What if China dumps its U.S. Treasuries?

BACKGROUND

The number erroneously referred to as Federal “debt” is the total of outstanding Treasuries. When you buy a Treasury (T-bill, T-bond, T-note), you add to the so-called “debt.”

I say “so-called” because Treasuries are not debts of the United States, nor are they debts of taxpayers.

Treasuries are deposits into Treasury Security accounts.

They resemble bank safe deposit boxes in that the depositor, not the bank or U.S. government, owns the deposits, and the bank never touches them.

Similarly, the federal government neither uses nor even touches the dollars that are in Treasury accounts.

The federal government does not use tax dollars to pay off a T-bill, T-note, or T-bond. The dollars do not help fund federal spending. Nor are they owed by future taxpayers.

Upon maturity, the federal government returns the dollars in a T-account as though these dollars were in a safe-deposit box.

Thus the so-called federal “debt” cannot be too high, nor can it be “unsuitable” (another favorite word of debt worriers) any more than a safe deposit box’s contents can be too high or unsustainable.

The federal government pays its bills out of the General Fund, similar to a checking account, and by law, this fund cannot be negative.

As a bookkeeping device, the federal government sells enough T-securities to offset whatever would be a negative General Fund total.

This accounting trick has no practical significance because the Federal Reserve, now Monetarily Sovereign, has the unlimited ability to increase the dollar balance in the General Fund.

Quote from former Fed Chairman Ben Bernanke when he was on 60 Minutes:
Scott Pelley: Is that tax money that the Fed is spending?
Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.

Statement from the St. Louis Fed:
“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”

Treasury securities are not a form of borrowing; they are not owed by the government or taxpayers and do not help the government pay its bills. So what is their purpose:

  1. They provide the world with a safe, convenient, interest-paying place to store unused dollars. This helps stabilize the value of the dollar.
  2. Because the Fed arbitrarily determines the interest at which deposits will accumulate funds, these accounts help the Fed control overall interest rates.

Among those who don’t understand Treasuries (T-bills, T-bonds, T-notes), a persistent refrain is, “What if China dumps or stops buying Treasuries?” What would the federal government do?

That is like asking a bank, what if your big, safe-deposit-box customer started taking money out of his box? The answers are:

  1. Nothing, or
  2. If the government needed to add dollars to the total “debt,” the Monetarily Sovereign Federal Reserve would buy T-securities — as many as it wished, whenever it wanted.

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

The U.S. is not unique in its unlimited ability to create dollars. The European Union has the unlimited ability to create euros:

Press Conference: Mario Draghi, President of the ECB
Question: I am wondering: can the ECB ever run out of money?
Mario Draghi: Technically, no. We cannot run out of money.

All of the above brings us to these excerpts from an article that appeared online:

Memo to China: You Look Silly When You Threaten to Dump Treasuries, 

Americans often quote the saying of President Theodore Roosevelt, “Speak softly but carry a big stick.” In other words, it is important to make only realistic threats. 

(In that vein), threatening to dump US Treasuries is silly.

China is the second-largest foreign holder of US treasuries, only after Japan. China’s holdings of US treasury securities dropped to $980.8 billion in May, falling below $1 trillion for the first time in 12 years, according to data released by the US Department of the Treasury.

The further deterioration of China-US relations will likely have a direct impact on China’s risk appetite for holding US treasuries, and reducing holding of US treasuries could become a precautionary option.

This was the only large scale ultimatum the Global Times story presented and it’s bizarre to see that one mentioned. China and Japan have both been reducing their holdings of US Treasuries in recent years, with no adverse impact to the US government funding or the dollar.

Recent US Treasury reports show China’s holdings at $981 billion, down from a peak of $1,316 in November 2013. That current $981 billion represents only 3.2% of total US government debt.

….the real reason China cannot sell off its holdings of U.S. government bonds is because Chinese purchases were not made to accommodate U.S. needs.

Rather, China made these purchases to accommodate a domestic demand deficiency in China: Chinese capital exports are simply the flip side of the country’s current account surplus, and without the former, they could not hold down the currency enough to permit the latter.

To see why any Chinese threat to retaliate against U.S. trade intervention would actually undermine China’s own position in the trade negotiations, consider all the ways in which Beijing can reduce its purchases of U.S. government bonds…

China can buy other U.S. assets, other developed-country assets, other developing-country assets, or domestic assets. No other option is possible.

The first two ways would change nothing for either China or the United States. The second two ways would change nothing for China but would cause the U.S. trade deficit to decline, either in ways that would reduce U.S. unemployment or in ways that would reduce U.S. debt.

Finally, the fifth way would also cause the U.S. trade deficit to decline in ways that would likely either reduce U.S. unemployment or reduce U.S. debt; but this would come at the expense of causing the Chinese trade surplus to decline in ways that would either increase Chinese unemployment or increase Chinese debt.

By purchasing fewer U.S. government bonds, in other words, Beijing would leave the United States either unchanged or better off, while doing so would also leave China either unchanged or worse off.

China remains an export-depended economy (even though it is currently trying to shift its economic model).

Therefore, it needs to run a current account (or trade) surplus. If it does not, China will face either

more unemployment, for reduced exports mean that the Chinese exporters are forced to lay off workers,

or more debt, as Beijing will encourage large fiscal transfers to the households (social security, unemployment benefits, food stamps, etc.) or the creation of new businesses to mitigate the consequences of unemployment.

All this requires more money and, consequently, more debt.

This is why China purchases US Treasuries: to run trade surpluses and avoid higher debt/unemployment — not, as many think, to “help” American consumers so that they can purchase more Chinese imports.

China might make geopolitical waves by buying Japanese government debt. The yen is trading at very low levels and the Japanese central bank has had to buy over half the debt outstanding.

This is one of the steps the Federal Reserve could take and often has taken. The Japanese Central Bank is Monetarily Sovereign like the Fed and the EU.

Even if China wanted to buy Japanese debt to support Japan (as in make a point about the US failure to do much about its long-standing post financial crisis distress), it’s not clear the market is liquid enough for China to procure all that much. 

In other words, this idea of punishing the US by dumping Treasuries may be appealing to a domestic audience, which has long been unhappy about the magnitude of China’s dollar foreign exchange reserves.

But no one knowledgeable in the US will lose sleep over it.

SUMMARY

The so-called federal “debt” is not a debt. lt is the total of deposits into Treasury Security accounts, which are similar to bank safe-deposit boxes. 

Neither the federal government nor future taxpayers owe the “debt.” To pay it off, which is done daily, the Treasury simply returns the contents of these accounts to the account owners.

These accounts serve two purposes: To provide a safe, interest-paying repository for unused dollars (which stabilizes the dollar) and to help the Fed control interest rates.

Thus, there is no danger inherent in a “too-large debt.” Even if China stopped buying T-securities, the U.S. government and U.S. taxpayers would be just fine.

 

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 socioeconomic 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

Two pieces of knowledge could turn America into a paradise

We could turn America into a paradise by understanding two truths:

1. Our Monetarily Sovereign federal government never can run short of money.

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.

Money is not a physical object. It is not a dollar bill or a coin, both of which are titles to money, not money itself.

Money is nothing more than numbers on a balance sheet. The federal government has absolute control over its balance sheets. It can change numbers at will, merely by passing laws, which is how it created the first U.S. dollars. It simply passed laws.

The federal government can add money to your checking account by instructing your bank to increase the account’s balance. It sends your bank a “Pay to the order of” document. New dollars are created and added to your account when your bank obeys those instructions.

Federal checks don’t bounce because Congress passes laws to prevent bouncing. Example: Every time we reach a “debt ceiling,” Congress raises it so that federal checks are honored.

That is how the federal government pays bills and creates dollars.

2. Federal spending never causes inflation. Shortages of critical goods and services cause inflation. The most common inflation-causing shortage is the shortage of oil.

The blue line is inflation. Purple is oil pricing. Vertical gray bars are recessions. Inflation tends to parallel oil pricing. The data show that oil shortages cause oil prices to rise, leading to inflation.

The best way to cure inflations is to remedy the shortages. Contrary to popular wisdom, federal spending does not cause the shortages that cause inflation.

Again, the blue line is inflation. The red line represents federal deficit spending. You’ll see no parallelism here. The data show that spending does not cause inflation.

The federal government cannot run short of dollars, and federal deficit spending does not cause inflation. Once you fix those two absolute truths in your mind, you will understand the rest of this post.

We cannot rely solely on a private sector, constrained by money supply and the profit motive, to finance what the world needs. The federal government is constrained neither by money supply nor profit motive.

Here is how I visualize paradise. No poverty. No hunger. No crime. No “bad” neighborhoods. Good healthcare for all. The Gaps between the richest and the rest are narrow. All who want a good education receive one. Children and the elderly receive good care.

There is plenty of good food, good water, suitable affordable housing, good air, and good weather.

How do you visualize paradise?

Here are just a few of the things we could do:

1. Provide free, comprehensive, no-deductible healthcare and long-term care to everyone in America, regardless of age, income, or health history.

The government can pay for everything related to medical care: Doctors, nurses, hospitals, drugs, ambulances, equipment manufacturers, etc.

There would be no need for Medicare Part A, B, C, D, or Supplementary. The government would function as the insurance company.

It would not be “socialized medicine.” As with Medicare, the government only would pay, not administer. Doctors and nurses still would make all medical decisions.

2. Eliminate the Federal Insurance Contribution Act (FICA) tax on employees and employers. FICA is the ultimate regressive, anti-employment tax that is utterly useless.

Contrary to popular myth, FICA does not fund Social Security or Medicare. FICA dollars taken from employees and employers come from the economy. Those dollars are destroyed upon receipt by the U.S. Treasury.

3. Provide tax-free Social Security benefits to everyone in America. Each person would receive the same benefits. There would be no age, current employment, or previous employment history deductions.

This may be the most direct benefit to employ because it can be done at the stroke of a pen. President Obama did it temporarily in 2011. FICA should be cut permanently. Payroll-Tax Cut Measure Signed Into Law by Obama

4. Provide free college for everyone who wants one. Education is so essential to America’s future that the founders of this nation made sure it was provided free to everyone — at least, for grades K-12, where monetarily non-sovereign (state & local) governments offer it.

Today, college is far more critical than it was back in the 1700s, so for the same reasons that grades k-12 generally are free, college should be free and accessible to all.

5. Pay a salary to all those attending school. Going to school is a job, like any other job. America needs an educated populace.

Many children, especially those of high school and college-age, don’t attend school because they and their families need income.

A school salary will help young people resist the temptation to quit school, commit crimes, or join gangs.

6. Federally funded school lunch for pre-school through grade 12. No means-testing, thus eliminating the stigma.

The National School Lunch Program (NSLP) is a federally assisted meal program operating in public and nonprofit private schools and residential child care institutions. It provides nutritionally balanced, low-cost lunches to children each school day. 

About 7.1 million children participated in the NSLP in its first year. By 2016: 30.4 million children participated.

Like most federal programs, the NLSP is unnecessarily complex and means-tested. There is a lunch program (“high lunch” and “low lunch), a breakfast program (“severe-need” and “non-severe need), an after-school-snack program, a special milk program, a summer food service program, and a seamless summer program, each having various remuneration schedules.

Rather than having a government agency serve as America’s dietician, the entire breakfast/lunch program should be handled like Medicare, where the doctor makes the decisions and Medicare pays the bills.

For NLSP, the local dietician should schedule the meals and submit costs to the government. Not only would this be simpler, but it would encourage serving fuller, better, more nutritious meals.

7. Eliminate means-testing from all federal programs. Federal means-testing is complex and expensive. It arbitrarily defines who will receive benefits and eliminates the poor who almost, but not quite, are poor enough.

Means-testing stigmatizes those who receive benefits; it encourages cheating to qualify and discourages efforts to improve one’s means.

A classic means-testing example is the Supplemental Nutrition Assistance Program (SNAP, food stamps). It is a massively complex program with many requirements.

According to the Council on Aging:

*The Supplemental Nutrition Assistance Program, or SNAP, is the most extensive domestic hunger safety net program, helping low-income older adults achieve food security.

*Approximately three out of five seniors who qualify to receive SNAP are missing out on benefits—an estimated 5 million people.

*For older adults with low income, the $1,248 average annual benefits can mean the difference between having food and going without.

Federal means-testing has one purpose: To minimize the amount of money the federal government spends.

Yet, there is no reason the federal government ever needs to minimize spending. The federal government has infinite money; federal spending creates economic growth, and federal spending does not cause inflation.

Federal means-testing for benefit programs is all negatives with no positives. It is based on the false premise that the federal government’s finances are limited, like state and local government finances.

8. Financially support the research, development, and usage of renewable, low- or zero-carbon energy. We have begun to experience the terrible result of carbon-based fuels. Global warming is upon us, with even worse results coming.

The government must do much more to encourage zero-carbon energy: solar, wind, geothermal, hydrogen, hydro, and nuclear.

It must fund research on unknown or unproven energy sources, for instance, the massively expensive tokamak. Solar panel production should be supported, and installation should be free. Financial support should be given to companies offering existing forms of renewables and to people who use renewables.

That will help reduce climate change and take inflationary pressure off oil.

9. Financially support the research and development of low-carbon-fueled cars, trucks, buses, ships, trains, airplanes, homes, offices, and factories. This includes funding research into more efficient batteries and electric infrastructure, transmission networks, superconductors, and charging stations.

10. Financially support the purchase and use of low-carbon-fueled cars, trucks, buses, ships, trains, airplanes, homes, offices, and factories. Often, the public is slow to adopt new technology, especially if it is not immediately and financially beneficial.

The federal government has the power to make adoption financially beneficial while R&D brings the technology into economic self-sufficiency.

11. Financially support water purification and desalination research, development, and distribution. The world is covered with water that isn’t good for drinking or growing crops. We need more efficient water purification, desalination, transportation, and usage.

America is losing its fresh water daily.

An ‘environmental nuclear bomb’ as Utah’s Great Salt Lake dries up.

What is Water Scarcity?
Water scarcity involves water crisis, water shortage, water deficit or water stress.

Water scarcity can be due to physical water scarcity and economic water scarcity. Physical water scarcity refers to a situation where natural water resources are unable to meet a region’s demand while economic water scarcity is a result of poor water management resources.

About 70% of the Earth’s surface is covered with water, and 3% of it is actually freshwater that is fit for human consumption. Around two-thirds of that is tucked in frozen glaciers and unavailable for our use.

Water scarcity already affects every continent and around 2.8 billion people around the world. More than 1.2 billion people lack access to clean drinking water.””

Causes of Water Scarcity: Overuse, pollution, conflict, distance, drought, governmental access, global warming, illegal dumping, groundwater pollution, and natural disasters.

All of these can be moderated or eliminated by properly used government funding.

12. Financially support farmers and advanced farming methods (for example, hydroponics, genetic engineering of more productive, healthful crops, reduced use of fertilizers, water, and pesticides).

The federal government financially should support the purchase of efficient farm equipment.

American farmers are nearing extinction. President Trump’s trade war hasn’t helped matters. After the United States slapped tariffs on Chinese goods, including steel and aluminum, last year, China retaliated with 25 percent tariffs on agricultural imports from the U.S.China then turned to other countries such as Brazil to replace American soybeans and corn.

Even large companies are facing unprecedented challenges; Dean Foods, a global dairy producer that buys milk from thousands of small farmers, filed for bankruptcy in 2019.

13. Give more financial support to pure scientific research. Unlike applied research, pure research is not designed to result in profits. Its purpose is to add to scientific knowledge. It is why we went to the moon and want to go to Mars, not for immediate gains but for learning.

Sometimes we learn much that is valuable today. Sometimes we find that much we may discover has value 100 years from now. We build a long-term knowledge base handed down through the generations. That is one of the qualities that differentiates humans from all other animals.

Even “failed” research has immediate value in showing what doesn’t or might work in the distant future. Failed research can be the beginning of serendipity.

The profit-motivated private sector cannot justify doing much pure research. For example, pharmaceutical companies are reluctant to spend money searching for the causes and cures of rare diseases. But that research is valuable, not only for curing rare diseases today, but it may lead to other purposes we hadn’t even imagined.

Consider such projects as weather prediction and control, meteor and comet protection, volcano prediction and control,

14. Support the states with a per-capita payment. Something like Social Security for the U.S. states.

State and local governments are monetarily non-sovereign.

Unlike the Monetarily Sovereign U.S. government, states generally run short of the dollars they need to take care of local problems: Schools, streets, infrastructure, parks, garbage/recycling/water, police, fire departments, etc.

Most states borrow, which means they later will need to spend less (provide less to their residents), tax more (take more from their residents), or both.

The federal government should take those burdens from local taxpayers’ shoulders.

15. Federal support for the postal service. The mail is as vital to America as any other government service. There is no public benefit to requiring the postal service to pay its own way.

The Postal Service receives no direct taxpayer funds. It relies on revenues from stamps and other service fees.

Although COVID-19 has choked off the USPS revenue in recent months, factors that arose well before coronavirus have contributed to the unsustainability of the Postal Service’s financial situation for years.

While the USPS generates enough revenue to cover its operating costs, its pension and retiree health care liabilities push its bottom line into the red. The USPS has operated at a loss since 2007.

Because of the rise of email and digital communication, USPS has seen the volume of First-Class Mail decline from a peak of 103.5 billion pieces in 2000 to just shy of 55 billion pieces in 2019.

USPS has tried to increase the delivery of marketing mail and has tried to compete with UPS and FedEx in the parcel delivery sector, including by forging a delivery deal with Amazon.

This has provoked criticism from (past) President Trump (Because of his personal animosity with Jeff Bezos.)

08
Can there be life without beauty?

16. Increase support for the arts. The arts are the difference between seeing the world in color vs. drab shades of gray.

Science provides pronouns, nouns, and verbs, but the arts offer adjectives, adverbs, and interjections.

To live as humans, we need music, painting, architecture, poetry, and literature.

If you have visited or seen photos of Soviet-era architecture, you understand the cold, functional, inhumanity of a joyless world.

17. Eliminate income taxes on all but the top 1%. The Gap is too wide, and it is widening. In that regard, here is what FOX wrote:

In 2018, the top 1% of taxpayers – defined as those with adjusted gross income (AGI) (AGI) above $540,009 – earned 20.9% of all AGI and paid 40.1% of all federal income taxes, according to data from the Tax Foundation.

The group paid more in income taxes (at about $615 billion) than the bottom 90% of taxpayers combined ($440 billion).

Do you see what’s wrong with what the mouthpiece for the rich wrote? That 20.9% figure is bogus. Much of the income the top 1% receives isn’t counted in AGI (Adjusted Gross Income.)

Think of the fully paid, comprehensive health insurance, travel, meals, vacations, apartments, stock options, entertainment, clothing, taxis, and other expenses that companies spend on behalf of key employees.

You pay for those things using your AGI dollars, but the upper 1% doesn’t. The richest among us may not remember what it’s like to write a personal check. Do you think Donald Trump even carries a wallet?

Then there is real estate depreciation, which is how billionaire Donald Trump pays fewer tax dollars than you did.

And remember, FICA and other taxes paid by the “lowly” 99% are not paid by the 1% who don’t take salaries.

GOVERNMENT WASTE

Waste is bad. The word “waste” is a pejorative. State and local government waste comes out of your pocket.

But federal waste is another matter. The dollars cost you nothing. In fact, wasted federal spending adds stimulus dollars to the economy.

Of course, it would be far better for those dollars to have produced something of value, but the mere spending benefits us all.

So, don’t worry so much about wasted federal spending. Of course, we want federal dollars to be functional, but even the most outrageously wasted dollars — bridges to nowhere — still add to the nation’s economic growth.

SUMMARY

There is so much the wealthiest entity on the planet — the U.S. government — could do to benefit Americans and the world.

But, the government is restricted by the widespread false belief that federal finances are like state and local government finances.

That false belief seems logical to the private sector, which is monetarily non-sovereign and limited in what it can spend.

I have listed several areas where the populace would benefit from federal money input. You probably can think of many others.

None of these suggestions involves socialism, which is ownership and control. All the federal government would be asked to do is provide money.

The federal government already has the power to bring us closer to paradise. You only need to understand the two essential truths and convey them to the world:

  1. The federal government cannot unintentionally run short of dollars.
  2. Federal deficit spending does not cause inflation and often can cure inflation.

Scott Pelley: Is that tax money that the Fed is spending?
Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account. (Quote from Ben Bernanke when, as Fed chief, he was on 60 Minutes:)

Statement from the St. Louis Fed:
“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”

Press Conference: Mario Draghi, President of the ECB, 9 January 2014
Question: I am wondering: can the ECB ever run out of money?
Mario Draghi: Technically, no. We cannot run out of money

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 critical 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 socioeconomic ranking and to come nearer those “above.” The socioeconomic 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

It breaks my heart to see this headline. It should break your heart, too.

[Why would any sane person take dollars from the economy and give them to a federal government that has the infinite ability to create dollars?]

It breaks my heart to see the following headline. It should break your heart, too.

Millions of vulnerable Americans likely to fall off Medicaid once the federal public health emergency ends
By Amy Goldstein

This image has an empty alt attribute; its file name is image-1.png
“Pay no attention to those many trillions behind me. I’m too broke to help you (unless you’re rich.)”

Begin with two central facts: The U.S. federal government is Monetarily Sovereign, and a Monetarily Sovereign entity cannot unintentionally run short of its own sovereign currency.

The federal government has infinite dollars.

Thus, your federal tax dollars do not fund federal spending.

Even if all federal tax collections totaled $0, the federal government could continue spending, forever.

All federal taxes are destroyed upon receipt.  Your M1 money-supply tax dollars cease to be part of any money-supply measure, once they reach the Treasury. They effectively are destroyed.

The government creates new dollars, ad hoc, every time it pays a bill. That is how the federal government creates dollars. The more debts the government owes, the more money it creates.

Contrary to what you repeatedly are told, your grandchildren are not liable for the federal “debt.” Not now, not ever.

WASHINGTON — The bipartisan spending deal that Congress cleared last week provides billions of dollars in aid for Ukraine, but it cuts other humanitarian programs meant to address mounting hunger crises elsewhere in the world, including Afghanistan and West Africa.

The initial House-passed bill and one offered in the Senate, written by majority Democrats, would have largely fulfilled the White House’s humanitarian funding request.

In interviews and statements, foreign aid advocates said they were “embarrassed” and “flabbergasted” that Congress reduced funds for dealing with the worst refugee displacements since World War II and other crises caused by mounting natural disasters and manmade conflicts.

The cuts to nonemergency humanitarian spending, as well as the lack of any international COVID-19 assistance in the omnibus, are a “self-inflicted wound” to America’s ability to recover from the pandemic and to pursue its long-term national security interests, said Liz Schrayer, president of the bipartisan U.S. Global Leadership Coalition.

Independent budget analysts have pinned blame on Republicans’ insistence that any increases in nondefense spending be kept roughly equal to increases in defense spending.

“We have more people who are hungry and people who are hungrier getting hungrier and we have no grain. It is absolutely catastrophic,” Peña said. “SFOPs got the raw end of the stick.”

The Senate’s lead foreign aid appropriator issued a similar view in an uncharacteristically blunt statement for a congressional appropriations cardinal criticizing his own bill.

Everywhere you turn, the phony belief that the federal government must operate under restrictive budgets, like you and I must, is a self-inflicted wound on America.

The so-called “federal debt” is not a debt (It is deposits in T-security accounts), and it is not a burden on anyone. (The “debt” is paid off simply by returning those deposits.)

Our federal government, having unlimited resources, pretends it is limited, and the public believes the lie.

The sole purpose of the lie is to keep you from asking for the same federal benefits that the rich (who pay no taxes year after year) receive.

So long as you are kept ignorant, the rich will keep getting richer and you will keep paying.

WHAT ABOUT INFLATION?
In addition to the lie about the federal debt being a burden, there is the lie that federal deficit spending causes inflation. It is widely believed, but it is a flat-out lie backed by no facts.

There is no relationship between federal deficit spending (red line) and inflation (blue line).

Inflations are caused by shortages, most often shortages of oil.

Today’s inflation is caused not only by shortages of oil but also by scarcities of food, shipping, labor, computer chips, vital minerals, lumber, and many other COVID-induced problems.

For many, many years, the US had massive deficit spending with low inflation, but now, with the effects of COVID and the Putin war, we suddenly see inflation. Clearly, deficit spending was not the cause.

The Fed’s attempt to address inflation by raising interest rates will not succeed while the real causes, shortages of oil et al, persist. Congress can address these shortages by spending more to facilitate the supply of all scarcities.

One good step would be to eliminate the harmful FICA tax, which doesn’t fund Medicare or Social Security but does discourage hiring by increasing the cost of labor.

And this is what breaks my heart. A Congress that never has to worry about having enough to eat, or a place to sleep, or good schools for their children, has decided America “can’t afford” to provide these things to the “lazy” poor.

Of course, the “can’t afford” meme is a blatant lie. America can afford anything that costs dollars.

But the rich, who bribe and control our government, don’t want the Gap between them and the rest of us to narrow. The wider the Gap, the richer are the rich, so widening the Gap is the way our spineless Congresspeople vote.

“Spineless” is the only way to describe the 100% refusal of one party to approve spending for the poor. These subservient sheep do exactly as they are told by the rich, then collect their excessive salaries and bribes, while the less fortunate among us pay the price.

So long as you believe that your federal taxes fund federal spending and that federal spending causes inflation — so long as you believe those two lies — then the rich will have won and you will have lost.

Ignorance has its costs.

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 five lies that have destroyed the American dream

America — at least, the America we like to dream exists — has been destroyed, if it ever really existed.

It is not the America of the common person, but rather it is the America of royalty, the same kind of imperial royalty we fought against during the Revolutionary war.

King George was a piker compared to our America’s rich.

Today’s America is more financially stratified, and therefore power-stratified than at any time in our history. We have kings, princes and serfs, just as surely as existed during medieval times. Worse, perhaps.

Nothing will change while Americans believe these five lies:

  1. The federal “debt” is too high (It isn’t even “debt,” and it isn’t too high.)
  2. Federal taxes fund federal spending. (Unlike state & local government taxes, federal taxes fund nothing. In fact, federal tax dollars are destroyed upon receipt by the Treasury. That is why no one can say how much money the Treasury has. It has infinite dollars.)
  3. The federal government can’t afford Medicare for all, Social Security for All, housing for all, college for all, or food for all. (The federal government can afford anything.)
  4. Federal spending causes inflation. (It doesn’t. Inflation is caused by shortages of key goods and services, i.e. food, energy, computer chips, labor, shipping. In fact, federal spending cures inflation when it facilitates obtaining the scarce items)
  5. If the government provides the necessities, the poor won’t work. (The “starve ‘em ‘til they slave” system works only for the rich. People always will work to improve their situation, whatever that situation may be.)

Lie I. The Federal Debt Is Too High

The federal “debt” is many things, but it is not “debt” and it is not “too high.

The federal debt is the total of deposits into Treasury Security accounts (i.e. T-bills, T-notes, T-bonds). The purpose of these accounts is not to provide the federal government with spending money but rather:

To provide a safe, interest-paying storage place for unused dollars.

To assist the Fed in setting interest rates.

Treasury Security accounts, which resemble safe-deposit accounts, are owned by depositors. The federal government does not need, use, or touch the dollars in the accounts.

As with safe-deposit accounts, the deposits in the T-security accounts are not a true debt of the federal government, which merely safeguards the money. Think of the federal government as the uniformed guard who stands outside the safe deposit room, and checks signatures. He doesn’t owe the money, either.

When the T-securities mature, the government pays them off simply by returning the dollars in the accounts, which is no burden at all on the federal government. The government merely debits the accounts and credits the checking accounts of the T-security owners.

No tax dollars are involved. Contrary to popular myth, your grandchildren will not owe the federal debt.

Confusion in the minds of the public arises because, by law, the total of these accounts equals the net total of all federal deficit spending through history.

Thus, the public is made to believe wrongly that federal deficits must be “paid back” by taxpayers. But, federal deficits merely are the arithmetic difference between spending and taxing, which gives the wrong appearance that federal taxes actually fund federal spending.

This, in turn, gives the wrong appearance that federal taxpayers owe the federal debt.

Federal deficits never are “paid back.” Federal taxes don’t fund federal spending. And taxpayers do not owe the federal debt.

Lie II. Federal taxes fund federal spending.

Unlike state/local governments, and unlike euro-nation governments, and unlike businesses, and unlike you, and me, the federal government is Monetarily Sovereign.

In the 1780s, the federal government created an arbitrary group of laws from thin air, that created an arbitrary number of dollars — from thin air — and they gave these dollars an arbitrary value.

Over the years, the government arbitrarily has changed the value of the U.S. dollar (aka “inflation” or “deflation.”)

The government still retains the power to create more arbitrary laws and arbitrarily more dollars — again from thin air — and again give them any value it chooses. Thus, it has the unlimited power to cure inflation at the stroke of a pen, although it prefers to use market-oriented methods (interest rate changes0.

The federal government pays all its creditors by sending instructions (not dollars) to the creditors’ banks instructing the banks to increase the balances in the creditors’ checking accounts.

When the bank obeys those instructions, new dollars instantly are created. That is how the federal government “prints” most of its dollars, not with a printing press but with a computer key.

Ben Bernanke, Former Federal Reserve Chairman: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

None of this is related in any way to the tax dollars that are created and destroyed every day. Tax dollars are paid with checking account money from the M1 money supply measure, but when they reach the Treasury, they cease to be part of any money supply measure.

They effectively are destroyed. Even if the federal government collected $0 in taxes, it could continue spending and running deficits, forever.

Lie III. The federal government can’t afford Medicare for all, Social Security for All, housing for all, college for all, or food for all.

This lie often is told in conjunction with related lies such as, “The Social Security trund will run out of money on [date].” (All federal “trust funds” are fictional. Real trust funds involve a grantor, a beneficiary, and a trustee).

In a real trust fund:

  • The grantor establishes the trust fund, donates the thing of value to it, and decides the management terms.
  • The beneficiary is the person for whom the trust fund was established. The assets in the trust will be managed per the specific instructions and rules laid out by the grantor when the trust fund was created.
  • The trustee makes sure the trust fund maintains its duties as laid out in the trust documents and according to applicable law. 

The Social Security “trust fund” is nothing like the above. It merely is a bookkeeping device that may or may not pay a beneficiary an unknown amount of money at the whim of Congress and the President. 

If you collect Social Security, you are the ostensible “grantor” who pays a FICA tax that supposedly is the “thing of value,” but you do not “establish the trust fund,” and you do not decide the management terms, and FICA is just another tax that pays for nothing.

You also are the beneficiary, but the rules can change without warning. And the government is the supposed “trustee,” but it has the power to change the “trust documents” at will, a power no real trustee has.

Social Security is a federal agency. No agency of the federal government can run short of money unless that is what Congress wants.

Former Federal Reserve Chairman Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

The so-called “trust fund” is completely under the control of Congress, and it only can run short of money if Congress wants it to run short of money. Period.

Another related lie is that federal benefits must be “paid for.” We have heard this lie repeatedly from Sen. Manchin and other politicians regarding the Democrats’ “Build Back Better” proposal. It is supposed to mean that federal taxes must pay for federal spending.

Fact: All federal spending has been “paid for,” not by taxes but by money creation.

Federal taxes pay for nothing. Manchin and the other politicians know this, but their constituents don’t, so the lie is repeated for political purposes.

Lie IV: Federal spending causes inflation. You undoubtedly have seen hyperinflation photos of people forced to tote wheelbarrows filled with nearly worthless currency, or have seen pictures of such bills. These photos may have given you the false impression that it is the printing of such currency that caused the inflation.

Reading: Introduction to Inflation | Macroeconomics
The famous Zimbabwe hyperinflation was caused not by money “printing,” but rather by a shortage of food. The government took farmland from experienced farmers and gave it to people who did not know how to farm.

But that impression confuses cause and effect.

The real cause of all inflations is shortages of key goods and services. 

Today’s inflation is caused not by federal spending but rather by shortages of oil, food, labor, computer chips, and shipping.

In fact, federal spending can actually halt inflation if the spending helps create and distribute the scarce items. 

A food shortage can be cured by federal aid to farmers. An oil shortage can be cured by federal aid to drillers and processors.

A labor shortage can be cured by ending FICA deductions from pay, and providing free Medicare for All, so that employers are better able to raise payrolls. 

Lie V. If the government provides the necessities, the poor won’t work. This is the most insidious lie of all. It is eagerly believed by the richer about the poorer. Its purpose is to widen the income/wealth/power Gap between the rich and the rest.

Ironically, the poorer on balance, work harder than do the richer. The poorer must work while doing everything for themselves. The richer can afford to hire people to do for them.

The richer sneer at the poorer as “takers,” to separate themselves from those who have less. This is known as “Gap Psychology,” the human desire to widen the Gap below you and to narrow the Gap above you.

Widening the Gap is the method by which the rich make themselves richer. (If there were no Gap, no one would be rich. We all would be the same).

Virtually everyone wants to improve their lives, and this applies even to the very wealthy, who seemingly have everything but still want more.

There is no evidence that people will refuse to work when given basic benefits. People did not refuse to work when given Social Security and Medicare.

SUMMARY

Five, widely believe lies, are responsible for the decline and loss of the “American dream,” the dream that if you work hard in this “land of opportunity,” you will get ahead and your children will lead better lives. 

Note however, the word “ahead.” Ahead of what? Ahead of those near you. It is the basis for Gap Psychology.

  1. The federal “debt” is too high 
  2. Federal taxes fund federal spending.
  3. The federal government can’t afford basic benefits for all.
  4. Federal spending causes inflation.
  5. If the government provides the necessities, the poor won’t work. 

These lies are promulgated by the rich, who run America, to make themselves even richer, by widening the income/wealth/power Gap below them.

Because of Gap Psychology, even the middle classes parrot the lies, as a way to distance themselves from those below them. It’s the fastest way to “get ahead.”

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