–The one simple step that instantly would stimulate the economy and reduce unemployment.

Economic austerity causes civil disorder. Reduced money growth cannot increase economic growth. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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The Tea and Republican Parties wish to cut federal taxes. In this, they are wise. For a Monetarily Sovereign nation, federal taxes have no positive function; they serve only to destroy money. The federal government neither needs nor uses tax dollars.

While, in theory, taxes can prevent inflation, in actual practice, tax changes would be inefficient and damaging. They are far too slow (When will they be collected?), far too political (Which taxes?) and not incremental (How much?). Although the federal government has managed to control inflation, federal taxes have not been the controlling device; interest rates have.

The Democrats wish to increase federal spending. In this they are wise. Many functions, beneficial to Americans, could use more federal support, including Social Security, Medicare, Medicaid, food stamps, research and development, food & drug inspections, infrastructure, education, homeland security, inspection and supervision of many industries, and on and on.

All three parties wish to reduce federal deficits. In this, all are unwise. A growing economy requires a growing supply of money, and federal spending is the method by which the government increases the money supply. It is absolutely impossible to stimulate the economy and/or to cut unemployment — our two most serious problems — without increasing federal deficit spending.

I suggest the one simple step that instantly would stimulate the economy and reduce unemployment would be to eliminate the FICA tax. I first recommended this in 1995, in my book, “The Ultimate America,” then in 1997 in “Free Money,” and more recently with this blog’s post, “Ten Reasons to Eliminate FICA.” I suggest you read it to see the 10 reasons.

FICA is paid, ostensibly, half by salaried employees and half by employers. But, in true effect, it is paid 100% by salaried employees, because employers base salaries on total cost to the company. If FICA were eliminated, several things would happen:

1. Employers would be encouraged to hire more people or to pay higher salaries, because the basic cost of salaries would be reduced by the 15% FICA cost. More people employed, having more money to spend, is perhaps the most powerful economic stimulus. And/or

2. Corporate profits would increase, allowing for more corporate investment, another powerful stimulus. And/or

3. More dollars would go to so-called “fat cats” (company officers), who would spend or invest those dollars, thereby transferring dollars to other people, who also would spend or invest. All that additional spending and investing would be highly stimulative.

In total, the elimination of FICA would grow business, eliminate recessions and reduce unemployment, by adding dollars to the economy. How many dollars?

FICA collected by the U.S. government is projected to reach $935 billion in 2011. (Budget of the U.S. government) This compares with overall federal receipts of $2,567 billion or 36% of total receipts.

The projected 2011 cost of Medicare and Social Security is $1,233 billion, compared to projected overall federal spending of $3,833 billion, or 32% of the total. So depending on how you wish to look at it, the elimination of the FICA tax would reduce federal taxes by 36% or increase spending by 32%, assuming the federal government would pay for Medicare and Social Security, just as it pays for all other federal agencies.

The federal deficit would rise from a currently projected $1,266 billion to $2,201 billion.

Because Medicare and Social Security already are federally-run programs, the elimination of FICA would not increase the “intrusion of big government into our lives” as the Tea/Republicans profess to hate. There would be no change whatsoever in so-called “intrusion.” Nor would this be a step toward the “socialism” the Tea/Republicans also profess to hate. Further, it need not reduce benefits offered by these social programs, an effect the Democrats (or at least the Democrat voters) say they will not abide.

Yes, the federal deficit and debt will increase, but a Monetarily Sovereign nation can pay any debt of any size, any time, merely by instructing banks to credit the accounts of U.S. debt holders – which the government can do, endlessly.

So, but one question remains: Will the resultant increase in the federal deficit and debt cause inflation, (and if so, is this a worse outcome than recession and unemployment?)

Would a 73% ($935 billion) deficit increase cause inflation? From a percentage standpoint, we have had many such increases. The 2007 – 2008 increase was 186%. The 2008-2009 increase was 208%. Back in 1982-1983 the deficit increase was 780%. At none of those times did deficit increases cause inflation.

What about that nominal dollar increase of $935. Well, in 2008-2009, the deficit increased from $458 billion to $1,412 billion, an increase of $954 billion. No inflation. In fact, there has been no relationship between federal deficits and inflation for at least 60 years.

(You can see the lack of relationship between federal deficits and inflation discussed further at Item 12.)

Summary: Today’s huge problems are recession and unemployment, not inflation. Eliminating FICA would greatly stimulate business, reduce unemployment and increase wages, all without causing inflation.

Let’s do it now.

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

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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings

MONETARY SOVEREIGNTY

–Why a dollar bill is not a dollar, and other economic craziness

You may have seen your bank; you may have seen your safe deposit box. But have you ever seen your checking account?

No, you haven’t. Your checking account is not a physical reality. It is an accounting notation. You could travel to your bank, and walk into the lobby, and you would not be one inch closer to your checking account than if you had stayed home.

When you receive a printed checking account statement, you receive evidence you own the dollars in your checking account. But, you never will see those dollars. They too, are not physical realities, but rather, accounting notations. In fact, you never will see a dollar, anywhere. No one on earth ever has seen a dollar.

A dollar bill is not a dollar.

A dollar bill is a piece of paper telling the world the bearer owns a dollar. It can be compared to a title. When you own a car or a house, you have a document telling the world you own that car or house. The document is called a “title.” The title is not the car or house. You can’t drive a title; you can’t live in a title. It’s just evidence of ownership. Your dollar bill is evidence you own that invisible dollar.

A dollar has no physical existence. You can’t hold a dollar. A dollar has no more substance than does a number. You can’t hold the number “one.” You can’t carry the number “ten.” When you write a check, from your invisible checking account, that check is a set of instructions telling your bank to debit your checking account and to credit the payee’s checking account.

One account is debited and another account is credited. No dollars move. They can’t. They aren’t physical. The peso, the euro, the mark, the pound, the yuan, – none of the world’s currencies are physical. They all are accounting notations.

The U.S. federal government has been Monetarily Sovereign since we went off the gold standard in 1971. Money creation no longer is limited by the availability of gold. Our Monetarily Sovereign government can pay any bill of any size at any time, merely by sending instructions to banks to credit bank accounts.

The world’s financial structure is based on instructions to banks. When the federal government owes you $1,000, it sends you a check for $1,000, and you send the check to your bank. The check is not money. It is a written instruction to your bank to credit your account. The bank does as instructed, and your account balance is increased by $1,000. The federal government can send such checks – such instructions – endlessly. It doesn’t need to borrow or collect taxes. It merely sends instructions.

The federal government never “prints” dollars. Printing implies a physical creation. But dollars are not physical. Warren Mosler, uses the analogy of a football scoreboard. The government creates dollars by crediting bank accounts; the scoreboard creates points by posting them. The government never can run short of dollars just as the scoreboard never can run short of points.

Is paying a debt a burden to the federal government? Is posting a score a burden to the scoreboard? Does the federal government need to tax or borrow dollars? Does the scoreboard need to tax or borrow points?

Can the government run short of dollars? Can the scoreboard run short of points?

Would the posting of points be “unsustainable” as some claim the federal debt is?

The federal government pays all its bills by typing numbers into a computer – just like a scoreboard.

The dollar bill is an IOU. On its face is printed, “Federal Reserve Note.” The words “bill” and “note” describe debt instruments (as in “T-bill”and “T-note”). These instruments are held by creditors to demonstrate debt.

When you hold a dollar, who owes you what? The federal government owes you full faith and credit, which may not sound like much, but actually is powerful. It means:

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

Every form of U.S. money is a form of debt. For many people, the word “debt” is threatening. That may be true for you and me and the states, counties and cities, and Greece and Ireland, all of which are monetarily non-sovereign, but not for our Monetarily Sovereign government, which can credit bank accounts endlessly.

Try to think of any U.S. money that is not owed by something to someone. You can’t.

Federal debt is not functionally the total of federal deficits. By law, the Treasury must issue T-securities (aka “debt”) in an amount equal to federal deficits. But that law is obsolete and could be eliminated immediately. Were it eliminated, there still could be deficits, but all federal debt would disappear.

Similarly, the Treasury could issue T-securities (debt), while the government did not run a deficit, or even ran a surplus.

Brief summary: A dollar has no physical reality. Neither does a checking account or any other bank account, debt, deficit, inflation, recession, depression, stagflation or money. All these terms are descriptive of accounting notations. The federal government can change any of these simply by typing into a computer.

Dollars do not physically move, because they don’t physically exist. When the government pays a debt, you may imagine dollars moving out of some government storage place into a creditor’s bank. But, there is no storage place; there is no movement. The government sends instructions to the creditor’s bank. That’s it. A Monetarily Sovereign government never can run out of instructions.

Given all of the above, how is there a debt crisis? How can the federal debt be a “burden” or “unsustainable” or a “ticking time bomb.” as the media love to claim?

One final thought: Debt-hawks typically confuse two questions:
1. How many dollars can the federal government create?
2. How many dollars should the federal government create?

When a debt-hawk is presented with the unassailable proof that the federal government cannot run short of dollars, and easily can pay any bill of any size, the rejoinder often is, “But that would cause inflation,” or “Why don’t we just give everyone a trillion dollars?” These responses indicate a quick switch in subjects, from question #1 to question #2.

This post describes only question #1. Question #2, which involves economic stimulus and inflation, is described in other posts. The answer to #1 is “infinite,” and that is why the federal debt is an obsolete, useless, meaningless, indeed harmful, concept.

Isn’t economics crazy?

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

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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it ruined my future.”

MONETARY SOVEREIGNTY

A Debt Parable. How ignorance and superstition destroyed our wonderful land

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Ignoring all facts and evidence to the contrary, America’s Congress, our President, our media, and most of our old-line economists intuitively knew the earth is flat, and if an American boat sailed far enough it would fall off the edge.

So to protect our shipping from this never-seen edge, Congress installed a barrier, preventing our boats from sailing too far.

Every few years, Congress moved the barrier farther out to sea, and while no American boat ever had fallen off the edge, nor had any American even experienced an edge, many wise men predicted this would happen “eventually,” and the repeated movement of the barrier was “unsustainable.” The media termed the edge of the world a “ticking time bomb.” They derided those who wanted to end the barrier with invective and such sarcasms as: “Are you saying ships can sail forever?”

Some foreign boats that were not seaworthy – rowboats, rafts and the like – had sailed out beyond the horizon, and never seen again. Proponents of the American barrier offered this as absolute proof the barrier was needed, and the edge actually existed.

Though the barrier prevented American boats from circling the earth, which limited our trade, and hurt our nation’s economy, and though we already were in a recession, Congress decreed the barrier would be moved no more. No American boats were allowed to sail beyond it. Our economy was not allowed to grow.

Meanwhile, other nations discovered the edge of the world was a myth. They did not limit their ships. Their trade expanded and these nations grew wealthy, as America slipped steadily into a deepening depression, until we were no more.

And that is how ignorance and superstition destroyed our wonderful land.

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

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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it ruined my future.”

MONETARY SOVEREIGNTY

–Does this report from the Committee for a Responsible Federal Budget make you angry? Does it make you afraid? It should.

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.

Does this report from the Committee for a Responsible Federal Budget make you angry? Does it make you afraid? It should.

Analysis of the 2011 Social Security Trustees Report, May 13, 2011

Today, the Social Security Trustees released their 2011 report on the financial status of both Social Security and Medicare. The reports make clear that both programs are on unsustainable paths, and reforms will be necessary to make them solvent. This analysis focuses on the financial status of Social Security.

The latest Trustees report shows Social Security’s position has deteriorated since last year. The Trustees estimate that the 75-year actuarial imbalance has now increased to 0.8 percent of GDP (2.22 percent of taxable payroll) compared to 0.7 percent of GDP (1.92 percent of taxable payroll) in last year’s report. Over the coming decade, the Trustees project cash-flow deficits of about $490 billion (including $131 billion in 2021 alone), compared to about $380 billion in last year’s report.

The Trustees now estimate that the program will exhaust its dedicated trust funds (one for old-age and the other for disability) in 2036, a year earlier than the 2037 date projected in last year’s report. At that time, absent changes in law, all current and future beneficiaries would experience an immediate 23 percent cut in benefits.

Even more pressing is the state of the Disability Insurance trust fund, which (if not allowed to borrow from the rest of Social Security) will run out of money by 2018, only seven years from now.

According to the Trustees, making Social Security sustainably solvent would take savings equal to 0.8 percent of GDP (2.22 percent of payroll) over 75 years and 1.5 percent (4.24 percent of payroll) in the 75th year.

Well, did that make you angry or afraid? It should have, because it is based on a lie – a government lie – and having the federal government lie makes all of us especially angry and afraid.

The lie, very simply is the implication federal spending relies on federal taxes. Social Security and Medicare are federal programs. FICA taxes paid to the government are less than benefits paid. Based on this, the Trustees say these federal programs will “run out of money.” A lie.

Were it true, the entire federal government already has “run out of money,” because federal taxes, with very few exceptions, have been less than federal spending, every year in our nation’s history. So beginning in 1776, America has been on what the Committee for a Responsible Federal Budget would call an “unsustainable” path and insolvent. Yet here we are, 235 years later, still “unsustainable,” still “insolvent” and still the most powerful nation on earth. Amazing, isn’t it?

Well, it would be amazing if you didn’t understand the federal government creates the dollars you use. It would be amazing if you believed federal taxes pay for federal spending and FICA pays for Social Security and Medicare. They don’t.

The U.S. is Monetarily Sovereign. If all federal taxes, including FICA, were reduced to $0 or increased to $100 trillion, neither event would affect by even one dollar, the solvency of any federal agency, including Social Security and Medicare. There is no functional relationship between federal taxes and federal spending. The federal government always pays its bills, regardless of taxes collected.

(The situation is different for states, counties and cities, which are not Monetarily Sovereignty, , so they do use tax money to pay their bills. The situation also is different for Greece, Ireland et al, which also are not Monetarily Sovereign. And the situation is different for you and me. We too, are not Monetarily Sovereign. For reasons I cannot explain, the federal government, the media, and even most economists, do not know the difference between Monetarily Sovereign and monetarily non-sovereign, and therein lies the problem.)

So yes, be afraid. Be very, very afraid, especially with both the Democrats and the Tea (formerly Republican) Parties believing our federal social programs must be cut. Your future and the futures of your children and grandchildren are in the hands of people who do not know what they are doing.

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

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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up my future.”

MONETARY SOVEREIGNTY

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