federal deficit growth.
There is no relationship between federal deficit growth and inflation (blue). Peaks and valleys do not come close to matching.

The GOP is hopeless. It has become a nut factory. But, perhaps I will live to see the day when the Dems begin to admit that federal deficits are beneficial because they add growth and scarcity-fighting dollars — i.e., inflation-fighting dollars– to the economy.

Congress does the bidding of the very rich, who want the wealth Gap to grow. The pols promulgate the Big Lie that federal finances are like personal finances, where debt is a burden. But debt is not a burden on the federal government.

This gives Congress the excuse to cut deficit spending.

So, we will continue to lurch from one recession to the next, with the occasional depression thrown in for flavor.

And as for the public ever understanding, don’t make me laugh. Seventy million people saw what Trump did for 4 years, then voted for him. That tells you all you need to know about the public’s intelligence.

Come to think of it, the insanity of providing the same truths time and again and expecting a different result applies to me, too. I’ve been ready to quit for several years, but then I think of the world my grandchildren will endure, and hope springs eternal.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

MONETARY SOVEREIGNTY

Why we will have a recession this year

We are on track to sliding into a recession if we are lucky, or into a depression if we are not.

It all is due to a massive misunderstanding about the role of the Federal Reserve, Congress, and the President with respect to inflation.

The Fed blame game
Neil Irwin, AXIOS

It is the high season for being mad at the Federal Reserve.

Critics accuse them of being feckless as inflation pressures built last year, and as a result, the United States is facing prolonged high inflation, a painful recession to rein it in — or both.

Why it matters: In reality, the Fed didn’t create the current inflationary surge by itself— but it was too complacent as prices spiked last year.

Fact: Not only did the Fed not create the current inflationary surge by itself, but as we shall see, the Fed wasn’t at all responsible for today’s inflation.

Now the economic future depends on its ability to make up for lost time, and navigate a tightrope-thin path to bringing inflation down without tanking the economy.

Fact: It is not up to the Fed to bring inflation down. It doesn’t have the tools.

The Fed always takes heat for its decisions. That is to be expected when a handful of technocrats make decisions, behind closed doors, that shape a $24 trillion economy.

As you will see, the fault for inflation lies not with the Fed, but with a bunch of politicians — Congress and the President — and circumstances.

What is notable is how the most mainstream of economic commentators are piling on. The Economist’s recent cover called it “The Fed that Failed.”

Bloomberg published an essay headlined “The Fed Has Made a U.S. Recession Inevitable” — written by the former president of the New York Fed.

Blaming the Fed for inflation is like blaming the phone company for 911 calls. There is no cause/effect between the problem and a tangentially related agency.

Flashback: Last year, even as inflation started to surge, the Fed kept its aggressive monetary stimulus — interest rates near zero and buying billions of dollars in bonds — in place, only ending it last month.

This infers the commonly believed myth that low interest rates and increased money supply cause inflation.

From 1960 through 2009, interest rates were relatively high (compared to current rates) and inflation also was relatively high.

.

Beginning in 2009, interest rates had been low as had been inflation

In reviewing the above two graphs, it is difficult to infer that high interest rates prevent inflation and low interest rates cause inflation.

In fact, one more easily could infer that inflation causes high rates simply because the Fed believes in raising rates when inflation threatens.

We have what amounts to a self-fulfilling prophecy by the Fed.

And also:

Changes in the M2 money supply do not parallel changes in inflation.

From the above graph, one would have difficulty inferring that “excessive” money creation causes inflation.

So if low interest rates and “excessive” federal money creation don’t cause inflation, what does?

Insiders at the central bank don’t really dispute that they should have begun withdrawing that stimulus earlier.

The Fed was lulled by the fact that the initial surge of inflation last spring was concentrated in a handful of categories, then by a temporary softening in inflation last summer.

Those “insiders” should dispute the notion that should have begun withdrawing stimulus (taking dollars from the economy) earlier.

Had they done what they now believe they should have done, we would be in the midst of a recession, or more likely, a depression.

“We don’t have the luxury of 20/20 hindsight in actually implementing real-time decisions in the world,” Chair Jerome Powell said at a news conference last month.

Had they known how persistent inflation would be, Powell added, “then in hindsight, yes, it would have been appropriate to move earlier.”

Wrong. They do have the benefit of 20/20 hindsight, because this hindsight now shows no cause/effect relationship between interest rate increases and inflation decreases, nor does it reveal a cause/effect between money creation and inflation.

At the same time, it’s not clear that inflation right now would be radically different in an alternate universe where they had moved to tighten money earlier.

Right. It’s “not clear” because tightening money would not have reduced inflation, but would have destroyed the economy.

To control inflation, one must control the true cause of inflation, and the true cause of inflation is not low interest or high money supply.

“It is unlikely that the Fed could have lowered the inflation rate in 2021 because the fiscal support was so massive and its tools work with a lag,” Jason Furman, the Harvard economist and former White House economist, tells Axios.

Wrong., “Fiscal support” and “lag” are not the issues.

But by not acting sooner, the Fed has increased the risk that inflation will remain high through 2022, and beyond, he said: “If it had been more aggressive last year, we would be seeing the effects more this year.”

If the Fed had been more aggressive last year (in cutting the money supply while raising interest rates), we would have seen the effects last year: Recession and or depression.

Consider this admission from the article’s author, Neil Irwin:

Countries with central banks that did tighten faster are also experiencing high inflation. (In New Zealand, which raised rates back in October, it’s 6.9%.)

Wait! What?

If countries that did tighten faster also are experiencing high inflation, why doesn’t that give the Fed, Congress, the President, the economists, the media, and Mr. Irwin a clue?

Moreover, there is a risk that if they had moved more aggressively last year, it would have slowed the rapid recovery without improving the inflation results very much, given the unusual mix of factors around the supply chain disruptions that are driving higher prices.

Right. There is a mix of factors driving higher prices, and those factors all can be summarized in one word: Shortages.

And there you have it. Inflations — all inflations — are caused by shortages of key goods and services.

Not by too much money, not by too-low interest rates: All inflations are caused by shortages, and all inflations are cured by curing the shortages.

And often, these shortages can be cured by additional, not by less, money creation.

Today’s inflation is caused by shortages of food, energy (mostly oil but also other forms of energy), shipping, computer chips, labor, and all the thousands of related products.

Food prices have risen because food is in short supply. Food is in short supply, not because the government added dollars to the economy, and not because people suddenly are eating more, but because of COVID and weather, and related shortages of labor, equipment, fertilizer, and other farming needs.

One does not cure a food shortage by starving the populace. One cures a food shortage by growing more food.

Energy is in short supply because the energy suppliers can’t obtain sufficient materials and labor to extract the oil, gas, and coal we need. This is related to COVID and lately, the Russia/Ukraine war.

One does not cure an energy shortage by forcing the nation to use less energy. One cures an energy shortage by creating more oil, gas, wind, geothermal, and solar energy.

Everything in our economy is inter-related. We are now short of homes, not because more people suddenly want homes, but because builders, who are short of labor and materials, can’t build fast enough. So home prices are soaring.

The cure for a shortage of homes: Fund the building of homes via appropriate tax cuts for all the home-building-related industries.

The list goes on and on, with the main culprits always being the same: Shortages, due not to increased demand but to decreased supply. The cure for a shortage: Increase the supply.

“I guess, with perfect hindsight, perhaps we would’ve moved to a contractionary policy stance to try to offset some of the supply chain issues and to offset the strong demand from the fiscal stimulus,” Minneapolis Fed President Neel Kashkari tells Axios.

“Offsetting supply issues” with a contractionary policy stance (i.e. creating a recession) is like starving the people as a cure for a food shortage.

But, he added, “I’m a little bit cautious about saying, ‘Boy, we should have just tightened earlier,’ because if the inflation’s being driven by … supply-side factors, it’s not clear what the benefit of that would’ve been.”

It should be clear that there would have been no benefit at all — just punishment of the private sector.

Yes, but: The real risk is that by waiting as long as it did to pivot to tighter money, the Fed will have to move so quickly to catch up that it triggers a breakdown, as the economy struggles to adapt to a world of less abundant cash.

When the Fed moves with maximum speed, consumers and businesses have less time to adjust to higher rates on all sorts of debt.

Time is not the issue. If cash is less abundant, the economy cannot adapt, slowly or quickly. When federal deficit spending does not increase sufficiently, we have recessions. Period.

Starving the economy of money is the issue. Fast starvation or slow starvation, both ultimately produce starvation.

When federal debt growth (purple line) declines we have recessions (vertical gray bars), which are cured by increased federal debt growth.

At its meeting that concludes this coming Wednesday, the Fed is likely to begin its catch-up process in earnest by raising short-term interest rates half a percentage point and commencing with shrinking its balance sheet by up to $95 billion a month.

To “shrink its balance sheet,” the Fed must pull money from the economy. That’s $95 billion removed from the private sector (i.e. the economy) every month.

That absolutely, positively will have a depressive effect on economic growth. 

The shift toward tighter money has rapidly spread out across lending markets. The average rate on a 30-year fixed-rate mortgage has soared from 3.11% at the end of last year to 5.10% now.

And still, we have inflation because the problem is not low interest rates. The problem is shortages. Cure the shortages and you cure inflation.

This is a situation where the government should throw money at the problem. Give the oil companies money on the condition they use it to raise salaries (to attract more people) and to purchase equipment.

Inflation (red line) parallels oil prices (blue line). Increase the supply of oil and you decrease the price of oil, which will decrease inflation.

Give farmers higher supplements and tax breaks for growing, and cut supplements for not growing. Similarly fund the building trades, purchase computer chips using the government’s unlimited funds, aid the shipping industries, all with direct supplements and tax breaks.

Meanwhile, eliminate the FICA tax to encourage management to hire, and and lower income taxes to encourage more people to come back to work.

Also, provide Medicare for All, taking that financial burden off corporations, to encourage hiring.

The bottom line: The Fed spent last year driving their metaphorical car at full speed, not realizing that they were entering a dangerous, curvy stretch of road. The road would still be dangerous no matter what.

The mistake was not slowing down sooner — making for a high risk of crashing. And we’re all in the car.

No, the mistake was driving their metaphorical car in the wrong direction. They already have the map in hand. They merely have to use it, and not stubbornly drive faster toward the east, when the goal is west.

Another metaphor: Trying to cure inflation by cutting the money supply is like trying to cure anemia by applying leeches.

IN SUMMARY

Inflation is a supply problem; inflation is not a demand problem.

Today’s inflation is caused by shortages of food, energy (mostly oil but also other forms of energy), shipping, computer chips, labor, and all the thousands of related products.

To cure inflation one must cure the shortages by increasing the supply. There is no other rational solution.

Attempting to cure inflation by cutting demand will result in recession or depression. There is no other outcome. 

The U.S. government is Monetarily Sovereign, meaning it has all the tools it needs in order to increase the supply of scarce goods and services.

Congress and the President control the U.S. government, so they, not the Fed, are responsible for preventing, causing, and/or curing inflations, recessions, and depressions.

……………………………………………………………………..

[No rational person would take dollars from the economy and give them to a federal government that has the infinite ability to create dollars.]

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

The single most important question in economics

Economics involves many questions, of course, but is there one question that is key? Is there one question, the answer to which opens the door to the entire study of economics?

After some thought, I believe such a question exists, and I will reveal my nomination here. You may disagree with my choice, and if so, I’d be glad to know yours, or if you feel no question is that important.

First, a bit of:

BACKGROUND

In the first eleven billion years of the universe’s existence, and the first 4 billion years of the earth’s existence, there was no such thing as the United States or the U.S. dollar.

But beginning in the 1700’s AD, men created a variety of laws. The laws were completely arbitrary and created from thin air, as all laws are. And as is true for all laws, these laws had no physical existence. They merely were concepts.

The laws could be spoken, handwritten, typed, printed, mimeographed, texted, Emailed, or delivered in any number of ways, but the laws themselves had no physical existence. They merely were an amalgam of ideas, concepts, and beliefs.Measure the Magic | ifundraiser blog

Some of those laws, which were created, from thin air, produced the political entity known as “the United States of America.” and some of those laws created, also from thin air, the U.S. dollar.

Those laws arbitrarily created millions of dollars, and arbitrarily created the value of those dollars, with regard to arbitrary amounts of silver and gold.

And now for the question that I believe to be the most important question in economics:

How Many Laws Can The U.S. Federal Government Create?

I suggest that the answer to this question is: “Infinite.”

Now “infinite” is a very big number. It is bigger than the number of glasses of water in all the oceans on earth. It is bigger than the number of stars in the sky. Infinite is bigger than the number of atoms in the known universe.

How is it possible for humans to create here on earth, something that is bigger than the oceans, stars, and the universe’s atoms? The reason is that water, stars, and atoms are physical objects, but laws have no physical existence.

Like creating numbers, the ability to create laws is limitless. You cannot see, hear, feel, taste, or smell a number or a law. You can sense representations of numbers and laws, but the numbers and laws themselves merely are concepts.

Similarly, the dollars created by laws, have no physical existence. You can see representations of dollars — dollar bills, bank statements, savings account passbooks, T-bill records, etc. — but you cannot see, hear, feel, taste, or smell a dollar. It is just a number in a balance sheet.

When you go to a store to make a purchase, you pay by presenting your credit card. Invisible dollars are taken from that card and sent to the card issuer, who in turn, sends invisible dollars to the store. Soon thereafter, invisible dollars will be taken from your checking account and sent to the credit card company, which will deposit these invisible dollars into its balance sheets.

All the while, invisible dollars will flow to and from the Federal Reserve, tidying things up. And it all will be done in thin air, with nothing but the occasional atom moving.

Because the U.S. dollar was created by U.S. laws, and because the federal government has the infinite ability to create U.S. laws, and because neither laws nor dollars have any physical existence:

I. Dollars are created by laws. The U.S. federal government has the infinite ability to create laws, so it has the infinite ability to create U.S. dollars.

We’re not even talking about an infinite ability to “print” dollars. Those printed green paper things you carry in your wallet are not dollars. They are representations of, or titles to, dollars. The real dollars are just numbers in numerous records and balance sheets all over the world.

Because the U.S. government has the infinite ability to create the laws that create dollars, and so has the infinite ability to create dollars, the government never unintentionally can run short of dollars.

And because the government has the infinite ability to create U.S. dollars:

II. The U.S. government has no need to collect U.S. dollars from anyone or anywhere.

This means the government has no need to borrow or to tax. It does not need to ask you for dollars. It does not need to ask China for dollars. It does not need to ask anyone for dollars. The federal government creates from thin air all the dollars it uses.

Even if all federal tax collections fell to zero, the federal government could continue spending forever. Not only that, but:

III. All the tax dollars you send to the federal government are destroyed upon receipt.

The amount of money that exists in the United States is divided into “M”classifications such as MZM, M0, M1, M2, and M3, according to the type and size of the account in which the instrument is kept.

The money supply reflects the different types of liquidity each type of money has in the economy. It is broken up into different categories of liquidity or spendability.

The tax dollars you, and everyone else  sends to the federal government generally come from checking accounts, which are part of the money supply measure called “M1.”

When you pay taxes, you take money from your M1 checking account and send them to the Treasury where they cease to be part of any money supply measure. Effectively, your tax dollars are destroyed.

The reason is clear. Because the federal government has the unlimited ability to create dollars, it would make no sense to try to measure its money supply, which is infinite.  If, say, you send $1,000 to the federal government, $1,000 + infinity = infinity. No difference.

That is why no one ever can answer the question, “How much money does the federal government have?” The only accurate answer is “Infinite.”

The Monopoly Example
If you ever have played the board game Monopoly, you know that it usually is played with four players, plus a Bank. The function of the Bank is to distribute Monopoly dollars to, and to collect Monopoly dollars from, the players, according to the rules.

But, one rule of Monopoly is that the Bank never can run short of dollars. If you were to open the game box to discover all the printed dollar certificates were missing, what would you do in order to play the game?

How to play Monopoly without using Monopoly paper dollars. Create a table. No column for the Bank.

One approach would be to take a sheet of paper and divide it into four columns, one column for each player.

At the top of each column you would print each player’s name, and below each name, a starting amount of money.

The illustration at the right shows that each player begins with 5,000 Monopoly dollars.

Then as each player spends and receives money, the amounts below that player’s name are changed.

Many of those dollars go to, and come from, the Bank, but the bank has no column because the Bank has infinite dollars.

In the game, when you pay dollars to the “Community Chest,” the dollars are supposed to go to the Bank, and when you receive $200 for passing “GO,” the dollars are supposed to come from the Bank.

Although the rules specify that tax dollars and other dollars go to the Bank, the above example shows that they really are destroyed upon receipt. The Bank has no column. There is no way to determine how many dollars the Bank has. It has infinite dollars.

In the real world, the federal government operates just like the Monopoly Bank: It collects dollars from the public, and it distributes dollars to the public. But once dollars are received by the Treasury, they disappear.

Though the Treasury keeps internal records, there is no way to determine how many dollars the government has. It has infinite dollars.

Since the federal government has no use for tax dollars, why does the federal government collect tax dollars?

There are three reasons: One real, one mythical, and one secret.

  1. The real reason the government collects tax dollars is to control the economy. It taxes what it wishes to discourage and it gives tax breaks to what it wishes to reward or encourage. That is why there are so many tax breaks for the rich people who control the government.
  2. The mythical reason the federal government collects tax dollars — a reason espoused by many economists — is to create demand for dollars with which to pay taxes. The demand for such cryptocurrencies as Bitcoin, Ethereum, and Litecoin, which are not supported by taxes, debunks this reason.
  3. The secret reason the federal government collects taxes is to help make you believe dollars are scarce to the government. This belief keeps you from demanding more benefits like expanded Social Security, Medicare for All, poverty aids, free college for all, and an end to the FICA tax.

The rich people and rich companies are rich only because of the Gap between them and those who are not as rich. If there were no Gap, we all would be the same. No one would be rich. And the wider the Gap, the richer are the rich.

The rich always want to be richer. This is known as “Gap Psychology,” the desire to widen the income/wealth/power Gap below, and to narrow it above.

Widening the Gap below can involve either gaining more for oneself or preventing those below from gaining. Either will make one richer.

To make themselves richer, the rich bribe the key sources of your information. They bribe the politicians (via political contributions and promises of lucrative employment later). They bribe the media (via ownership and advertising dollars). They bribe the economists (via university contributions and “think tank” employment).

All these sources of information combine to tell you the Big Lie, that in order for you to receive more federal benefits, taxes must be increased.

That misinformation provides an excuse for the current battles against President Biden’s “Build Back Better” Act, which first was proposed at a $3.5 trillion level, and since has been cut in half because of the Big Lie.

The pretext was that this proposal must be “paid for” with taxes. But, as you now know, taxes do not fund federal spending.

The federal government pays for everything by merely sending instructions (checks and wires) to creditors’ banks, instructing the banks to increase the balances in creditors’ checking accounts.

When the banks do as instructed, this creates more M1 dollars, the same kind of dollars you send to the federal government as taxes.

Since the federal government has no need to ask anyone for dollars, why does it borrow dollars?

The U.S. federal government never borrows dollars. The acceptance of deposits into Treasury Security accounts (T-bills, T-notes, T-bills) is wrongly called “borrowing” and federal “debt.” It neither is borrowing nor debt.IBV's Billionaires-Only Bank Vault In London Is So Hollywood It's Ridiculous

The closest parallel to a T-security account is a safe deposit box.

When you put dollars into your safe deposit box, your bank never touches those dollars, and your bank doesn’t owe you those dollars.

They neither are loans to your bank nor are they debts of your bank.

The bank “pays you back” simply by allowing you to take back whatever dollars are in your box.

Similarly, when you make a deposit into your T-security account, the federal government never touches those dollars. The government “pays you back” by allowing you to take back whatever dollars are in your account.

Since the federal government has no need to ask anyone for dollars, why does it provide for deposits into T-security accounts? There are two real reasons and one secret reason:

  1. The first real reason is to help the Federal Reserve to control interest rates. These accounts pay interest, the rates for which begin with Federal Reserve decisions regarding the state of the economy.
  2. The second real reason is to provide a safe, interest-paying place for people, businesses, and nations to “park” unused dollars.
  3. The secret reason is again to help make you believe the federal government is so deeply “in debt” it cannot afford to help narrow the Gap between the rich and the rest.

The federal government has no need to ask anyone for dollars, and has the infinite power to spend. But, doesn’t too much government spending cause inflation?

Remember that way back in the 1780s, the federal government created as many dollars as it wished and gave those dollars whatever value it wished — and it did all this by passing laws.

The federal government still has the unlimited power to:

  1. Pass laws
  2. Create dollars, and
  3. Control the value of dollars.

Over the years, the government has used all three of those powers. While nos. 1 and 2 already have been explained, you may be curious about how the government controls the value of dollars. It has two primary tools:

  • When the government raises interest rates, more people will want to obtain more dollars to invest in interest-paying bonds, and this increased demand for U.S. dollars increases their value.
  • Government fiat. When the U.S. was on various silver and gold standards, the government merely would pass laws saying that a dollar could be exchanged for specific amounts of gold or silver. The U.S. Constitution gives Congress the power “To coin Money, regulate the Value thereof.” The government, by fiat, can change the exchange rate between dollars and other currencies. This is known as “devaluation” and “revaluation.”

That said, the primary driver of inflation is not interest rates, or federal fiat, or federal deficit spending, or so-called federal “debt.” The primary driver of inflation is shortages.

If the “federal deficit spending” myth were true, an increase in federal deficit spending should correspond to an increase in prices.

Changes in federal deficit spending (blue line) vs. inflation (red line). Vertical bars are recessions.

There is no historical relationship between changes in federal deficit spending (blue line) and changes in inflation (red line). Federal deficits do not cause inflations.

IV. The driver of inflation never is federal deficit spending, but rather the scarcity of key goods and services.

Like all inflations through history, today’s inflation is caused by shortages of energy, food, computer chips, supply chain resources, and labor.

Some of these are related to global warming and some are related to COVID. Many are related to inefficient government.

Contrary to popular wisdom, today’s inflation could be controlled via increased federal spending to eliminate the shortages. Federal spending to increase oil and gas drilling, renewable energy production, farmer aids, computer chip production, shipping, and the elimination of taxes that discourage employment (i.e. FICA), would reduce inflation.

Also notice in the above graph that:

V. Recessions begin with reductions in federal deficit growth and are cured by increases in federal deficit growth.

This should surprise no one because economic growth requires money growth. The most common measure of economic growth is Gross Domestic Product (GDP) a formula for which is:

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

All three factors on the right-hand side of the equation are related to an increased dollar supply.

What happens when the federal “debt” (i.e., the net total of deficits) decreases?

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.

Again, this should surprise no one. Just as a growing economy requires a growing supply of money, reducing federal “debt” (i.e. running federal surpluses) takes dollars from the economy and sends them to the Treasury, where they are destroyed..

By definition, GDP is reduced when dollars are taken from the economy.

Fortunately, the U.S. federal government has the ability to create infinite U.S. dollars and to control their value, i.e. prevent excessive inflation.

So, the federal government has the ability to fund Medicare for All, Social Security for All and college for all who want it. Further, the government has the financial ability to eliminate the grossly recessive employment taxes (FICA) and to help the states, counties, and cities to reduce their tax burdens.

Given this infinite power, the federal government is left with one final question: Is there a limit? We know the government has the power, but is there a limit as to how much of this power the government should use?

The problem has two parts: Financial and political.

Financially, is there a dollar limit, beyond which federal deficit spending actually harms the economy rather than benefitting it?

There may be, but no evidence exists for any limit. As the following graph shows, federal “debt” (blue line) has increased massively, while inflation (red line) has followed a comparatively modest, even trajectory.

If federal deficit spending caused inflations, the blue line (federal deficits) and the red line (inflation) would be parallel.

Claims that future federal deficit spending, in any given amount, will cause inflation are based on intuition and guesswork and not on historical precedent.

Politically, is there a point beyond which federal deficit spending gives the federal government “too much power”?Libertarians think so.

In fact, Libertarians can be trusted to object to any amount of federal deficit spending, or even any amount of federal spending at all. They think people should be “free” to pay for unaffordable health care, education, infrastructure, housing, schooling, sustenance, and retirement.

Others think local governments should do what the federal government does because, in their belief, local governments know what local people want, and after all, aren’t we all “local” people?

Sadly, while the federal government, being Monetarily Sovereign, has infinite funds, monetarily non-sovereign local governments do not. They must levy burdensome taxes in order to spend.

The question of “too much federal power” often is answered in a general sense, but when specifics are broached, the answers are not clear. I, for one, have no idea what “too much” federal power is, except when it impinges on what I personally view as a personal privilege.

Outlawing recreational drugs, liquor, abortions, certain marriages, and certain books fall into that category. Mandating vaccination to protect our species does not. But that’s just my view.

Power begets criminality, but on balance I suspect local government tend to be less honest than does the federal government for one reason: The media do a better job of investigating and shining light on federal government than on local governments, where media have less investigative power and less influence.

SUMMARY
The most important question in economics is: How Many Laws Can The U.S. Federal Government Create? The answer is “infinite.” Since U.S. dollars are created by laws, the U.S. government can create infinite dollars and can give these dollars any value it chooses.

Thus, the U.S. government has no need to collect U.S. dollars from anyone or anywhere. All the tax dollars you send to the federal government are destroyed upon receipt.

Economic growth requires money growth, which requires federal deficit growth. The insufficiency of federal deficit growth leads to recessions and depressions, which can be cured only by federal deficit growth.

The driver of inflation never is federal deficit spending, but rather the scarcity of key goods and services. Inflations actually can be prevented and cured by increased federal deficit spending to cure shortages. To date, despite massive federal deficits, particularly in the past decade, we never have reached the level of “too much federal spending.”

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

Who is to blame for the endless failure of economics.

Why is the vast majority of the public so ignorant about even the most basic elements of economics?

5 Things Your College Professor Wished You Knew | Start School Now
This is what my professor was taught, and what he taught me, and what I’m teaching you. Now you teach it to others. That’s how science works.

Why do people believe the federal government, Medicare, and Social Security are running short of dollars?

Why does the harmful and financially ignorant debt ceiling persist?

Why is there poverty in America? Why is there so much street crime?

Why do the rich grow richer while the poorer fall further behind?

The wrong answers to all these questions stem from what is taught in our schools, by our so-called thought leaders.

Just as religious leaders teach from never-changing bibles, too many economics professors teach from never-changing assumptions.

But, what may be acceptable for religion is unacceptable for science.

Surprisingly few economics professors are willing to learn, understand, or teach the following facts.

  1. Financial debt is money, and money is debt. They are two sides of the same debt/money “coin.”
  2. Eliminating debt means eliminating money, which always is a recessionary/depressionary economic plan. GDP growth (by formula) requires debt/money growth. (GDP=Federal Spending + Non-federal Spending + Net Exports.)
  3. Gap Psychology dictates that the rich get richer (widen the Gap) not only by increasing their ownership of debt/money, but by reducing the not-rich’s ownership of debt/money.
  4. Federal “debt” is not debt, but rather it is deposits into privately-owned T-security accounts. The Treasury does not use those dollars. The accounts are paid off simply by returning their balances to the account owners. No tax dollars are involved. Thus misnamed federal “debt” is not a burden on the government or on future taxpayers.
  5. The federal government is Monetarily Sovereign. It has the infinite ability to create dollars. Thus, it does not borrow dollars. It accepts deposits into T-security accounts, the purposes of which are not to provide spending funds, but rather to stabilize the dollar and to help the Fed control interest rates.
  6. For the same reasons, federal taxes do not fund federal spending. Even if all federal tax collections totaled $0, the federal government could continue spending, forever. Federal taxes are destroyed (i.e. cease to be part of M1 or any other money supply measure) the instant they are received by the Treasury. That is why no one can answer the question, “How much money does the Treasury have?” The best answer is, “Infinite,” which remains “infinite” whether or not tax dollars are received.
  7. The purpose of federal taxes is not to provide spending funds, but rather to control the economy by discouraging what the government doesn’t like and encouraging what it does like.
  8. The income/wealth/power Gap is what makes the rich rich. Without the Gap no one would be rich; we all would be the same. The wider the Gap, the richer are the rich. The best way to narrow the Gap between the rich and the rest is for the federal government to provide benefits to the rest, which the federal government has the infinite ability to do.
  9. Street crime is a function of poverty. The best way to reduce street crime is not via increased policing, but rather by reducing poverty.
  10. There is no public benefit to private ownership of banks. All banks should be nationalized.
  11. Federal spending is not socialismFederal ownership (as with, for instance, VA hospitals and national highways is socialism.)
  12. No inflation in history has been caused by “excessive” federal spendingAll inflations are caused by shortages of key goods and services, most notably shortages of food, energy, and labor. Federal spending actually can eliminate inflation by increasing the availability of the scarce goods and services.

Where does all the misinformation come from? It begins with, and is promulgated by, the “experts,” the economists.

Blame the incurious, intellectually lazy economics professors, who do not question what they were taught in college, but rather parrot it to their students, who continue the endless circle. Add to those pejoratives the word “greedy,” since this all is financed by the rich as a way to widen the Gap.

Thus today, we continue to see the same old misguided, disproven worries about federal “debt” and federal deficits, federal government “insolvency,” benefit “unaffordability,” government spending as a cause of inflation and “socialism,” and the false need for federal taxes to finance federal spending.

Remember all of the above as today, you hear the specious arguments about the “debt ceiling,” exacerbated by the stubborn partisanship that could crash the American economy and the economies of the world.

Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell

……………………………………………………………………..

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps: Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY