Whose lies are more harmful to you: Trump’s or the libertarians’?

Donald Trump, being a demonstrated psychopath, is the most frequent liar of any previous American President, perhaps the most frequent of any human in history. His lies, plus his Presidential power, have caused grievous harm to America.

Everything he touches turns to disaster. Soldiers have died. Thousands of other Americans have died. People are homeless. Children are starving. The man walks in chaos. When historians evaluate America’s Presidents, I predict Trump will fall to the bottom.

Bernanke: “Guess what. The Libertarians still claim the government can become insolvent!” Greenspan: “And some people believe it??”

Yet with all that, I submit that the Libertarians and their believers are more harmful to you than he is.

See if you agree. Here are some excerpts from a Libertarian article.

Both Biden and Trump Plan to Spend Well Beyond the Government’s “Means.”
Whether Biden or Trump wins this November, we’re in for big, unaffordable government. How much bigger and how unaffordable are the only real questions. By: )

Immediately, we are confronted with lies.

First, the federal government, unlike state and local government, is Monetarily Sovereign. It has the unlimited ability to create dollars. It has no “means.” It never can run short of its own sovereign currency, the U.S. dollar. It neither needs nor uses tax dollars. It creates dollars at will.

Can you believe it? The Libertarians still claim the government can become insolvent.

Who says so?

Former Fed Chairman, 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.”

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

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

And the St. Louis Federal Reserve Bank: 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.”

And then there’s Warren Buffet: “Those who regularly preach doom because of government budget deficits, (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400 fold during the last of my 77-year periods.”

I inspected J.D. Tuccille’s article very carefully, and nowhere does he define, “Well Beyond The Government’s Means.” And you will find that no other debt “hand-wringer” ever explains that phrase. Tuccille simply refers to “unaffordable government.” But unaffordable for whom? Here’s a hint:

Tuccille: “There are differences between what Republican Trump and Democrat Joe Biden threaten to inflict on us in terms of raising revenue and how to spend it.”

Tuccille claims “revenue (i.e. taxes) pay for federal spending. That would be true of monetarily non-sovereign governments — i.e. state and local governments and euro governments — but it is not true of the federal government. If it were true, then it would be possible for the federal government to become insolvent, and Greenspan, Bernanke, and the St. Louis Fed would be wrong.

So perhaps, Tuccille’s “unaffordable” refers to taxpayers. But since taxes do not fund federal spending, his comment makes no sense.

The federal government does not spend tax dollars. It destroys tax dollars, and creates new dollars, ad hoc, when it spends.

The details are hard to nail down—probably deliberately so on the part of the campaigns—but Trump essentially promises tax cuts (and penalties for those who cross him) while spending too much, and Biden intends to raise taxes while ignoring the idea that spending must be constrained in any way.

When it comes to taxes, Trump continues the Republican Party’s traditional interest in reducing the government’s take.

The Republican Party’s “traditional interest” would be correct, except for two small details. They become interested in tax reductions only when the President is a Democrat, and even then, they want tax reductions only for the rich.

And when federal spending is “constrained,” we have recessions and depressions, which are cured by unconstrained federal spending.

“Without further details or clarification, it is difficult to fully analyze President Trump’s second term tax policy agenda,” Erica York noted last week for the Tax Foundation. “Broad themes of the president’s agenda include providing tax relief to individuals and tax credits to businesses that engage in desired activities.”

“Difficult to fully analyze” is another way of saying, Trump has no tax policy agenda. (He also has no health-care agenda, no immigration agenda, no foreign policy agenda, and no COVID agenda). About the only agenda he consistently has had is, “What’s best for me.”

Also, “tax relief to individuals should read, “tax relief to wealthy Republicans.” Also, “tax credits to businesses that engage in desired activities” should read, “tax credits to businesses whose owners support me.”

The exception is on the matter of tariffs, given that the president has wandered from his party’s long-time support of free trade.

Trump has “wandered” because he believes, or rather, wants us to believe, that American’s import duties are paid by China, when in reality, they are paid by Americans.

“In his first term, President Trump has imposed more than $80 billion of tax increases in the form of tariffs,” adds York. “Recently, the president said he would impose tariffs on companies that do not move jobs back to the United States from overseas. Whether this is a formal policy proposal is unclear, but it indicates the possibility of continued tariffs if Trump wins reelection.”

Trump typically flails wildly at anything or anyone he believes does not support him. His flailing generally punishes Americans.

Biden, too, fulfills the role you would expect of his party affiliation as a Democrat.

“Biden has not released a single formal tax plan, but he has proposed many tax changes and increases connected to spending proposals related to issues like climate change, infrastructure, health care, education, and research & development,” Garrett Watson and Erica York wrote for the Tax Foundation. “Most of these proposals center around raising income taxes on high earners as well as on businesses.”

With a little more detail to analyze, Watson and York “estimate that Biden’s tax proposals would raise about $3.8 trillion over 10 years. The plan would also reduce long-run economic growth by 1.51 percent and eliminate about 585,000 full-time equivalent jobs.”

All federal taxes reduce economic growth because they reduce the supply of money in the economy. The only worthwhile federal taxes are those that narrow the Gap between the rich and the rest. The Gap is even more harmful to the economy than is the growth-reducing effects of money supply reduction.

Notice how Tuccille admits that taxes “reduce long-run economic growth,” then still talks about the government spending beyond its means. This reflects the knee-jerk, government hatred bythe Libertarians. To them, all government is too big and all government spending is too much. The reality of Libertarianism is that it always devolves to anarchy.

Whether or not a government is taxing too little, enough, or too much is relative to how much it plans to spend and how much ruckus taxpayers kick up in response to the legalized mugging. For both legacy-party candidates, lots of spending well beyond the government’s means is part of the plan.

Yes, yes, again the government’s non-existent “means.” In 1940, the federal debt was about $40 billion. Today, it is above $20 trillion, a 500-fold increase. For 80 years, the U.S. government has been spending beyond its non-existent “means,” and Tuccille still hasn’t caught on.

In Trump’s case, we know he isn’t shy about cutting checks. “Under Trump’s signature, before any true crisis hit, the annual price tag of government went up by $937 billion in less than four years,” Reason’s Matt Welch recently wrote.

For his 2021 budget (a theoretical document, since the federal government has given up on formal budgets), President Trump proposed continuously increasing federal spending, though slower growth than was originally forecast.

Libertarians and those of similar ilk, love to complain about “federal spending,” but when it comes to specifics, they strangely are mute (except for proposing cuts to spending that benefits the not-rich. They generally are happy to see cuts to Medicare, Social Security, and other anti-poverty initiatives.

“The federal deficit would be $2.1 trillion smaller under the President’s budget than in CBO’s baseline over the 2021–2030 period,” the Congressional Budget Office (CBO) projected earlier this year. That certainly sounds like an improvement, but the budget consistently spends more than the government collects to leave the country with a cumulative $11 trillion deficit instead of the baseline anticipated $13 trillion deficit.

There it is again. He admits that the government consistently spends more than it taxes — almost every year for the past 80 years — and yet here we are. The government has been spending beyond its “means” and nothing is unaffordable.

How do Libertarians explain the absence of insolvency? They ignore history and facts, and keep screaming that the sky is falling, or soon will fall, or us just about to fall. And still, it doesn’t fall.

Then again, that seems almost realistic when compared to what Trump’s main rival, Joe Biden, plans in terms of increased expenditures and benefits.

“From a variety of sources—campaign releases, independent analyses, media stories and the Congressional Budget Office—I have constructed a rough estimate of what it would cost to cover all the new benefits,” The Washington Post’s Robert Samuelson recently tallied. “The additional 10-year spending totals $7.74 trillion.”

“But wait, we’re not finished yet,” wrote Samuelson. “To these costs ought to be added the projected budget deficits under existing policies. For the period from 2021 to 2030, CBO figures that’s another $13 trillion. The grand total comes to $20.7 trillion (the $13 trillion, plus the $7.7 trillion).”

I should add here that the CBO recently admitted that it “has tended to overestimate revenues in its projections—especially those that extend further into the future.” That means we should expect deficits to be higher than all of this number-crunching predicts, with larger debt to result.

Oh, woe. The federal government, which has infinite money, plans to pump more money into the economy. And this is supposed to frighten us? You know what frightens me? The notion that someday again, a Libertarian idea might take hold in the federal government, and we again would have this:

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

Bill Clinton, the faux Democrat, was hailed by Libertarians (and by himself) for cutting the debt in the 1997-2001 period. Clearly, that didn’t turn out well. (What, Mr. Tuccille, you’re surprised that taking money out of the private sector led to a recession?)

And all of this is before we take into account the damage wrought by the pandemic and by government-imposed lockdowns.

And what does Mr. Tuccille want to do about that “damage”? He wants to cut federal spending at just the time when millions are jobless and starving. It’s classic Libertarian craziness.

Economic activity “appeared to have declined at a historically rapid rate in the second quarter,” the Federal Reserve conceded in July, adding that “the pace of declines in the unemployment rate, over the second half of this year were expected to be somewhat less robust than in the previous forecast.”

A smaller, struggling economy in which people are scrambling to rebuild businesses, jobs, and wealth isn’t going to surrender as much revenue as government types would like. It’s also likely to be more vulnerable than a thriving economy to burdensome taxes and tariffs.

All taxes and tariffs “burdensome.” Why? Because they all reduce the supply of dollars in the economy — which is exactly what the Libertarians wish to do.

Whoever wins the presidency—realistically, either Biden or Trump—we’re in for big, unaffordable government. How much bigger and how unaffordable are the only real questions.

No, the only question is: When will the Libertarians, the Democrats, the Republicans, and the media tell the American people that:

  1. A growing economy requires a growing supply of money
  2. Federal deficit spending supplies those growth dollars.
  3. The U.S. federal government, being Monetarily Sovereign, has infinite dollars. It never can run short. It never can be insolvent. The federal government never can be unaffordable.

But then, if the Libertarians admitted it, there would be no raison d’etre for Libertarianism, would there? And the populace, who understood it, would demand Gap-narrowing benefits, which the rich who run America don’t want.

So perhaps the real question is, What will it take to teach the Libertarians, the politicians, and the populace, what really should, at long last, be obvious?

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 or a reverse income tax

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

Suddenly, I’m a genius.

Suddenly, I’m a genius. How did that happen?

Answer: The COVID-19 crisis. There’s nothing like a crisis to force people to re-think the myths that helped exacerbate the crisis.

For about 25 years, I’ve been telling anyone who would listen that, contrary to popular myths:

  1. The U.S. government’s finances are unlike state and local governments’, and unlike euro governments’, and unlike businesses’, and unlike yours and mine. The federal government uniquely is Monetarily Sovereign. Two hundred forty years ago, it created from thin air an arbitrary number of the first U.S. dollars. It did this by creating laws from thin air. The U.S. dollar is a product of U.S. laws.Greenspan quote.png
  2. The U.S. government still retains the ability to create laws and its own sovereign currency, the U.S. dollar from thin air. Using its laws, the government can give its dollars any value it chooses (which it arbitrarily has changed multiple times).
  3. Even if all federal tax collections fell to $0, the U.S. government could continue spending forever. It never can run short of U.S. dollars.Bernanke quote.png
  4. The government creates dollars by spending. To pay a creditor, the government sends instructions (via check or wire), to the creditor’s bank, telling the bank to increase the balance in the creditor’s bank account. The instant the bank obeys those instructions, new dollars are created and added to the M1 money supply.
  5. The federal government destroys all its income, including all your tax payments, upon receipt. When the government receives your tax dollars, your checking account is reduced, which reduces the nation’s M1 money supply. Meanwhile, the received tax dollars cease to be part of any money supply measure, so they effectively are destroyed.St louis fed quote.png
  6. The federal government does not borrow. It accepts deposits into T-security accounts. When you buy a T-security (T-bill, T-note, T-bond), you actually deposit your dollars into your T-security account at the Federal Reserve bank. There, the dollars remain, gathering interest, until maturity, at which time the government returns the dollars to you. No tax dollars are involved at any point in the process.
  7. Neither you, nor anyone else, owes or pays for the federal “debt.” Federal debt is not typical debt. It is the total of dollars deposited into T-securities accounts. The federal government, having no need for these dollars, does not touch them. They remain in your account until the T-securities mature.
  8. The purpose of T-securities is not to provide the government with dollars, which it creates at the touch of a computer key. The purposes are: To provide a safe storage place unused dollars (which stabilizes the dollar) and to make Americans believe dollars are scarce to the government (so the people will not ask for benefits).
  9. Neither the federal debt or federal deficit are a burden on anyone. The federal deficit is the net amount of money the federal government has added to the economy. Thus the federal deficit is the economy’s surplus.warren buffet quote.png
  10. A growing economy, by definition, needs a growing supply of money. Gross Domestic Product (GDP), the prime measure of an economy = Federal Spending + Non-federal Spending + Net Exports.
  11. Mathematically it impossible for an economy to grow unless its money supply grows. That is why federal deficits grow the economy (GDP.)
  12. Federal surpluses cause recessions and depressions by shrinking the supply of dollars in the private sector. Every depression in U.S. history has come on the heels of federal surpluses. Most recessions have resulted from reduced deficit growth.
  13. The GDP/Debt ratio, so often cited, is a meaningless fraction.  The amount of national (public and private) spending vs. the total of all T-security accounts has no relevance in economics. The federal government could accept deposits in T-securities’ accounts without running a deficit, and it could run a deficit without accepting deposits into T-securities accounts. The two are not related.
  14. Federal deficit spending does not “crowd out” private spending. The opposite is true. Because federal deficit spending adds dollars to the economy, it facilitates private spending. A more complete discussion can be found here.
  15. The U.S. government should not try to increase the balance of trade. Imports are more beneficial than exports. With imports, the federal government exchanges easily created dollars for difficult-to-create goods and services.
  16. Inflations and hyperinflations are not caused by government “excessive” spending. They are caused by shortages of key goods, usually food and/or energy. Ironically, inflations and hyperinflations can be cured by increased government spending to obtain the scarce goods and tribute them to the public.
  17. The most important problems in economics involve: Monetary Sovereignty, which describes money creation and destruction, and Gap Psychology, which 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.”
  18. The rich, who run America, wish to widen the Gap, because it is the Gap that makes them rich. Without the Gap, we all would be the same, and the wider the Gap, the richer they are.
  19. The sole purpose of government is to improve and protect the lives of the people. 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.
  20. The Ten Steps to Prosperity should be implemented to grow the economy and to narrow the Gap between the rich and the rest.

That’s a great number of popular myths, debunked. For lo these 25 years, I have enjoyed receiving epithets ranging from “commie” to “stupid,” to the carnal, to “lib,” and now suddenly, I’m a genius. And being a “lib” isn’t quite so outrageous.

With the government BV (before virus) already planning to run a $1 trillion deficit, and now DV  (During Virus) planning to add about $2 trillion more to the deficit — and all without raising taxes —  it has become clearer to my intelligent friends and enemies that the above 20 statements have validity.

Now, if only we could communicate the facts to the nation’s opinion leaders — the media, the politicians, and the economics professors — we might detach ourselves from the COVID-19 depression that hovers in our future.

Sadly, America needs more trillions than the government already has allocated, to stave off a massive depression. I calculate that at least $7 trillion is needed, depending on how it is allocated.

Though I now have become, in the eyes of some, an “instant” genius (after 25 years), the myths continue to dominate popular thought — just somewhat less.

But it doesn’t take a genius to see what is plain and simple right before your eyes. It doesn’t take a genius to understand the basics of Monetary Sovereignty and Gap Psychology.

You can do your part to disseminate the truth and to diminish the lies by repeatedly — daily, hourly — contacting your Senators and Representative, and telling them about Monetary Sovereignty. Do it, if not for you, then for your children and grandchildren.

You can help save the world. You have nothing better to do.

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. Provide a monthly economic bonus to every man, woman and child in America (similar to 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

Why you should contact Steve Chapman

There are important reasons why you should contact Steve Chapman. Let me explain.

Monetary Sovereignty is not a difficult concept. It simply says that the federal government, having created the first U.S. dollars from thin air, continues to have the power to keep creating U.S. dollars from thin air.Greenspan quote.png

You are not Monetarily Sovereign, nor am I. Nor is your city, your county, your state, or your business.

We all can run short of dollars. Even Jeff Bezos and Bill Gates can run short of dollars. The U.S. government cannot run short. Unless it wants to.

Even if the U.S. government didn’t collect a single dollar in taxes, it could continue spending forever.

Some countries are not Monetarily Sovereign. The euro nations are not. They did not create the euro; they merely use it. But the European Union, which did create the euro, is Monetarily Sovereign.Bernanke quote.png

Obviously, there are a lot of other pieces to Monetary Sovereignty, but that is the essence: The U.S. federal government’s infinite ability to create U.S. dollars. Simple. Straightforward. Direct. The U.S. government, being Monetarily Sovereign, can create U.S. dollars endlessly.

You might think that anyone writing about or discussing economics would at the very least, understand that simple “1 + 1 + 2” concept. And yet . . .

I’ve spent more than 20 years trying to teach Monetary Sovereignty to anyone who will listen, and even now I am amazed at the brutal, stone-headed resistance.

Much of it is intentional, because drill down through the facts of Monetary Sovereignty, you discover some things the rich, opinion leaders don’t like — for instance a narrowing of the financial Gap between the rich and the rest.

But some of it is just . . . how can I say this kindly? . . . just plain mental blindness.

During my 20+ years mission, I’ve come across some truly wrong, misleading, and downright misguided articles, but today I found one that must be in the top 3.St louis fed quote.png

It was written by a man who is not stupid; I’ve read other of his articles and found them to be enlightening. But this one is, as the kids like to say, awesome — in how wrong it is!

No, this is not the time for fiscal restraint  By Steve Chapman

Steve Chapman is a columnist and editorial writer for the Chicago Tribune. His twice-weekly column on national and international affairs, distributed by Creators Syndicate, appears in some 50 papers across the country. Chapman has been a member of the Tribune editorial board since 1981. A native Texan, he has a bachelor’s degree from Harvard.
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Fiscal discipline was once a durable American practice. But in the 1940s, it went out the window. The federal government embarked on a sudden, unprecedented binge of borrowing that put the nation in hock up to its ears.

WRONG: The U.S. federal government does not borrow. Having the unlimited ability to create dollars, why would it?

What erroneously is termed “borrowing” actually is the acceptance of deposits into Treasury Security accounts (T-bill, T-note, T-bond). When you invest in a T-security, you deposit U.S. dollars into your T-security account.

There your dollars remain, gathering interest, until the account matures, at which time the government returns the dollars in your account. The government never uses those dollars or removes them from your account.

The purposes of issuing T-securities are:

  1. To provide a safe place for unused cash, which stabilizes the U.S. dollar
  2. To assist the Fed in controlling interest rates, which helps control inflation.

The government does not issue T-securities to obtain dollars.

From 1940 to 1945, federal spending rose tenfold. The national debt increased sixfold. The public would have to shoulder the burden of paying down that debt for decades to come.

WRONG: The public has not shouldered, and will not shoulder any burden from the so-called, misnamed “debt.”

First, it’s not “debt” in the usual sense. It’s deposits, and the deposits are NOT paid back with taxes. The “debt” (deposits) are paid off merely by returning the dollars that exist in the T-security accounts.

Second, federal taxes do not fund any federal spending. In fact, all federal taxes (unlike state and local government taxes) are destroyed upon receipt.

When the federal government pays a creditor, it creates new dollars, ad hoc. The process is this:

Upon approving an invoice for payment, the government sends instructions (checks or wires) to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account.

At the instant the creditor’s bank does as instructed, new dollars are created and added to the nation’s money supply (M1). This is the federal government’s method for creating dollars. No taxes involved. No burden on anyone.

There was, however, a good excuse for this gross budgetary excess: World War II. For a government, as with a person, there is usually no difference between being frugal and being wise.

But when the nation’s survival is at stake, the risks of underspending are far greater than the risks of overspending.

With the phrase “as with a person,” Chapman reveals abject ignorance of economics, for he equates federal (Monetarily Sovereign) finances with personal (monetarily non-sovereign) finances.

Further, he alludes to “gross budgetary excess,” which may be appropriate to individuals, states, and businesses, but is completely irrelevant to the federal government, which has the unlimited ability to create its own sovereign currency.

Finally, Chapman refers to WWII as needing “overspending” but does not mention any adverse effect from the so-called “budget excess.”

US GDP-Components from 1929 to 2011
The vertical gray bars show total GDP (right scale). The other lines show % of GDP (left scale). The black dotted line is government spending.  The blue dotted line is personal consumption.

In fact, increased federal spending created a dramatic increase in GDP.

gdp federal spending.png
’39-’49

A similar imperative exists today, as the new coronavirus endangers lives and causes economic disruption on a scale not seen since — well, since World War II.

Last year, the federal budget deficit soared to nearly $1 trillion , at a time of sustained economic growth and prosperity. It was an atrocious figure, representing the latest fiscal failure by our political leaders.

Chapman does not understand that the “sustained economic growth and prosperity” was a direct result of the federal budget deficit growth.

Deficits pump dollars into the economy, and GDP (the usual measure of economic growth) is a dollar measure.

GDP = Federal Spending + Non-federal Spending + Net Exports

Thus, it makes absolutely no mathematical sense to decry federal deficits while also treasuring GDP growth.

And, in fact, the “economic disruption” demands deficit spending far in excess of the $2 trillion measure recently passed. A spending measure of at least $7 trillion would have prevented the coming recession.

But the spending package forged by Congress and the president to address the fallout of the pandemic will add up to more than double that amount, pushing overall spending to levels never imagined just weeks ago.

The rescue plan is probably only the first of a series of huge spending bills meant to reduce the devastation from a locked-down economy.

Here, Chapman really doesn’t get it. He correctly indicates that “huge spending bills” “reduce the devastation from a locked-down economy.”

Amazingly, he doesn’t understand why that is true.

Of course, the reason is that money grows the economy and federal spending pumps money into the economy. Chapman wants the economy to grow from a “locked-down” position, but he doesn’t seem to want it to grow from a “non-locked-down” situation.

Puzzling.

For more years than I care to remember, under presidents of both parties, I have been a consistent voice — OK, an insufferable scold — on the need for the government to be thrifty and responsible in its budget policy.

I have stressed the importance of living within our means, paying the full cost of what we demand of our government and not piling needless obligations on future generations.

There are many good moments for fiscal restraint. This is not one of them.

He has been insufferable because his scolding has been based on economic ignorance.

The Monetarily Sovereign government has no “means” to live within. It has the infinite ability to pay any bills of any size, instantly.

And with regard to “paying the full cost of what we demand,” Chapman is referring to a balanced budget, or as it alternatively is known, “austerity.”

Here is what austerity looks like:

Vertical gray bars are recessions which begin when federal deficit spending (red line) declines, and are cured by increases in federal deficit spending.

And, if Mr. Chapman prefers federal surpluses (economic deficits), he should look at this:

Every U.S. depression has come on the heels of federal surpluses
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

Today, we face enormous dangers. One is that millions of Americans thrown out of work or otherwise deprived of income will be unable to pay their bills, put food on the table or keep their homes.

Refusing to help them through this crisis, which came about for reasons beyond their control, would exact a horrific human toll.

It would also create general chaos that would stymie economic recovery for months, if not years.

Likewise with businesses. In the absence of prompt federal aid, a wave of bankruptcies could wipe out companies that were healthy and profitable before — and have every prospect of being healthy and profitable afterward.

The businesses would be gone, and so would the jobs they provided. People and companies desperately need a bridge across this troubled water.

In Mr. Chapman’s world, apparently the government should wait until “millions of Americans are thrown out of work or otherwise deprived of income, will be unable to pay their bills, put food on the table or keep their homes” before adding dollars to the economy.

He opposes deficit spending to, for instance, institute the Ten Steps to Prosperity (below), grow the economy and/or narrow the Gap between the rich and the rest

Yes, the necessary measures will be shockingly expensive. Yes, they will have to be paid for with borrowed funds. Yes, they will enlarge a national debt that was already in the neighborhood of $24 trillion.

WRONG. They will not be paid for with borrowed funds. But yes, the so-called national debt — which since 1940 has increased 60,000% (from $40 billion to $24 trillion) while the economy has grown massively — will continue to grow.

And further growth in the “debt” will mathematically be necessary for future economic growth.

How could we afford all this new debt?

Through the robust revenue-generating economic activity that will resume if we successfully navigate the crisis. The larger debt burden will be easier to bear in the long run than a smaller debt would be if we let a brief, severe downturn become a prolonged depression.

Mr. Chapman continues to demonstrate ignorance of the differences between federal financing and personal financing.

The federal government can “afford” any debt, simply by creating dollars. That is the way it pays all its debts.

It neither needs, nor uses “revenue-generating economic activity.” Federal taxes do not fund federal spending.

Debts have to repaid with dollars, and dollars are something the Federal Reserve can create in any quantity needed.

The worst case is that we will have to endure an eventual spell of inflation, which would be far preferable to an immediate and total economic collapse.

And there it is, the inevitable, but wrong, “The government always can print money, BUT this would cause inflation.” Again and again, we hear this from the economically ignorant, but NEVER do we see the evidence to back it up.warren buffet quote.png

Here is evidence to the contrary. It is an article titled, Only 450 words answer the question, “Does printing money cause inflation?”

It contains graphs showing that inflation is caused by shortages, especially shortages of food and/or energy:

Graph I Changes in the money supply M3 are NOT predictive of changes in prices (red).
Graph II Changes in the price of oil (which closely reflect supply changes) ARE predictive of inflation.
Graph III Food and energy inflation IS predictive of overall inflation.

After you look at those graphs, look at this one:

While federal deficit spending has risen dramatically (blue line) inflation (red line) has risen moderately, within the Fed’s target range.

Historically, the scarcity of food and/or oil has been the driver of inflation and hyperinflation. See: The Hyperinflation Myth Explained.

In most cases, our politicians deserve condemnation for spending money with wild abandon. In this moment, it’s the best thing they can do.

Steve Chapman, a member of the Tribune Editorial Board, blogs at http://www.chicagotribune.com/chapman .
schapman@chicagotribune.com
Twitter @SteveChapman13

Steve Chapman is widely read and influential. I urge you to contact him with the facts. Perhaps if he receives enough pokes, he may pay attention.

We desperately need more people of influence to spread the word, or we will have more recessions and wider Gaps between the rich and the rest.

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. Provide a monthly economic bonus to every man, woman and child in America (similar to 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

That ol’ debt crisis, it just keeps loomin’, it keeps on loomin’ along.

On February 10, 2016, we published, “From ‘ticking time bomb’ to ‘looming collapse.‘”

The post described the fact that in 1940 the following article was published:

Sept 26, 1940, New York Times: Deficit Financing is Hit by Hanes: ” . . . unless an end is put to deficit financing, to profligate spending and to indifference as to the nature and extent of governmental borrowing, the nation will surely take the road to dictatorship, Robert M. Hanes, president of the American Bankers Association asserted today.

He said, “insolvency is the time-bomb which can eventually destroy the American system . . . the Federal debt . . . threatens the solvency of the entire economy.”

At the time, the federal debt was a paltry $40 billion.

In the 78 years that followed, week after week, month after month, many thousands of similar articles have been published by “experts,” each warning about the imminent crisis we faced because of the increasing federal debt.

Today, the misnamed “debt” has reached $16 Trillion, a gigantic 40,000% increase from the 1940 level, and the economy is humming.

You might wish that after 78 years of being wrong, wrong, wrong, the “experts” might have learned something, if not facts, then at least, humility. Sadly, your wish has not been granted.

According to the latest “expert” to pontificate, John Steele Gordon, the debt crisis still “looms.”

Image result for john steele gordon
John Steele Gordon

The Looming Debt Crisis
SEPTEMBER 27, 2018 BY JOHN STEELE GORDON
Everyone has a credit limit.

The New York Times has a frontpage story this morning on how the rising federal debt will soon begin to crowd out other federal spending.

His impressive bio reads, “He specializes in business and financial history. He has had articles published in Forbes, Forbes ASAP, Worth, the New York Times and The Wall Street Journal Op-Ed pages, the Washington Post’s Book World and Outlook. He is a contributing editor at American Heritage, where he has written the “Business of America” column since 1989.

“Everyone” may have a credit limit, but the U.S. federal government is not like “everyone.” It does not have a credit limit. What it does have is the unlimited ability to create its own sovereign currency.

Do you have a sovereign currency? No? Neither do I. But the federal government has one, and it’s called, “the U.S. dollar.” The sovereign federal government can create endless sovereign dollars, with which to pay its bills.

How does federal “debt,” which actually is the total of deposits into Treasury Security accounts, at the Federal Reserve, “crowd out” other spending?

How can interest-paying bank deposits “crowd out” federal spending?

Does “crowd out” mean that paying interest on the “debt” (deposits) will leave less for other spending? No.

Perhaps the clue to Mr. Gordon’s “thinking” can be found in his article:

In the not too distant future, interest payments on the debt could pass military spending.

The Times is right, although it ascribes the impending crisis to both the Trump tax cuts and the rise in interest rates, which the Fed has slowly increased to normal levels after years of near-zero rates following the onset of the recession in 2008.

Crowding out? Check the following graph:

Federal spending: Blue line. Federal interest payments: Green line. No sign of federal spending being “crowded out.”

The “crowd out” claim is utter nonsense.

In essence, Mr. Gordon tells you the federal government is running short of dollars. Yikes!

He seems to believe that because the Treasury will take in fewer dollars (because of tax cuts), and will spend more dollars (because of interest rate increases), the U.S. Treasury will experience a dollar shortage. That’s the “impending crisis.”

Despite Mr. Gordon’s “expert” credentials, and his gloomy predictions, the federal government cannot run short of dollars to pay for goods, for services, for interest, for benefits, and for anything else it wants to pay for.

St. Louis Federal Reserve: “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.

So what is the crisis? Again, no one knows. It’s a fake crisis. It’s been a fake crisis since 1940.

Gordon’s article continues:

But federal receipts are up in 2018 by $24 billion, not down, arguably because of the tax cuts.

A booming economy automatically increases tax receipts as companies have higher profits, employees have bigger incomes, and Wall Street has greater capital gains.

The problem lies not with the tax cuts but, as always, with spending. We spent in deficit during the recession, as we always have.

The deficit in 2009 was $1.412 trillion, higher than the entire national debt as recently as 1983. But in times of prosperity, the government should spend in surplus, or at least hold spending steady.

Oh, geez, this really is getting bad. Gordon says, “The problem lies not with the tax cuts but, as always, with spending.”

I hate to break it him, but from the standpoint of the so-called deficit “problem,” tax cuts and spending are identical. One reduces Treasury income; the other increases Treasury outgo. Same result.

But so what? The Treasury cannot run short of dollars. Even if all tax collections were $0, and federal spending tripled, the government could continue paying its bills, forever.

Image result for ben bernanke
Ben Bernanke

Fed Chairman 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.”

Gordon does not understand that the federal government not only has no need for income, but it actually destroys the dollars it receives.

That’s right. The U.S. Treasury destroys every one of those precious tax dollars you work so hard to earn. The instant those dollars are received, they cease to be a part of any money supply — not M1, not M2, nor M3, not L, not any. Gone.

If you were to ask how much money the federal government has, the question would be nonsensical, for the answer would either be “infinite” or “none.” The U.S. federal government creates brand new dollars, every time it spends dollars.

Side note: State and local governments, being monetarily non-sovereign, don’t have this ability. Your tax payments to your state and local governments are needed and used, not destroyed.

That is a fundamental difference between Monetary Sovereignty and monetary non-sovereignty.

Gordon’s article continues:

In 1946, the debt was $269 billion, equal to almost 130 percent of GDP. But in the next 14 years, we added only $17 billion to the debt and the booming American economy of those years reduced the debt/GDP ratio to 58 percent.

By 1970, it had fallen to 39 percent of GDP. The roaring inflation of the 1970s reduced the percentage to 34 percent, despite a tripling of the debt in dollar terms.

In the 1980s, inflation waned but spending did not and the debt-to-GDP ratio climbed sharply.

After the Republicans swept the election of 1994, Congress kept spending in check. Outlays between 1994 and 2000 rose by 22 percent, while receipts rose by fully 61 percent. Again, the debt-to-GDP ratio fell from 69 percent to 57 percent.

This past May, we published, “Enough already, with the Debt/GDP ratio.” The post included this line:

The Federal Debt/GDP ratio is absolutely meaningless, a useless, designed-to-be-misleading number that has been foisted on an innocent public.

The misnamed federal “debt” actually is the total of deposits into T-security accounts,  which are similar to bank savings accounts.

GDP is total spending in the U.S. Why on earth would anyone worry about the ratio of deposits in the Federal Reserve Bank vs. spending? The federal government does not use GDP to pay its debts.

Gordon’s misleading article drones on:

If the federal government was able to restrain spending to match receipts in the postwar years in the 1990s, it can obviously do so now.

At some point, even the United States can max out its credit card.

Gordon, the professional economics writer, doesn’t understand the fundamental differences between federal (i.e. Monetarily Sovereign) financing and personal (i.e. monetarily non-sovereign) financing.

The federal government doesn’t have or need anything remotely resembling a “credit card.” It creates unlimited dollars, ad hoc, every time it pays a bill.

Image result for alan greenspan
Alan Greenspan

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

But since Congress seized control of the budget process in 1974 with the wildly misnamed Budget Control Act, fiscal discipline has been in short supply.

A Congress elected on a fiscal discipline platform can do it, as it did in the 1990s.

But unless the government starts keeping honest books and the president is given the power to control total spending, we are going to stumble into disaster sooner rather than later.

If you owned a money machine, and like the U.S. government, you had the unlimited ability to create dollars, what would be the meaning of “fiscal discipline”?

If you owed a million, a billion, or a trillion dollars, but you could create unlimited dollars, would you be “stumbling into disaster”?

The worst financial disaster currently facing America is the ongoing, incessant series of articles like Gordon’s, warning America that the federal deficit and debt are too large.

The effect of these articles, if not the purpose, is to make you believe the federal government cannot afford your social benefits, or your taxes must be raised. Both are lies.

The federal government easily could afford the “Ten Steps to Prosperity” (below), while cutting taxes. And because the government is sovereign over the dollar, it has the unlimited power to control the value of the U.S. dollar, i.e to control inflation.

How? Interest rate control is the method the Fed uses. (Raising interest rates increases the demand for dollars, making dollars stronger, i.e. more valuable.)

In more extreme cases, a Monetarily Sovereign government simply can set the value of a dollar by fiat. When the Monetarily Sovereign UK devalued the pound in 1967, and the Monetarily Sovereign Mexico devalued the peso in 1994, they did so by fiat. They had absolute control over their sovereign currencies.

Even the U.S. often has revalued its dollar by fiat, when it has changed the relationship to silver and gold.

In summary:

  1. The U.S. cannot run short of dollars to pay its bills. Even if federal tax collects fell to  $0 and spending tripled, the federal government could continue to spend and pay creditors, forever.
  2. Social programs like Social Security, Medicare, Medicaid, food stamps and other poverty aids cannot run short of funding unless Congress wills it.
  3. The federal government could afford to eliminate the FICA payroll tax and income taxes, while providing such benefits as Medicare for every man, woman, and child in America, monthly bonuses for all, free education for all, even a salary for attending school.
  4. Being sovereign over the dollar, the U.S. government has the unlimited ability to set the value of the dollar by fiat, i.e. to control inflation.

Pay no attention to scare stories about how the federal deficit and debt are too high, when they, in fact,  are too low. Deficit and debt reductions lead to recessions and depressions. 

Economic growth requires money growth; the federal government is the one agency that has the unlimited ability to grow the economy.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to 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 you.

MONETARY SOVEREIGNTY