What you should know about our economy that others don’t know.

On September 7, 2009, we published a summary of our economy, facts that seem unknown to the public and ostensibly to economists, the media, and politicians (though I believe many of them fake their ignorance.

Much has changed in the past 13 years, but not the realities, and it is these realities that seem to mystify our thought leaders.

Today’s post will give you those realities, so you will understand why our economy continually lurches from recession to recession, with Congress, the President, and the Federal Reserve flailing about in apparent helplessness against the winds of fate.

Our leaders are not helpless. On the contrary, they have all the tools necessary to exert absolute control over our economy, even during the most stressful times. Even in the face of war, COVID, global warming, and population changes, etc., recessions, depressions, and inflations could be prevented, and prosperity could be implemented, but for the prevailing lack of knowledge or effort.

Economists wish to portray economics as a mathematically-based science, similar to physics, where precise predictions often are possible. But because economics is intertwined with psychology, at best a pseudo-science, predictions veer from inaccurate to just plain WAG (Wild Ass Guesses).

Knowing that exact replication of economics studies is impossible, and even approximations can be wrong, economists tend not to stray far from earlier WAGs and to quote liberally from the past.

Unfortunately, the past, at least the more distant past, omitted Monetary Sovereignty. It is the recognition that the creator of a currency never can run short of that currency, does not need or use income to pay for things, and has absolute control over all aspects of that currency.

The finances of a Monetarily Sovereign entity are nothing like those of a monetarily non-sovereign entity. Confusingly, similar words are used to describe both.

Words like “debt,” “deficit,” “trust fund,” “taxes,” “financial burden,” “prudent,” “money supply,” “borrow,” and even “pay” have different meanings and implications when applied to Monetarily Sovereign entities vs. monetarily non-sovereign entities. These differences are not widely understood or taught in schools.

What follows is a summary-in-brief of those differences. 

But if it ever becomes widely understood, the intelligent application of Monetary Sovereignty will significantly reduce the incidence of inflations, recessions, depressions, poverty, hunger, homelessness, street crime, illiteracy, sickness, and the collection of taxes.

Here are some facts of which you may not be aware:

  1. The U.S. government arbitrarily created the U.S. dollar from thin air. There were no U.S. dollars in the thousands of centuries before the 1780s.
  2. Then suddenly, the U.S. government created U.S. dollars from thin air — as many as it wanted to — by creating new laws, also from thin air, which it has the infinite ability to do.
  3. Just as laws have no physical existence, so do U.S. dollars have no physical reality. Dollars are nothing more than numbers on balance sheets controlled by the government. Those printed dollar bills are only titles to dollars. Just as a house title is not a house and a car title is not a car, a dollar bill is not a dollar.
  4.  Every form of money is a form of debt. Bank savings accounts, checking accounts, money market accounts, C.D.s, travelers’ checks, and corporate bonds all are owed by someone or something. Even the dollar bill represents a debt of the federal government, which is why it has the words  “federal reserve note” printed on it. “Bill” and “note” are words referencing debt.
  5. Just as a car title is not a car, and a house title is not a house, a dollar bill is not a dollar. It is a bearer title to a dollar, which is no more physical than a number.
  6. Because dollars have no physical existence but are only numbers, the federal government has the power to create infinite dollars merely by pressing computer keys. It makes as many dollars as it wishes.
  7. (Former Federal Reserve 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.“)
  8. The federal government gives its dollars any value it wishes. Through the years, the federal government often arbitrarily changed the value of dollars.
  9. Today, the federal government retains the power to create laws that develop infinite dollars and to give those dollars whatever value it wishes.
  10. This ability is called “Monetary Sovereignty.” The federal government is sovereign over the U.S. dollar.
  11. While the federal government is Monetarily Sovereign, state/local governments, businesses, and people are monetarily non-sovereign.
  12. Monetarily non-sovereign entities do not have the infinite ability to create U.S. dollars or to give those dollars arbitrary values. Monetarily non-sovereign entities can run short of dollars.
  13. While the U.S. government and the governments of the U.K., Mexico, Canada, Australia, Sweden, and others are Monetarily Sovereign, the governments of France, Italy, Germany, Portugal, and others are monetarily non-sovereign. They use the euro. They cannot control their money supplies, nor do they have the ability to fight inflation, recession, or depression.
  14. The European Union (E.U.) is sovereign over the euro. The E.U. is run by the rich. It can fight inflation, recession, and depression but instead forces the poorest people of the euro nations to shoulder that burden.
  15. The U.S. federal government cannot unintentionally run short of dollars, even if it collects no taxes.
  16. Federal taxes and American federal taxpayers do not fund federal government spending. The federal government could provide unlimited benefits (Medicare for All, Social Security for All, College for All, etc.) without taxes. The term, “spending taxpayers’ money,” when referring to the federal government is incorrect. The government does not spend taxpayers’ money.
  17. The purpose of federal taxes is not to provide the federal government with dollars but rather to:
    A. Control the economy by taxing what it wishes to discourage and giving tax breaks to what it wishes to encourage
    B. To assure demand for the dollar by requiring dollars to be used for tax payments, and
    C. to discourage the public from asking for benefits. This is a function of Gap Psychology — the desire of the rich to distance themselves from the middle- and lower-income/wealth/power public.
  18. Money is the way modern economies are measured. By definition, a large economy has a larger money supply than does a small economy. Therefore, a growing economy requires an increasing supply of money. QED.
    The graph shows the essentially parallel paths of GDP (red) vs. a broad measure of the U.S. money supply, Domestic Non-Financial Debt (blue)
  19. Medicare and Social Security are not funded by so-called “trust funds,” which are not real trust funds but only balance sheet lines.
    September 20, 2016, Peter G. Peterson Foundation
         A federal trust fund is an accounting mechanism used by the federal government to track earmarked receipts (money designated for a specific purpose or program) and corresponding expenditures.
         The largest and best-known funds finance Social Security, Medicare, highways and mass transit, and pensions for government employees.
         Federal trust funds bear little resemblance to their private-sector counterparts.
         In private-sector trust funds, receipts are deposited, and assets are held and invested by trustees on behalf of the stated beneficiaries.
         In federal trust funds, the federal government does not set aside the receipts or invest them in private assets.
         Instead, the receipts are recorded as accounting credits in the trust funds, and the receipts themselves are comingled with other receipts that Treasury collects and spends.
  20. The government has total control over these balance sheet numbers, belying the false claim that the “trust funds” soon will run short of dollars. The federal government has absolute control over those balance sheet numbers. It can add to them or reduce them at will.
  21. Your Social Security check comes from a mythical trust fund that contains no money and receives no money. Social Security (and Medicare) benefits are paid ad hoc by the U.S. government, not from a trust fund, and are not dependent on FICA taxes. Which can and (opinion) should be eliminated.
  22. The federal government creates new dollars ad hoc by paying bills. No receipts by the Treasury are spent. They all are destroyed.
  23. Debt is not a burden on the federal government. It is not, as some have been calling it for over eighty years, “a ticking time bomb.”The infinite ability to create dollars means the government can service any debt denominated in dollars by creating dollars, ad hoc.
  24. The federal Debt/GDP ratio often is quoted with alarm. A high ratio wrongly is thought to indicate the federal government’s difficulty paying its debts. In fact, the Debt/GDP ratio is meaningless, having zero predictive power. Looking at a list of countries by their Debt/GDP ratio will not tell you which countries are better or worse able to pay their bills.
  25. It is impossible to evaluate any aspect of a nation’s economy by looking at its Debt/GDP ratio. The ratio says nothing about the health of the U.S. economy or about the federal government’s ability to pay its bills. See Debt to GDP ratio by country.
  26. The federal government creates dollars by paying creditors.
    A. To pay a creditor, the federal government sends instructions (not dollars) to the creditor’s Bank, instructing the Bank to increase the balance in the creditor’s checking account.
    B. The instant the Bank obeys those instructions, new dollars are created from thin air and added to the M1 money supply measure.
    C. The instructions then are cleared through the Federal Reserve and the government agency issuing the instructions.
  27. What is commonly called “debt” is the total of dollar deposits into privately owned Treasury Security accounts by the purchase of T-bills, T-notes, and/or T-bonds.
    A. To make a deposit into a T-security account, one opens a T-security account and uses U.S. dollars to invest in a T-bill, T-note, or T-bond.
    B. The government never touches those dollars other than to make interest deposits.
    C. The government does not use those dollars; it creates new dollars, ad hoc, to pay its bills.
    D. Upon maturity, the government returns the account balance to the account owner. Visualize how a bank treats deposits in safe deposit boxes.
    E. Because the dollars already exist in the T-security accounts, returning them is not a financial burden on the U.S. government or any taxpayer.
  28. Not needing an input of dollars, the government provides T-bills, etc., only to provide a safe place to store unused dollars and to help it control interest rates. Both purposes help the government stabilize the dollar. 
  29. Even if large holders of T-securities (China is a notable example) were to stop buying T-securities (the term “lending” erroneously is used), the federal government could continue spending as before. If the Federal Reserve felt a need to issue T-securities, they could buy them themselves. There is no financial need for the U.S. to sell T-securities to China.
  30. Some worry that one day the U.S. dollar will cease to be the world’s reserve currency. That should not be a concern. A reserve currency is nothing more than a currency banks hold in reserve to facilitate international commerce. Many currencies function as reserve currencies, including: the euro, Japanese yen, British pound, Chinese yuan, and others.
  31. A federal “deficit” is the difference between dollars the government creates and sends to the economy (aka “the private sector”) vs. dollars the private sector sends to the government.
  32. When federal deficit and debt growth are reduced we experience recessions and depressions.
    1804-1812: Federal Debt reduced by 48%. Depression began 1807.
    1817-1821: Federal Debt reduced by 29%. Depression began 1819.
    1823-1836: Federal Debt reduced by 99%. Depression began 1837.
    1852-1857: Federal Debt reduced by 59%. Depression began 1857.
    1867-1873: Federal Debt reduced by 27%. Depression began 1873.
    1880-1893: Federal Debt reduced by 57%. Depression began 1893.
    1920-1930: Federal Debt reduced by 36%. Depression began 1929.
    1997-2001: Federal Debt  reduced by 15%. The recession began 2001.
  33. Federal deficits enrich the economy and are necessary to grow the economy. They add dollars to the economy, and they help prevent and cure recessions.
  34. Gross Domestic Product (GDP) is a measure of dollars spent in the economy, which is why adding dollars to the economy stimulates GDP growth.
  35. Balanced budgets, though appropriate for personal finances, cause recessions and depressions when attempted by the federal government. To grow, the private sector needs to receive more dollars from the federal government than it pays to the federal government (aka a federal deficit).
  36. The federal government receives dollars from the economy through taxes, fines, and other payments.
  37. All dollars received by the federal government are destroyed upon receipt.
    a. Taxes are paid from the private sector (aka “the economy) checking accounts (Those dollars are part of the “M1” money supply) and are sent to the U.S. Treasury.
    b. When dollars reach the Treasury, they cease to be part of any money supply measure. Because the government has the infinite ability to create dollars, there can be no measure of how many dollars the government has. It has infinite dollars. (Infinite dollars + Tax Dollars = Infinite dollars. No change.)
    c. Because tax dollars do not increase the federal government’s money supply, they are effectively destroyed.
    d. Dollars sent to monetarily non-sovereign state/local governments, businesses, and people are not destroyed. They are deposited into private sector banks and remain part of the M1 money supply.
  38. Monetarily non-sovereign entities (state/local governments, businesses, etc.) create dollars by borrowing and lending.
    a. When a bank lends dollars, it does not lend depositors’ funds. It adds dollars to the borrower’s checking account (M1) and balances its books by counting the borrower’s note as dollars.
    b. Upon consummating the loan, the Bank has dollars (the note), and the borrower also has the dollars it borrowed. Thus a loan creates dollars.
    c. As the loan is paid down, dollars held by the borrower are sent to the lender, and the loan balance loses value.
  39. By contrast, the federal government does not borrow its own sovereign currency, the U.S. dollar. It pays all its bills by creating new dollars.
  40. The federal government collects taxes not to fund spending but to:
    a. Control the economy by taxing what it wishes to discourage and giving tax breaks to what it wishes to encourage
    b. Create demand for the dollar by requiring taxes to be paid in dollars
    c. Create the false impression that taxes are necessary to fund spending so that the public acquiesces to benefit limits.
  41. Import duties are taxes levied on imported goods. These taxes are paid by the purchaser, not by the seller. For example, a duty on imports of Chinese goods is paid by the American consumer, not by the Chinese exporter.
  42. Inflation is a general increase in prices.
  43. Prices increase because supply is insufficient to satisfy demand (scarcity).
  44. Historically, dollar creation has not caused an increase in demand sufficient to cause inflation. Federal deficit spending does not cause inflation.
    There is no relationship between increases in federal deficit spending (red) and inflation (blue)
    A. All inflations have been caused by the insufficient supply of critical goods and services, most often oil and food.
    B. Today’s inflation is caused by scarcities of oil, food, lumber, computer chips, shipping (supply chain), labor, and other COVID-related factors.
    Oil shortages cause most inflations. Curing oil shortages cures most inflations.
    C. These shortages are not caused by money creation and cannot be cured by restricting money creation plans such as interest rate increases. Those plans do not remedy the scarcities that are responsible for inflation.
    D. Curing inflation requires curing shortages, not recessing the economy.
    Federal deficit spending does not cause inflation.

    E. Shortages often begin with a disease, weather, war, or government mismanagement. COVID caused many shortages and was the original impetus for today’s inflation.
    F. The famous Zimbabwe inflation began when the government took farmland from experienced farmers and gave it to people who didn’t know how to farm. The resultant food shortage, not Zimbabwe’s money creation, caused hyperinflation.
  45. The federal government can cure shortages by additional deficit spending to obtain scarce goods and services or encourage their creation. 
  46. Eliminating the FICA tax would fight inflation by lowering labor costs and thus the cost of most goods.
  47. There is no economic benefit to privately owned banks. The federal government should own all the banks. Because the federal government doesn’t have a profit motive, there would be none of those risky securities the big banks have dreamed up. These garbage contracts led to the Big Recession of 2008, and because the banks were not punished, no lessons were learned. The same problems are happening today.
  48. More efficient and generous immigration laws would fight inflation by reducing the labor shortage.
  49. Low interest rates are not stimulative.
    Low interest rates (purple) do not correspond with high economic growth (green).
  50. Increasing interest rates can make the dollar more valuable and have some stimulative effect because low rates force the government to pay more interest dollars into the economy. But low rates do not cure shortages. They actually can exacerbate shortages and intensify inflation.
  51. Interest rate increases make private sector money creation (borrowing) more difficult, which can recess the economy.
  52. On balance, high and low interest rates have both stimulative and recessive elements. But they do not cure inflations, and it is the inflations that lead to recessions or “stagflation” (the combination of a stagnant economy and inflation). 
  53. A symptom of this bifurcation is the stock market’s adverse reaction to good economic news. Any good news (low unemployment, high GDP growth, etc.) impels the Fed to raise interest rates, which the public believes will hurt business and depress securities.
  54. Recessions have no agreed-upon definition but often are defined as a decline in real Gross Domestic Product (GDP) for two consecutive quarters. GDP is a measure of spending. Federal Spending + Nonfederal Spending + Net Exports = GDP.
  55. Depressions often are defined as recessions that last at least two years.
  56. The prevention and cure for recessions and depressions is federal deficit spending, which adds dollars to the economy (aka the private sector) and increases GDP. 
  57. Reductions in federal deficit spending or surpluses lead to recessions and depressions, providing the private sector with insufficient growth dollars.
  58. The Fed has no cure for stagflation, though Congress and the President do.
    A. The “stagnation” part of stagflation is cured by federal stimulus spending, as is done to cure every recession.
    B. The “inflation” part of stagflation is cured by federal spending to obtain the goods and services whose scarcity is causing inflation.
  59. Though state and local governments are monetarily non-sovereign concerning the U.S. dollar, nothing stops any entity –you, me or anyone–from creating their own sovereign currency and being Monetarily Sovereign concerning that currency.
    A. The currency would face the problem of demand, i.e., the acceptance of the money in payment, which in part would depend on the “full faith and credit” of the issuer.
    B. Many forms of money exist in America. One example is manufacturer coupons. They are issued by businesses, have a stated value, and are accepted by retailers.
    C. Some aspects of the U.S. dollar’s “full faith and credit” are:
         i. The government will accept only U.S. currency in payment of debts to the government
         ii. It unfailingly will pay all its dollar debts with U.S. dollars and will not default
         iii. It will force all domestic creditors to accept U.S. dollars, if offered, to satisfy any debt.
         iv. It will not require domestic creditors to accept any other money
         v. It will protect the value of the dollar.
         vi. It will maintain a market for U.S. currency
         vii. It will continue to use U.S. currency and will not change to another currency.
         viii. All forms of U.S. currency will be reciprocal; five $1 bills always will equal one $5 bill, etc.
  60. An example of Monetary Sovereignty and full faith & credit can be found in the board game, “Monopoly®.” By rule, the Bank in that game never can run out of Monopoly dollars, and it does not rely on income to pay its debts. Thus, the Monopoly bank is Monetarily Sovereign.
  61. Being Monetarily Sovereign, the Bank has infinite Monopoly dollars, and neither its deficits nor its debt is a burden on the Bank or on the players (corresponding to the real-world economy).
  62. Gold and silver are not, and never have been money. At most, they have been value standards to which the value of money is compared.
  63. Gold or silver never “backed” the dollar. The prices of gold and silver vary wildly, but through the years, the federal government arbitrarily and often has changed the value of dollars vs. gold and silver (which destroys the “backed” claim.) The only thing backing the U.S. dollar is the full faith and credit of the U.S. government.
  64. Lack of money is the mother of street crime. Impoverished neighborhoods endure far more street crime than do wealthy neighborhoods.
  65. The prevention and cure for street crime is not more police or more severe punishment. The prevention and cure for street crime is to reduce poverty.
  66. The federal government has the power to reduce poverty and thus to reduce street crime) by paying for health care insurance (Medicare for All), living expenses (Social Security for All), education (college for all), food (Supplemental Nutrition Assistance Program — SNAP for all), life insurance for all, and housing (rent assistance for all).
  67. “Rich” and “poor” are relative terms. A person having a million dollars would be poor if everyone else had ten million. A person with a thousand dollars would be rich if everyone else had ten dollars. The income/wealth/power difference between those who have more and those who have less is the Gap.
  68. The wider the Gap, the richer are the rich.
  69. To become more prosperous, the rich (who run our world) continually attempt to widen the Gap. They can widen the Gap by gaining more for themselves or by forcing the poorer to have less.
  70. To force the poorer to have less, the rich feed them the disinformation that the federal government cannot afford to pay for benefits, that federal spending causes inflation, or that benefits require taxes. None are true.
    A. The federal government can afford anything (It’s Monetarily Sovereign);
    B. federal spending never has caused inflation (shortages of oil and other goods and services cause inflation);
    C. federal taxes don’t pay for anything (the federal government creates dollars, ad hoc, to pay for all its spending). Federal taxes are destroyed upon receipt.
  71. The rich also spread the disinformation that if the federal government provides benefits, the poor will refuse to work. To debunk this myth, one only needs to look at the rich, or even at the upper middle classes, who continue to work despite receiving massive tax benefits.
  72. Human wants are unlimited. Even the rich wish to be richer, more powerful, more respected, more envied, more admired, and to have more of everything. Most people want a better life for themselves and their children.
  73. Thus, even upon receiving free medical care, housing, food, clothing, education, etc., people will continue to work for more than what is considered “basic” at any moment in time.
  74. To help spread their disinformation, the rich bribe:
    A. Politicians (via political donations and promises of future employment),
    B. Economists (via university donations and jobs in think tanks), and
    C. The media (via advertising dollars and media ownership).
  75. The rich bribe politicians to pass tax laws and other laws favorable to the wealthy and unfavorable to the rest of us, to widen the income/wealth/power Gap.
  76. Congress’s approval of benefits reveals an ugly part of the human psyche: Jealousy. President Biden’s approval of student loan debt reduction elicited cries of “Unfair” from those who already had paid off much or all of their student loan debt.
  77. But all benefits are felt to be “unfair” by those who didn’t receive the benefit before it was begun. This demonstrates the intimate relationship between economics and psychology. 
  78. The European Union (E.U.) is Monetarily Sovereign over the euro and is run by the rich, forcing the euro nations to struggle for lack of euros. This helps widen the Gap between the European rich and the rest.
  79. The United States is a not-very-democratic republic. While we, the people, do elect our leaders, the election system is highly skewed toward rural power. The Senators’ elections and the national Presidential elections give excessive power to rural voters vs. urban voters. This originally was done by our founders to encourage rural states to join the union.
  80. Within the Senate, voting rules give a few Senators, sometimes only one Senator, extreme power. Even the supposedly population-based House of Representatives accomplishes this dubious, undemocratic achievement via gerrymandering,the manipulation of an electoral constituency’s boundaries so as to favor one party or class. 
  81. The Supreme Court, the final arbiter of all laws, proudly pays no attention to what the public wants. Instead, they are nine (currently) unelected people who make national decisions based on their personal and religious philosophies and party affiliation. 
  82. As such, the unelected Supreme Court’s desired impartial functions have been superseded by the Justices’ personal biases. A case could be made for eliminating the Supreme Court and allowing the elected Executive and Legislative branches of government, which more closely reflect the desires of the public, to fill the role. An alternative would be to impose term limits on SCOTUS justices.

The above points are merely summaries of broader truths about the U.S. economy. Most have been discussed at greater length in this blog’s preceding posts.

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 one step that immediately would cure inflation (and no, it isn’t raising interest rates).

Inflation is a general increase in the prices of goods and services. But what factors determine prices?

Cost-plus Pricing | Definition | Example | Advantage - Accountinguide
Economic growth: To lower prices, cut business costs. Recession: To lower prices cut business profits.

Sellers determine prices by answering the question, “What price would provide the most long-term profit?”

If pricing aims to maximize long-term profit, how is profit determined?

Profit is the difference between income and costs. The two ways to increase profit are to increase dollar sales and/or to decrease costs. This is all quite basic.

Pricing is constrained by costs, competitors, customers, and/or laws. 

Costs generally set the lower boundary for pricing, as businesses only temporarily can allow costs to exceed total income.

The old joke, “We lose money on every sale, but make it up in volume” is just that. A joke, at least in the long term.

Competitors, customers, and/or laws set the upper boundary for pricing. Sellers set prices between the lower and upper boundaries by estimating where long-term profits are maximized.

Generally, sellers don’t cut costs just to be nice guys. Their sole purpose is to maximize long-term profits. If long-term profits were not a goal, sellers would have no motivation to cut costs.

This is all basic economics 101, yet economists seem to have forgotten that inflation is price increases and recession is economic growth decreases, and the two are unrelated. The opposite of inflation is not recession. The opposite of inflation is deflation.

You can have price increases with growth decreases, and that’s called “stagflation (stagnation and inflation).

And that is what the Fed and Congress are creating: Stagflation.

There are two ways to cut prices:

  1. Cut business profits, which causes a recession, or
  2. Cut business costs which encourages economic growth.

The best way to fight inflation, i.e. to cut prices, is to cut costs because higher costs lead to higher prices. An important component of most business costs is the cost of labor.

What if I told you there is a simple way to cut the cost of labor without cutting the number of employees or cutting pay scales? 

Well, there is, and it is dead simple: Eliminate the FICA tax and provide free, comprehensive Medicare for All.

FICA costs employers 15,3% of all salaries under $143,000. This means, that for every salaried employee you, as the employer, pay as much as $22 thousand dollars per employee to the federal government. Those are dollars that come directly out of your profits.

They are non-productive dollars that must be made up with higher prices. They are inflation dollars.

And don’t think the employees pay any those dollars. If you, the employer, told your employees they no longer would have FICA deducted from their paychecks, you could lower gross salaries and still leave them with the same net salaries. 

Employers pay the full 15.3% to the government.

As for health care, why has this become a financial burden for businesses? Why does your business pay for any part of health care insurance when the federal government can provide it? Those are lost, non-productive dollars.

And no, federal taxpayers do not fund federal spending. The government could provide Social Security and Medicare to every man, woman, and child in America without collecting a single dollar in taxes.

The federal government cannot run short of dollars. Not ever. Being Monetarily Sovereign, it has the unlimited ability to create U.S. dollars. It neither needs nor uses tax dollars.

The federal government’s trillions of tax dollars extracted from the economy are lost forever. Unlike state and local tax dollars, federal tax dollars are not recirculated back into the economy. They are destroyed upon receipt.

The federal government always has infinite dollars, and adding tax dollars to that does not change how many dollars the federal government has.


  1. Inflation is a general increase in prices.
  2. This increase always is caused by shortages of key goods and services, not by so-called “excessive government spending.”.
  3. The Fed increases interest rates to ease those shortages by reducing demand, but reduced demand is the definition of recession. Thus, the Fed tries to cure higher prices by causing a recession.
  4. The non-recession way to reduce higher prices is to reduce shortages and business costs.
  5. Shortages can be reduced by more federal spending to acquire or encourage the production and distribution of scarce goods and services.
  6. Business costs can be reduced by reducing employment and business taxes. When a business pays less in taxes, its prices can be lowered while generating the same desired long-term profits.
  7. The instant solution to inflation is to eliminate FICA taxes and to provide free Medicare to every man, woman, and child. This will reduce business costs, allowing businesses to lower prices.
  8. The long-term solution to inflation is for the federal government to address shortages by investing in the production and distribution of scarce items: Renewable and nuclear energy, shipping (roads, ships, railroads, airplanes), food, water, computer chips, lumber, and lower federal taxes on businesses and individuals below the upper-income group.

Federal taxes and interest rate increases are recessionary and do not prevent inflation.

Based on the Fed’s reliance on interest rate increases to combat inflation, I predict we will have a long period of stagflation until business profits increase sufficiently to cause business growth.

Tell this to your Congresspeople.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell


Exactly the wrong way to cure inflation, but the best way to cause a recession.

On May 20th, we posted, “”First do no harm.” How ‘Dr.’ Jerome Powell will worsen the inflation and cause a recession.”


No problem. You haven’t hit the  ground yet, so we won’t call it a “fall.” We’ll say it’s a step in the plan.

Today, Powell and his cronies debate whether to call where we are “a recession.” He’s worried about semantics as the economy tanks.

Please let me know if there is a more damaging, less effective way to fight inflation than what Powell now is doing.

Consider this: What action should the government take when there is a food shortage, causing food prices to rise?

  1. Government price controls over food? Or,
  2. Reduce federal benefits to the poor, so they will buy less food, thus curing the shortage. Also, reduce farm aid, so there will be even less food produced? Or, 
  3. Fund federal aid to farmers so they can produce more food and give people money so they can buy food?

Number 1 never works. It always leads to more shortages and a reduction in Research and Development, forcing even more shortages.

A classic example is rent controls, which reduce the number of new apartments and cause existing apartments to fall into neglect.

Yet politicians without knowledge of history or economics often turn to price controls.

Number 2 leads to recessions and depressions. Today, we have shortages of oil, food, housing, computer chips, and labor, and these shortages are causing prices to rise, what we call “inflation.” All those who are not rich starve.

Amazingly, the Federal Reserve has chosen solution #2. Raising interest rates makes many goods and services even less affordable, starving the poor and middle classes to cure inflation. Higher interest rates also make increased production more difficult, exacerbating shortages.

The federal government should provide aid to industries whose products are in short supply and to consumers so they can afford those products. Approach #3 is the only correct approach. Cure the shortages, and you cure the inflation.

    • Shortage of food: Federal aid to farmers. Education. Equipment. Insurance. Tax breaks.
    • Shortage of oil: Aid to drillers. Aid to electric car/truck makers. Support for R&D alternative energy
    • Shortage of labor: Eliminate FICA. Reduce tax rates on salaries. Provide Medicare for All.
    • Shortage of lumber: Aid growers. R&D for alternatives. Tax breaks for alternatives
    • Housing shortage: Aid home & apartment builders. Cut interest rates. Tax breaks for renters.
The Enduring Appeal of Leeches | historyrevealed.com
Powell: If she lives, I cured her. If she dies, I did everything I could.

Notice how curing inflation, i.e., fixing shortages, requires more federal spending, not less.

Of course, the expenditures must be targeted toward eliminating the scarcities.

Powell’s interest rate increases only make reducing shortages more difficult.

Those higher rates impoverish consumers and hinder the ability of suppliers to produce.

Powell has found the ultimate way to increase shortages, worsen inflation, and cause a recession.

In effect, Powell is applying leeches to cure anemia.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell



The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps: Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

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


Two pieces of knowledge could turn America into a paradise

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How do you visualize paradise?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

According to the Council on Aging:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

America is losing its fresh water daily.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

State and local governments are monetarily non-sovereign.

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

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

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

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

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

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

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

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

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

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

Can there be life without beauty?

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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


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

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

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

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

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

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

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

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

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

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

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



The most critical problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socioeconomic ranking and to come nearer those “above.” The socioeconomic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

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