It takes only two things to keep people in chains:
.
The ignorance of the oppressed
and the treachery of their leaders.
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The word of the past year is “fake.” President Trump calls everything with which he disagrees, “fake news,” and ironically, though not unexpectedly, he and the White House are the primary sources of “fake news.”
Sometimes it seems as though we are being bombarded with fake news coming at us from all directions, even from the most respected sources.
James C. Capretta is a resident fellow and holds the Milton Friedman Chair at the American Enterprise Institute (AEI), where he studies health care, entitlement, and US budgetary policy, as well as global trends in aging, health, and retirement programs.
Mr. Capretta wrote an article that was published by the American Enterprise Institute, ” . . . a public policy think tank dedicated to defending human dignity, expanding human potential, and building a freer and safer world.”
Given Mr. Capretta’s background, and that of the publisher, the article is stunning in the degree of misinformation — the “fake news” — it provides.
Immediately, you notice a photo of the ridiculous, misleading “debt clock.”
This serves as a warning that the article is absolutely going to be filled with fakery.
But it only gets worse and worse. Begin with the title of Mr. Capretta’s article, “The coming challenge of servicing our national debt.“
The federal government’s “debt” is nothing more than the total of deposits in T-security (T-bill, T-note, T-bond) accounts. When you purchase a T-security (aka “lend to the government”), you instruct your bank to take dollars from your checking account and deposit them into your T-security account.
There, your dollars remain. Prior to maturity, there never is a time when the dollars in your T-security account are removed. It always contains the dollars you put in, plus any interest dollars the federal government adds. You can check your account balance any time, night or day, and your money always will be there.
To pay you back, when your T-security matures, the federal government returns your money, plus interest. The government takes the dollars from your T-security account and sends them back to your bank, to be re-deposited into your checking account. No tax dollars are involved.
No one’s family is liable for anything. The dollars that exist in the T-security “debt” accounts are returned.
The federal government has the power to pay off the entire “debt” today, if it chooses, simply by sending existing dollars from T-security accounts back to the checking accounts of T-security owners.
Now, let us see what Mr. Capretta writes. Here are some excerpts:
As the economy heats up, the federal government’s borrowing costs are set to soar.
The most recent budget projections from the Congressional Budget Office (CBO) show the government’s annual interest payments on federal debt more than doubling over the next decade — from 1.5 percent of GDP in 2018 to 3.1 percent of GDP in 2027.
Higher borrowing costs threaten to make the government’s already daunting fiscal challenges even more intractable.
The U.S. government, unlike state and local governments, is Monetarily Sovereign. As such, it has the unlimited power to create its own sovereign currency, the U.S. dollar.
The very first dollars, created 240 years ago, were created from thin air by laws that were created from thin air.
So long as the federal government doesn’t run short of laws it never can run short of dollars. In fact, the ad hoc method by which it creates dollars, is to pay creditors:
The federal government sends instructions, not dollars, to the creditors’ banks, instructing the banks to increase the balances in the creditors’ checking accounts. When the banks do as instructed, brand new dollars instantly are created and added to the money supply.
Paying federal bills actually creates new money.
What then are the “daunting fiscal challenges” for a government that never can run short of money, and in fact, creates new money by the very act of paying bills?
From 2009 to 2016, the government ran a cumulative deficit of $7.3 trillion.
The $7.3 trillion deficit is supposed to shock you. Consider this: Back in 1940, the federal debt was $40 billion. At the time it was referred to as “a ticking time bomb.”
Every year thereafter, media “experts,” economists, and politicians called the federal debt “a ticking time bomb.” Today, the federal debt is $15 trillion — a gigantic 37,500% increase — and that “time bomb” hasn’t exploded.
The pundits have been wrong for 78 years, yet they still bemoan the debt.
At the end of 2016, federal debt reached 77 percent of annual GDP — up from 39 percent at the end of 2008.
This too is supposed to shock you, though:
a Debt/GDP ratio, for a Monetarily Sovereign nation, is meaningless.
Wikipedia says, “A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt.”
But if debt doesn’t matter, as is the case with Monetarily Sovereign governments, then the Debt/GDP ratio has no significance. Consider a few typical Debt/GDP ratios:
Japan 240%
Canada 100%
United States 75%
India 55%
China 20%
Russia 13%
Libya 10%
Which nations are more likely to be unable to pay their bills? Which nations have the strongest economies? What does the Debt/GDP ratio tell you?
In 2008, the federal government made $253 billion in net interest payments on debt that was $5 trillion at the end of fiscal year 2007, for a 5 percent average interest rate on the debt. The government made only $240 billion in interest payments in 2016, although the debt had more than doubled to $13.1 trillion at the end of fiscal year 2015, for a 1.8 percent average interest rate.
It’s hard to know what point Mr. Capretta thinks he is making, but the more the federal government pays in interest, the more stimulus dollars it pumps into the economy.
As monetary stimulus ends, and interest rates move toward more normal levels, the federal government will be required to pay higher rates on the funds it borrows.
That’s a good thing. The more federal “debt,” and the higher the interest rates, the more stimulus the private sector receives. I don’t think Mr. Capretta understands this basic fact.
But even a partial normalization of interest rates would dramatically increase federal costs, making it even more difficult for policymakers to get the nation’s fiscal house in order.
The nation’s “fiscal house” (Does this mean federal debt??) always is “in order.” It was “in order” in 1940 when the debt was $40 billion; it is “in order” today when the debt is $15 trillion; it will be “in order” years from now, when the debt is many trillions higher.
Moreover, the added interest expense on the debt is likely to far exceed the added revenue from stronger economic growth.
Above, Mr. Capretta writes what has become known as “The Big Lie” — the fake news that federal spending is funded by federal taxing. While state and local taxes do fund state and local spending, federal taxes do not fund federal spending.
Even if all federal tax collections fell to $0 — all FICA, all payroll taxes, all business taxes, all sales taxes, all luxury taxes, all taxes — even then, the federal government could continue spending, forever.
The federal government was able to borrow liberally over the past decade on the cheap, thereby masking the severity of the nation’s fiscal problems. As interest rates rise, the full scale of the budgetary challenge will be more visible.
The federal government, having the unlimited ability to create dollars, has no need to borrow dollars, and indeed, does not borrow. It accepts deposits in T-security accounts, some of which actually are owned by an agency of the federal government, the Federal Reserve.
And now folks, what follows is the fundamental purpose of the Big Lies about federal finances:
The purpose of the Big Lie is to widen the Gap between the rich and the rest.
The keys to limiting future deficits and debt are gradual changes in spending on the major entitlement programs, to lower their costs over the medium and long term.
Social Security and Medicare should be modified for future entrants to encourage longer working lives, more reliance on private savings in retirement, and greater efficiency in how health services are delivered to patients.
Yes, the goal is to cut Social Security, cut Medicare, cut Medicaid, cut poverty aids, cut anything that benefits the lower-income groups, while giving tax breaks to the rich.,
Why do the media, the politicians, and the economists promulgate the Big Lie? A few might be ignorant of the facts, but most are bribed by the rich, who what the Gap widened.
The media are bribed by advertising dollars and by ownership. The politicians are bribed by campaign contributions and by promises of lucrative employment later. The economists are bribed by university contributions and by lucrative jobs in think tanks.
This post began with the statement, “Sometimes it seems as though we are being bombarded with fake news coming at us from all directions.” Well, here’s another bit of fake news, this time from Mary Wisniewski in the 1/29/17 Chicago Tribune:
The long-promised Trump plan to rebuild the nation’s roads, bridges, and other public works could finally be released in the next few weeks — the president is expected to tout his program in Tuesday’s State of the Union address, and more details may come in February.
Everyone likes better roads and water systems, but many Republicans will balk if a gas tax hike is needed to pay for it, and Democrats have expressed doubts about what they see as its over-reliance on local government and private dollars.
Our Monetarily Sovereign government neither needs nor uses taxes to pay for anything, nor does it need or use local governments and private dollars.
The federal government pays for everything by creating brand, new dollars, ad hoc.
How to fund the program is the big unanswered question, both on the local and the federal side, noted Frank Manzo, policy director for the Illinois Economic Policy Institute, a nonpartisan think tank whose members include representatives from the construction industry.
“The devil is in the details …” said Manzo in an interview. “The actual funding side is going to be very difficult and even more difficult in the wake of a tax reform plan that will result in fewer resources for government spending, let alone infrastructure projects.”
Complete nonsense, just mere repetitions of the Big Lie. It comes at you from all directions.
The Trump plan wants 25 percent of the total appropriation to go to rural infrastructure programs, and requires that no individual state can receive more than 10 percent of the amount available.
See the illogic? States are monetarily non-sovereign. Dollars are not their sovereign currency. They do not have the unlimited ability to create dollars.
The federal government is Monetarily Sovereign. Dollars are its sovereign currency. It does have the unlimited ability to create dollars.
Yet the federal government wants the states to pay 90% of the infrastructure cost. Absolutely insane.
The administration has not said where the federal portion of the money would come from, other than unidentified budget cuts.
Another possible source is an increase in the federal gas tax, which has been 18.4 cents a gallon since 1994 and finances the Highway Trust Fund. Illinois’ gas tax is 19 cents and has not been raised since 1991.
In only two short paragraphs: Three misleading statements.
- The “unidentified budget cuts” already have been identified by the GOP. They would come from Medicare, Social Security, and other social benefits
- The increase in the federal gas tax not only is unnecessary, and would not fund any spending, but it is a regressive tax, falling most heavily on the 99%, thereby widening the Gap between the rich and the rest.
- There is no “Highway Trust Fund.” Federal Trust Funds (Social Security Trust Fund, Medicare Trust Fund, etc.) all are bookkeeping fictions. There can be no purpose of a trust fund for an entity having the unlimited ability to create dollars.
Illinois Congressman Dan Lipinski, the senior Illinois member on the House transportation committee, said relying on public-private partnerships, also known as PPP, has a limited usefulness.
It can work for toll roads because a private investor can get back his money, but would not work for projects like transit and rural roads, which benefit the people who use them but do not provide a source of income for investors, Lipinski said in an interview.
There is no use for a PPP, when one of the partners, the federal government, has the unlimited ability to pay for it all.
Another concern of Democrats is that the administration will find the $200 billion in federal money by taking it out of other infrastructure programs — robbing Peter to pay Paul, when Peter does not have much, to begin with.
Taking dollars out of “other infrastructure programs” does not pay for anything.
Ken Simonson, chief economist with the Associated General Contractors of America, said his organization has long supported indexing fuel tax rates for inflation and also trying to find other funding sources for road building including the broader use of tolls and legislation to allow states to do more public-private partnerships.
Mr. Simonson is an economist, who should know better. Federal fuel taxes do not pay for anything (though state and local fuel taxes do pay for state and local spending).
And so it goes. Fake news from all sides. It’s no wonder the public believes the Big Lie that spending by our government, having the unlimited ability to create its sovereign currency, relies on federal taxes.
It doesn’t take much thought to realize that is a ridiculous proposition. It’s as ridiculous as saying that if the U.S. passes laws, it’ll have to ask the public for some laws, before any more are passed.
Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
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The most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.
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 The Ten Steps To Prosperity can narrow the Gaps:
Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:
Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012
Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 