Who are America’s most dangerous people? What’s your opinion?
You might be tempted to name the white supremacists who attacked Congress and attempted to overthrow the U.S. election. Had they succeeded, the America you know and love would be gone.
Or you might list the Trump Republicans who encouraged, then excused, the attempted coup and who still are in our government.
But I offer you another choice:
These are the leaders of an organization called “The Committee for a Responsible Federal Budget” (CRFB).”
They did not cause or join a riot. They did not crash Congress. They did not cry, “Hang Mike Pence.” They are far more clever and subtle.
And that subtlety is what, in my opinion, makes them so dangerous. Even the group’s name, including the words “Responsible federal budget,” makes them sound so . . . responsible.
But the pen is mightier than the sword, and therein lies the real danger.
The CRFB doesn’t march or attack. They write. They talk. They reason. They influence other influencers like politicians, economists, and the media.
The group speaks to the public’s ignorance of federal financing. It draws false parallels between federal funding and personal financing. It even draws false parallels between federal financing and state/local government financing.
The general public does not understand that the parallels are false. So, when the CRFB people say, in essence, “If you do this, the federal government should do it too,” that sounds reasonable to the uninformed mind.
“If you must live within your means, the federal government should live within its means.” “If you can’t afford to borrow, you don’t borrow. The federal government should do the same.” “You have to pay off your debts. So should the government.”
You can’t argue with such logic — unless you understand it’s all a lie.
Federal financing is nothing like your financing, nothing like state/local government financing, and nothing like business financing. It is unique.
The Federal government is Monetarily Sovereign. It is the creator of the laws that created the U.S. dollar. It cannot run short of laws, so it cannot unintentionally run short of dollars. It can give the U.S. dollar any value it chooses.
No amount of federal spending is “unsustainable.” it does not need tax income or any income. Even if the federal government stopped collecting taxes, it could continue spending forever.
(The purpose of federal taxes is to control the economy by taxing what it wishes to limit and giving tax breaks to what it wishes to encourage.)
The government creates dollars ad hoc when it pays bills.
Even the language describing personal finances and federal finances can be different:
- The federal government never borrows dollars (It accepts deposits into accounts, the contents of which are privately owned. The government never touches the contents — similar to safe deposit acounts.)
- Federal debt is not a debt of the federal government. It is the total of the abovementioned accounts.
- Add to the debt means to add money to the economy. To reduce the debt requires that money in the economy be destroyed.
- A federal surplus is a deficit for the economy (aka “the private sector”). Similarly, a federal deficit is a surplus for the economy.
- A trade deficit is money flowing out, with goods and services flowing in. Since trade is assumed to be an equal exchange, the trade deficit also could be called “goods/services income.” For a government having the infinite ability to create dollars, goods flowing in are more important than dollars flowing out.
- The notorious “debt limit” does not limit debt; it limits paying for existing debt. It is the equivalent of insolvency.
- The federal government cannot unintentionally become insolvent. That means no federal government agency (Medicare, Social Security, the military, etc.) can become insolvent unless Congress and the President want it to.
- Federal “trust funds” are not real trust funds. They merely are record-keeping lines on a balance sheet. They too cannot become insolvent unless Congress and the President want that result.
In any economy, scarcity leads to higher prices. Inflation is a general increase in prices caused by an increase in the scarcity of goods and services.
Most inflations boil down to a scarcity of oil. Today’s inflation has been caused by COVID-related scarcities of oil, food, lumber, steel, rare earths, supply chains, labor, etc.
Federal deficit spending does not cause inflation. In fact, it could cure inflation if the spending focused on obtaining and distributing scarce resources.
Keep in mind the above facts while you read what the CRFB says:
What Would It Take to Balance the Budget?
It’s encouraging that many in Congress are focusing more on our unsustainable fiscal situation and want a plan to improve the nation’s fiscal outlook.
At no time does the CRFB tell why the fiscal situation is “unsustainable.” The federal government has run a deficit (taxes lower than spending) almost every year since 1940.
The net total of those deficits approximates $25 trillion. The CRFB has been wrong every year of its existence, and neither it nor its followers have learned anything from these failures. Yet here we are. Sustaining.
Unfortunately, due to continued borrowing over the past several years, the desirable fiscal goal of budgetary balance has become much more difficult to reach, and it is doubtful it could be achieved in a decade or less, notably if revenue, defense, and other parts of the budget are excluded from the solution.
The federal government does not borrow money. Why would it, when it has the infinite ability to create the laws that create U.S. dollars? It can’t run out of laws or dollars.
What the CRFB incorrectly terms “borrowing” is the acceptance of deposits into T-bill, T-note, and T-bond accounts, which are owned by depositors, not by the government.
The government never touches those dollars. It “pays off” the so-called “debt” by returning the dollars to their owners, the depositors.
And why is budgetary balance a “fiscal goal” when it invariably causes recessions and depressions? (See the first graph above.)
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.
In order to achieve balance within a decade, all spending would need to be cut by roughly one-quarter and that the necessary cuts would grow to 85 percent if defense, veterans, Social Security, and Medicare spending were off the table.
Economic growth is measured by Gross Domestic Product (GDP), one formula for which is:
GDP = Federal Spending + Non-federal Spending + Net Exports
Your elementary school algebra should show you what happens to economic growth when federal spending declines. Growth declines.
RECESSION: a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters
DEPRESSION: a prolonged and severe recession in an economy
By definition, the CRFB’s “fiscal goal” is a recession or a depression.
These cuts would be so large that it would require the equivalent of ending all nondefense appropriations and eliminating the entire Medicaid program just to get to balance.
And is that supposed to be a good thing?
Balancing the budget has become increasingly challenging over the past 15 years.
Efforts to show balance too often rely on unrealistically aggressive cuts, unspecified savings, rosy economic assumptions, and other budget gimmicks as a result.
Successful budget actions in recent years have come mainly from more targeted deficit reduction efforts than from trying to meet overly aggressive fiscal goals.
“Successful budget actions in recent years”? One is left to wonder what the CRFB considers “successful.” The only spending reduction in the past 80 years came in the 1998 – 2001 period, the reduction President Clinton is so proud to boast about.
It caused the recession of 2001, which was cured by increased deficit spending.
When the CRFB refers to “targeted deficit reduction,” they mean less money was spent on specific projects. The CRFB doesn’t explain how those mini-reductions were deemed “successful.”
And with deficits on course to reach $2.4 trillion (6.6 percent of GDP), balancing the budget is now harder than it has ever been.
Balancing the budget is problematic because it damages the economy. The CRFB is aware of this but pretends there is some way to cut Federal Spending while not cutting GDP — a mathematical impossibility.
The exact amount of savings needed for full budget balance is uncertain and will depend both on budget projections in the Congressional Budget Office’s forthcoming ten-year baseline as well as the path of any proposed policies.
In the recent CRFB Fiscal Blueprint for Reducing Debt and Inflation, we estimated achieving balance would require roughly $14.6 trillion of deficit reduction through 2032, including over $2 trillion of policy savings (and nearly $400 billion of interest savings) in 2032 alone.
To achieve these savings without more revenue, we estimate all spending in 2032 would need to be cut by 26 percent; this figure rises to 33 percent if defense and veterans spending is exempted from the cuts.
Cut all spending by “only” 26 or 33%? Think. How would that affect GDP? Then think of the definition of “depression.” The CRFB wants to cause a recession or depression as a “cure” for the non-existent evils of federal spending.
The true purpose is to make the rich richer by widening the Gap between the rich and the rest.
For a sense of magnitude, applying this cut across the board would mean reducing annual Social Security benefits for a typical new retiree by $10,000 to $13,000 in 2032.
It would also mean laying off 1.1 to 1.4 million federal employees (more than two-thirds of the civilian workforce if the military were exempted) and removing 20 to 25 million people from Medicaid eligibility.
Reducing Social Security and firing 1.1 to 1.4 million so that the federal government, which has infinite dollars, is not how to run an economy, though it is a great way to make the rich richer.
Excluding Social Security and Medicare from cuts would make the task of balance even more unrealistic. Without touching spending on defense, veterans, or Social Security, all other spending would need to be cut by 51 percent. Also, excluding Medicare would mean that the remaining spending would need to ultimately be cut by 85 percent.
It gets dumber and dumber, but the CRFB favors these draconian cuts to benefit the rich.
The figures above do not include additional savings that might be necessary if policymakers choose to extend $3 trillion worth of tax cuts that have expired or are set to expire in the coming years.
To give a sense of just how challenging achieving balance in 2032 by controlling spending is, it would require doing one of the following:
*Eliminating virtually all defense and nondefense discretionary spending programs;
*Cutting Medicaid spending in half while eliminating all other mandatory spending outside of Social Security and Medicare;
*Eliminating all nondefense discretionary spending and ending the entire Medicaid program;
*Repealing Medicare, all income security programs, and all refundable tax credits; or
*Discontinuing all Social Security retirement and survivors’ benefits.
Did you notice what is missing from the above list? Anything that would take from the rich. Because the CRFB is a tool of the rich, something like a 90% tax rate (which America had in 1941 is not even discussed. In 1941, in fact, Roosevelt proposed a 99.5 percent marginal rate on all incomes over $100,000. )
Wanting to balance the budget is an admirable and desirable goal.
No, it is a stupid goal. It would cause a recession if we are lucky, but most likely, a deep depression that only could be cured by massive federal deficit spending. The CRGB goal is based not on economic need but on making the rich richer. That is the CRFB mission.
The first step, of course, is to avoid actions that would worsen our already unsustainable fiscal situation.
The irony is palpable. Here are people recommending taking trillions from the private sector but claiming they want to “. . . avoid actions that would worsen our fiscal situation.” It would be laughable were it not so harmful.
We commend the adoption of a specific and realistic fiscal target.
The realistic target should be to narrow the Gap between the rich and the rest and to provide more human benefits to the populace. The federal government has all the tools it needs to create a paradise on earth, so long as these most dangerous people in America don’t hold sway:
Rodger Malcolm Mitchell
Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
The Sole Purpose of Government Is to Improve and Protect the Lives of the People.