The insurance mystery solved

I often listen to the public radio show, “Freakonomics Radio” by Stephen J. Dubner. Today, the story was about insurance and how intractable it is, both from the insurance providers’ and the buyers’ perspectives.

We all have some forms of insurance: Life, health, accident, liability, home, personal property, unemployment, retirement, and many others.

Lloyds of London has a reputation for creating individualized policies to insure anything: An actress’s legs, a quarterback’s arm, a pianist’s fingers.

Among the several insurance problems, the fundamental problem is adverse selection. The insurance company wants to cover people who will not have an immediate claim. The buyer wants to get his money’s worth in claims.

A life insurance seller wants young, healthy customers who will not make claims for many years while paying premiums all those years.

All insurers want the insured to buy as soon as possible, then wait a long time before making a claim (for instance, a health policy) or never make a claim (an auto liability policy),

But the insured ideally would like to purchase his insurance as late as possible — just before making a claim — or never.

To minimize adverse selection, insurers hire actuaries. These people use research and probability formulas to determine the likelihood of a person making a claim and how significant that claim is might be.

This leads to another problem: Adverse denial. Suppose those who will make the fewest and most minor claims are the only people accepted, and all others are denied. In that case, many people will be denied insurance, and the basic premise of insurance — to protect against misfortune — would be lost.

For example, on average, black people get sick and die sooner than white people. If the law allowed, insurance companies would charge blacks higher premiums than whites or refuse insurance to blacks altogether.

However, the law does not allow this, so the premiums charged to white people must be higher than they ordinarily would be to make up the difference.

Any time an insurer accepts something other than the lowest possible risk, the lowest risk people must pay more. Some, but not all, of this can be baked into the premiums. For example, most life insurance policies consider age and prior illness when determining premiums. But no insurer can consider every possible risk category and remain competitive.

So, in general, the lowest-risk people do, in part, fund higher-risk people for all sorts of insurance.

That said, a substantial portion of our population is not financially protected by insurance, either because no company will insure them or because the premium is higher than what people wish to pay.

In short, the risk is too high for any potential insurer, and the premium is too high for potential insureds.

The fact that the problem is considered intractable puzzles me because we already have solved it, not just once, but many times.

Medicare, for instance, solves it for the worst health risks: Older people who already are sick with terminal illnesses cannot be refused when they reach the qualifying age.

More than 18 percent of Americans depend on Medicare for their health coverage, and in 2019 Medicare the enrollment reached over 60 million.

You can start receiving Medicare Part A (hospital insurance) benefits with no premium once you are 65 or older if you or your spouse worked and paid Medicare taxes for a certain period. You can know you are eligible for premium-free Medicare A if one of the following applies to you:

You currently receive or are eligible for Social Security.
You currently receive or are eligible for Railroad Retirement Board (RRB) benefits.
You or your spouse served in a Medicare-covered government job.

You can purchase Medicare Part B benefits if you are eligible for Medicare Part A. It is a voluntary program that requires you to pay monthly premiums. For 2022, the standard premium is $170.10 (or higher, depending on income).

No matter how sick you are, even on death’s doorstep, you can receive insurance if you meet the above requirements.

How does the government avoid adverse selection? Mostly, it doesn’t. Yes, there are qualifications; adverse selection is not the consideration.

Why can the government afford Medicare when private insurance companies must worry about adverse selection? Contrary to popular belief, people with FICA deducted from their salaries do not fund Medicare.

The federal government, being Monetarily Sovereign, has the infinite ability to create U.S. dollars.

It neither needs nor uses tax dollars to pay for anything. Even if total FICA collections equaled $0, the federal government still has the infinite power to fund something better than our current Medicare.

The government could fund a comprehensive, no-deductible Medicare for every man, woman, and child in America.

Alan Greenspan: “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”
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.

And that is the solution to the healthcare insurance problem. The federal government should “use the computer to mark up the size of the account” and fund a form of Medicare far better than current Medicare.

I have Medicare, but I also pay for a concierge primary care doctor. I pay her an annual fee in addition to what she receives from Medicare.

My previous primary care doctor, who received Medicare reimbursement, had about 2,500 patients. My concierge doctor self-limits to about 600 patients. This allows her more time to do precisely what she studied for years to do: Treat patients.

She spends time studying my particular needs and discussing my health with me. If I go into the hospital, she has admittance privileges and can oversee my treatment there while discussing my case with all the doctors and nurses.

The federal government has sufficient resources to pay every primary care doctor to be a concierge doctor who can spend the time each patient deserves.

(The federal government also has the resources to provide free medical schooling for all prospective doctors, so there would be plenty of people available to be the abovementioned concierge doctors.)

All drivers need auto liability insurance. The federal government should provide it free. All homeowners and renters need insurance. The federal government should provide it.

There is no logical reason why more affluent people can afford insurance while poorer people cannot. Ironically, it is the poorer who need insurance more than, the richer.

The Freakonomics radio show ignored the fundamental truths about the American economy:

1. Our government is Monetarily Sovereign. It has infinite dollars.
2. Our people have needs that can be purchased with those infinite dollars
  - Healthcare
  - Education
  - Housing assistance
  - Food assistance
  - Liability insurance
  - Narrower income/wealth/power Gaps between the rich and the rest
3. The federal government should use #1 to fund #2.

The solution to many of life’s problems stares us in the face, yet disinformation from the top prevents it.

No, federal financing is not the dreaded “socialism” (which is government ownership and direction, not just government funding.)

And no, federal spending does not cause inflation. On the contrary, federal spending can reduce inflation by acquiring goods and services, the scarcity of which is the real cause of inflation.

There is a solution. We need only to recognize it.

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.

MONETARY SOVEREIGNTY

Does Bernie Sanders have a secret plan about Social Security?

Modern Monetary Theory Got a Pandemic Tryout. Inflation Is Now Testing It. - The New York Times — **Stephanie Kelton**

Bernie Sanders is a “friend” to the extent that he wishes to expand Social Security (and Medicare).

He once had Modern Monetary Theory’s Stephanie Kelton as his chief economic adviser during his 2016 presidential campaign.

Kelton tried and seemingly failed to educate Sanders about the facts of federal economics, the key one being that a Monetarily Sovereign government cannot run short of its own sovereign currency.

It neither needs nor uses tax receipts, which are destroyed upon receipt.

(When you pay taxes to the federal government, money is removed from the private sector [aka “the economy”] and flows to the U.S. Treasury. Because the Treasury has infinite money, your tax dollars effectively are destroyed. (Infinity + any number = infinity. No change.)

Perhaps Sanders is playing politics because he continues to mouth the absurdity that the federal government and its agencies unintentionally can run short of U.S. dollars.

‘Time to Scrap the Cap’: Sanders, Warren Bill Targets Rich to Expand Social Security
Posted on June 10, 2022 by Yves Smith, By Jake Johnson, a staff writer at Common Dreams. Originally published at Common Dreams

Yves here. It’s no secret that the assertions that Social Security is in dire financial straits are fabrications.

First, like so much of our Federal government funding, the device of having a trust fund is a convenient fiction.

So far, so good. Despite incessant allusions to the contrary, the so-called Medicare Trust Fund and Social Security Trust Fund are not trust funds. They merely are notations on a balance sheet.

Those numbers are completely controlled by the federal government. The federal government can change the numbers at will — quite different from a trust fund.

In reality, Social Security is a pay-as-you-go program.

She is correct if Susan Webber (aka Yves Smith) means that the federal government pays for Social Security by creating dollars, ad hoc.

Second, for those who nevertheless like the appearance that Social Security is paid for by payroll contributions, the most obvious fix has long been to raise or eliminate the cap on salaries subject to payroll taxes.

The fact that this problem has not been solved strongly suggests some influential parties don’t want it solved.

Those “influential parties” are the very rich, who wish to widen the Gap between them and those below them on any income/wealth/power scale. It’s known as “Gap Psychology.”

Unfortunately, most Americans believe the lie that Social Security is paid for by a trust fund. The solution to a lie is not to accept the lie, as Smith seems to advocate, but rather to tell the truth.

But, she doesn’t seem to advocate for the truth.

Sens. Bernie Sanders and Elizabeth Warren led a group of lawmakers Thursday in unveiling legislation that would expand Social Security’s modest annual benefits by $2,400 and ensure the program is fully funded for the next 75 years.

The benefit boost under the Social Security Expansion Act would be funded by lifting the cap on the maximum amount of income subject to the Social Security payroll tax.

This year the cap was $147,000—meaning millionaires stopped paying into the program in late February.

Lifting the cap would fund nothing because the Social Security payroll tax (FICA) funds nothing. The dollars are destroyed when they hit the Treasury.

President Roosevelt, the creator of Social Security, knew this, but he wanted the tax to make Social Security impossible to end.

He reportedly said, concerning FICA:

“I guess you’re right on the economics (that payroll taxes are unnecessary).

“They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits.

“With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics. They’re straight politics.”

All federal programs can end, and many do when an opposing party comes into power.

But if the voters believe they have contributed to a program, the opposing party will find it politically challenging to end the program.

If passed, the expansion bill would apply the payroll tax to all income, including capital gains, above $250,000 a year, a change that would only raise taxes on around 7% of U.S. households.

“At a time when half of older Americans have no retirement savings and millions of senior citizens are living in poverty, our job is not to cut Social Security,” Sanders (I-Vt.), head of the Senate Budget Committee and a co-chair of the Expand Social Security Caucus, said in a statement.

“Our job must be to expand Social Security so that every senior citizen in America can retire with the dignity they deserve and every person with a disability can live with the security they need,” the senator continued.

“And we will do that by demanding that the wealthiest people in America finally pay their fair share of taxes.

It is absurd that a billionaire in America today pays the same amount of Social Security taxes as someone making $147,000 a year.

It is time to scrap the cap, expand benefits, and fully fund Social Security.”

Does Sanders believe that? Does he think raising the $147,000 FICA salary cap will expand benefits and fully fund Social Security?

Or is his plan simply to make the rich pay so that it appears a Social Security increase will be fully funded? Is that his way of answering the question, “Who will pay for it?

Or does he have an even deeper plot?

The legislation comes a week after the annual Social Security trustees report showed that—contrary to Republicans’ claims that it is barreling toward insolvency—the program is positioned to fully fund benefits until 2035.

Thereafter, even if Congress takes no action, the program is projected to be 90% funded for the next 25 years and 81% funded for the next 75 years.

Social Security is fully funded, not by any fake trust fund but by the full faith and credit of the United States government. Neither the U.S. government nor any government agency can run short of dollars unless Congress and the President want it to.

What is their real plan assuming Sanders and Warren are intelligent and well-informed?

“Social Security is an economic lifeline for millions of Americans, but many seniors are struggling with rising costs,” said Warren (D-Mass.).

“As Republicans try to phase out Social Security and raise taxes on more than 70 million hardworking Americans, I’m working with Senator Sanders to expand Social Security and extend its solvency by making the wealthy pay their fair share, so everyone can retire with dignity.”

That “fair share” hints at the real purpose of Sanders’ plan.

Sanders announced the new bill Thursday during a Senate Budget Committee hearing, at which Republicans—including Sen. Mitt Romney (R-Utah), who has previously voiced support for privatizing Social Security—made clear they would oppose the legislation, which has been endorsed by more than 50 advocacy organizations and labor unions.

The Republicans’ ostensible purpose for privatizing Social Security is the claim that stock market investments will grow enough to safeguard Social Security growth. The claim is false for at least two reasons.

Social Security is funded by the federal government’s money creation, not taxes or any other outside mechanism.
The stock market is not a secure growth mechanism, and if somehow it were made to fund Social Security, the current S&P drop demonstrates the folly of relying on private markets.

The true purpose of Romney’s and other Republicans repeated drumbeat for privatization is simple: To provide another lucrative money-making opportunity for wealthy investment firms.

In addition to increasing annual benefits and lifting the tax cap, the Social Security Expansion Act would also boost the program’s cost-of-living adjustments by switching to a more accurate measure of inflation.

According to the Social Security Administration, the average monthly Social Security benefit payment was around $1,540 as of April 2022.

“With the cost of living at an all-time high, Social Security has never been more important, yet congressional Republicans continue to play games with its funding,” said Rep. Peter DeFazio (D-Ore.), the lead sponsor of a companion bill in the House.

An example of Gap Psychology at work. A wealthy person will spend $12.8 million to distance himself from those who have less, and to come closer to those who have more.

“This legislation would ensure that the Social Security Trust Fund remains solvent for another 75 years, increase monthly benefits for most recipients by $200, and alter the cost-of-living-adjustment formula to meet the everyday needs of our nation’s seniors,” DeFazio added.

Lifting the tax cap won’t accomplish any of those stated purposes. So, what may be the fundamental purpose? Could it be Sanders’ and Warren’s secret plan to narrow the income/wealth/power Gap between the rich and the rest? Is this their Gap Psychology plan?

(Gap Psychology describes the common desire to distance oneself from those below, on any socioeconomic scale, and to come closer to those above.)

The plan implies to those who believe FICA funds Social Security, a direct money transfer from the richer to the poorer, from those whose salary exceeds $147,000 to those whose salary is lower.

Since there are more voters in the latter position than in the former, it’s a pretty good Gap Psychology election ploy.

Because the plan would, though by a minimal amount, help narrow the Gap, I wish I could be in favor. But I simply can’t support the idea of ratifying the Big Lie that federal taxes fund federal spending.

So long as the populace believes the Big Lie, the myth that the U.S. is as financially hamstrung as the states, counties, cities, and euro nations.

We must free ourselves of that myth to have control over our economic future.

The honest plan would be to tell the world that the federal government can’t run short of dollars, federal taxes don’t fund federal spending, and federal spending doesn’t cause inflation.

(See: “First do no harm. How ‘Dr.’ Jerome Powell will worsen the inflation and cause a recession”)

The rich will continue to rule until those truths are exposed and understood.

(Every federal spending cut demanded by conservatives is designed to widen the income/wealth/power Gap between the rich and the rest, while the few federal spending increases backed by the conservatives are designed to reward and protect the rich.)

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:

Monetary Sovereignty describes money creation and destruction.
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:

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:

The federal “debt” is too high (It isn’t even “debt,” and it isn’t too high.)
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.)
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.)
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)
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.

The federal “debt” is too high
Federal taxes fund federal spending.
The federal government can’t afford basic benefits for all.
Federal spending causes inflation.
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:

Monetary Sovereignty describes money creation and destruction.
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.”

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

MONETARY SOVEREIGNTY

The dirty little secret of federal finances is even revealed on your tax return.

**Inflation (blue line) is caused by shortages of oil, leading to price increases (red and green lines).**

Let’s set the stage for that secret with a typically misleading article. The following is THE WEEK magazine’s summary of an article that appeared in the Washington Post. See whether you can locate the two words that are not just misleading but utterly wrong:

Taxing “the rich” won’t suffice, Henry Olsen, The Washington Post

“Progressives are afraid of taxes,” said Henry Olsen. To pay for trillion-dollar stimulus and infrastructure plans and expand the social safety net, Democrats always say they’re limiting their tax hike to “the rich.’

But “the trouble for the Left is that you can’t pay for the government they want by taxing only the rich.”

Every social democracy in the world has far higher tax rates for the middle class than the U.S. Canada pays for its single-payer health-care system and an extensive social safety net with a national 5 percent sales tax, provincial sales taxes of up to another 10 percent, and a top income tax rate in Ontario of 46.13 percent on income of more than $175,000.

In the U.K., taxpayers get hit with a 40 percent tax on incomes of just $52,100, and 45 percent at $208,600. That comes on top of a 20 percent value-added tax on all goods and services , and a $3-per-gallon gas tax.

In Denmark, the top tax rate of 55.9 percent kicks in at $86,500, and there’s a 2.5 percent falue-added tax.

If progressives want “a social democratic utopia,” they’ll have to persuade middle-class Americans “to pony up and pay for it.”

O.K., I made it too simple for you clever readers. The words, of course, are “pay for,” because:

Federal taxes do not pay for federal spending.

As former Federal Reserve Chairman Alan Greenspan said,

“There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”

And Greenspan wasn’t the only one. As former Federal Reserve Chairman Ben Bernanke said,

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

So, since the U.S. government can create as much money as it wants, at essentially no cost, and pay it to somebody, why in the world would the government use tax dollars for that purpose? Not only do federal taxes not pay for federal spending, but no form of federal government income pays for anything. For instance, when you or your accountant filed your tax return, did you notice this little box?

You, having a reasonable command of English, may think this means there is something called a “Presidential Election Campaign” fund, and by checking the box(es) you are directing the government to send $3 to this fund. Notice that you are told, “Checking a box below will not change your tax or refund.“ “Hey, wait!” you cry. “Even if such a fund exists, where would the $3 come from? If it won’t come from me, and if it won’t come from my taxes. So where?” Answer: It comes from the same place all federal payments come from: The federal government creates all payments from thin air by arbitrarily first creating a bookkeeping line, in this case called “Presidential Election Campaign,” and then, also arbitrarily increasing the total on that line, whenever it wishes. You see, money is not a physical thing. All dollars are created by arbitrary laws, and merely are numbers on someone’s books, most often owned by a financial institution like a bank, a securities brokerage, a credit card company, etc. Federal dollars are numbers on the federal government’s books, over which the federal government uniquely has 100% control.

No, those green pieces of paper in your wallet are not dollars. They are dollar bills. Dollar bills are titles to dollars. They are evidences that you own dollars, which are numbers on federal balance sheets.

Just as a house title is not a house, and a car title is not a car, a dollar bill is not a dollar. It is just a title, a form of contract between you and the federal government which essentially says, “The bearer of this bill owns one dollar.”

Laws forbid banks, brokerages, and credit card companies from arbitrarily entering any notation on their books at whim. But no law restricts our Monetarily Sovereign federal government from doing exactly that. It’s what the word “Sovereign” means. Why? Because the federal government “owns” all laws regarding its sovereign currency, the U.S. dollar. Remember Alan Greenspan’s phrase, “creating as much money as it wants”? Remember Ben Bernanke’s phrase, “as many U.S. dollars as it wishes”? That’s Monetary Sovereignty. The federal government, being the inventor and issuer of the U.S. dollar, can do anything it wishes on its books. So, with no “by your leave,” it can create an account called “Presidential Election Campaign,” and put whatever number it wishes next to that name. And that is the dirty little secret:

The federal government has absolute control over all aspects of federal finance.

It can’t run short of dollars because it creates them at will. After you ponder that a bit, you might ask, “If the federal government creates dollars at will, why am I paying taxes?” Good, legitimate question. You probably thought (because you were told) that the federal government collects taxes in order to pay its bills. That’s what Henry Olsen, of the Washington Post, seems to, or pretends to, and wants you to, think. But no, your federal taxes fund nothing. In fact, they are destroyed upon receipt by the U.S. Treasury. The day your tax dollars are removed from your checking account, they cease to exist in any money-supply measure. Gone. Poof! This is completely different from your state and local government tax payments. When those dollars are taken from your checking account, they are added to the state/local government’s account at a private bank. They continue to exist as part of what’s known as the M1 money supply. The U.S. federal government is not constrained by anything regarding U.S. dollars. It can create them and destroy them at will. It can revalue or devalue the dollar, whenever it wishes. It can change the terms of its contract with you, the bearer of dollar bills, simply by passing a law. The federal government has the legal power to do anything it wishes regarding U.S. money. Compare that with the monetarily non-sovereign states, counties, cities, villages, and businesses. They don’t have that legal power, nor do you. GOP leader John Boehner famously said, “We are broke,” referring to the U.S. debt. He was lying. But, even those who dismissed his lie, did so with another lie that “federal debt is projected to shrink.” That is not the reason we aren’t “broke.” Federal debt has nothing to do with the federal government’s ability to pay its bills. The reason we aren’t broke is that we create dollars, ad hoc, every time we pay a bill. And by the way, the federal “debt,” isn’t even a debt. It’s more like a safe-deposit box, where dollars are held in accounts that never are touched. So when President Obama said the following, he either was ignorant or lying:

We need to reduce the deficit by $4 trillion. So what choices are we going to make to reach that goal?

Either we ask the wealthiest Americans to pay their fair share in taxes, or we’re going to have to ask seniors to pay more for Medicare. We can’t afford to do both.

Either we gut education and medical research, or we’ve got to reform the tax code so that the most profitable corporations have to give up tax loopholes that other companies don’t get. We can’t afford to do both.

It’s math. The money is going to have to come from someplace. And if we’re not willing to ask those who’ve done extraordinarily well to help America close the deficit and we are trying to reach that same target of $4 trillion, then the logic, the math says everybody else has to do a whole lot more:

We’ve got to put the entire burden on the middle class and the poor. We’ve got to scale back on the investments that have always helped our economy grow.

We’ve got to settle for second-rate roads and second-rate bridges and second-rate airports, and schools that are crumbling.

I will veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share.

Ignorant or lying? I personally believe the man was lying through his teeth. He must have known this line, “We can’t afford to do both,” was an outright lie. After all, Ben (“. . . produce as many dollars as it wishes”) Bernanke was the Fed Chairman during Obama’s term. Are we to believe these men didn’t communicate? State and local government taxes fund state and local government spending. But, the sole financial purpose of federal taxes is to help the federal government control the economy, not to obtain spending money for the government. The government can tax what it wants to discourage, and it can give tax breaks to what it wants to encourage. Period. There is one other purpose — a not directly financial purpose — for federal taxes, and it is the reason the politicians, the media, and the economist try to keep secret from you: The very rich run America, and the very rich do not want you to narrow the income/wealth/power Gap between you and the very rich. The wider the Gap, the richer they are, but your receiving federal benefits would narrow the Gap. The rich want you to believe the government can’t afford to give you things like Medicare for All, Social Security for All, College Education for All, better housing, better food, better neighborhoods — all the things that separate the very rich from you. It’s called Gap Psychology: The desire to distance oneself from those below you on any social scale. So the rich bribe politicians via political contributions and promises of lucrative employment. And the rich bribe the media via advertising dollars and outright media ownership. And the rich bribe the university economists via donations to universities and lucrative jobs on think tanks. Almost all your sources of information are either bribed by the rich or are brainwashing those who are not bribed. They lie, to make you think the government is short of dollars. They lie, to make you think the federal “debt” is, like real debts, a burden on the government and will be paid by you and your children. They lie, to make you think the federal deficit is something other than a benefit to you. And now, as you read this, President Biden wishes to pump another $2 trillion into the economy, while the GOP wishes to cut back the amount you receive — for no good reason — and both lie that taxes will have to pay for it. And on top of those lies, they also lie that federal spending causes inflation, when in fact the only thing that causes inflation is shortages, most often shortages of oil or food. It’s all a dirty little secret, a lie, the Big Lie. And so long as you and the public believe it, the Gap between you and the rich will continue to widen. Now that you know the dirty little secret, what are you going to do about it? I asked, What Are You Going To Do About It? ………………………………………………………………………… 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:

Monetary Sovereignty describes money creation and destruction.
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.”

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

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