An excellent article about Social Security, except for one small detail

The Week Magazine published an excellent article titled, “Social Security’s looming crisis is political, not economic,” by Jeff Spross.

It begins by agreeing with much of what we have been saying for the past 20 years.

Here are excerpts:

There are few traditions in American politics as cherished as the semi-regular panic over Social Security. There are equally few that are such utter balderdash on the economic merits.

The latest example of this time-honored practice comes to us courtesy of The New York Times. “Social Security’s so-called trust funds are expected to be depleted within about 15 years,” the outlet warned this week.

“Benefit checks for retirees would be cut by about 20 percent across the board.” The cuts could potentially rise to 25 percent in later years.

The question is whether the cuts, at the basic structural level, are actually necessary at all.

It’s widely assumed the federal government is just like a private household or business; it can run out of money if it doesn’t manage its spending and revenue properly.

Indeed, Social Security’s trust funds are designed on this premise.

But that’s actually not how it works at all. The federal government can never “run out” of money, nor can it ever suffer an involuntary debt crisis. 

The implications for Social Security should be obvious.

As far as the federal government’s ability to procure dollars is concerned, the depletion of the trust funds is a meaningless event.

It can keep right on paying every last Social Security benefit it has promised in perpetuity.

Absolutely correct. So far, so good.

Image result for politician lying
If you don’t pay more taxes, we’ll have to cut your Social Security. Believe me.

Unlike state and local governments, and unlike businesses, you and me, the federal government uniquely is Monetarily Sovereign.

It created the very first dollars at will –from thin air — and arbitrarily gave them a value.

Today continues to create dollars at will, from thin air, and still controls the value.

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

[There are two why the federal government levies taxes, and neither reason has anything to do with funding federal spending:

Reason 1. To control the economy be encouraging certain kinds of private spending and discouraging other kinds. (Tax breaks for home ownership are an example of the former. “Sin” taxes are examples of the latter.)

Reason 2. To create the illusion that the federal government’s spending ability is limited without sufficient taxes. (This is the method used by the government’s leaders — i.e. the rich — to justify cuts to benefits for the poor and middle classes and to increase their taxes.)] 

The very first Social Security beneficiary, Ida May Fuller, got her initial benefits check in 1939, after paying into the system for just three years — hardly enough time to build up the necessary “savings” to fund her retirement.

The very fact that benefit cuts would reduce Social Security to a cashflow basis demonstrates that current workers finance the benefits for current retirees, as opposed to payroll taxes being stored up for the future retirement of the citizens who payed them.

Oops! Now, Mr. Spross begins to slide off the rails, a bit.

Current workers pay FICA, but FICA does not finance benefits. Federal taxes do not fund federal spending.

Remember, Spross said it himself:

“As far as the federal government’s ability to procure dollars is concerned, the depletion of the trust funds is a meaningless event.

It can keep right on paying every last Social Security benefit it has promised in perpetuity.”

The actual function of the payroll taxes is to remove demand from the economy, thus making room for the demand that Social Security’s spending injects into the economy.

Which is what keeps inflation on an even keel.

The above is the old, “federal money printing causes inflation” myth.

Think about why the price of, say apples, would go up. Because people have too much money?

No, the price of apples or of any other products or services is caused by one thing: Shortages. 

The price of apples goes up when there is an apple tree disease, or a drought, not because your salary went up and you have more money to spend.

The notion that money creation (erroneously called, “money printing”) causes inflation, may stem from a misreading of hyperinflation.

Governments often respond to hyperinflation by printing currency.

But all hyperinflations begin and continue with shortages — usually, shortages of food — and they end only when the shortages are alleviated.

In short: the system is fine.

Of course, Congress still faces the fact that it made a rule for itself that benefits must be cut when the trust funds run dry.

If it wants to maintain the fiction, Congress could do what previous reforms have done, and bring spending and revenue back into line through some combination of benefit cuts and payroll tax hikes.

The above is exactly what the rich want you to believe: The benefits for the poor and middle classes must be cut, while their taxes are increased.

At some point, however, you’d think the better move would be to acknowledge the trust funds are a political gimmick, and just spend whatever benefits our elected representatives deem appropriate.

Social Security may face a very interesting political crisis in the coming decade or two. But in hard economic terms, there is no crisis at all.

Amen, brother Spross. The invented danger that Social Security (and Medicare and all other federal programs) could run short of dollars is a myth.

Now, while we’re at it, let’s get rid of that inflation myth, too.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

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

 

Nancy Gibbs is ignorant or a liar. Jeff Spross is wise. Pick one.

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

============================================================================================================================================================================================================================================================

Nancy Gibbs is ignorant of economics or a liar. She is the editor of Time Magazine, which published the infamous cover story claiming the American people owe the federal government’s debt. Monetary Sovereignty

Now, the actual author of the ridiculous story is a man who forever will be remembered for making a public fool of himself, Jim Grant.  We discussed his error-laced article at Time flies and Time (Magazine) Lies.

(Grant is the editor of “Grant’s Interest Rate Observer.” I suggest you allow his economic “expertise” to be your guide about ever  using his services.)

But this is about Ms. Gibbs, who compounded the idiocy of publishing Grant’s article, by posting a small article of her own. Here are some excerpts:

For this issue we invited Jim Grant, a wise economic analyst, to explain one of the most seemingly incomprehensible numbers around: the $13.9 trillion in debt the U.Sl. government is carrying on the national credit card.

If Jim Grant is a “wise” economic analyst, then Ms. Gibbs is an equally “wise” magazine editor. You be the judge of that.

She is correct that the $13 trillion debt is incomprehensible — to her. Clearly, the entire subject of federal debt is incomprehensible to her.

And as for that “credit card” reference, what can one say? Ignorant? Stupid? Intentionally misleading? Note to Ms. Gibbs: Learn the difference between Monetary Sovereignty and monetary non-sovereignty.

As we mark tax day, it’s appropriate to remember, as Jim points out, that the $42,998.12 share of federal debt for each and every American ultimately represent a form of deferred tax that must one day be paid.

The above sentence is absolutely, 100% wrong. The federal debt is the total of T-security accounts at the Federal Reserve Bank, i.e. bank accounts.

Taxpayers do not pay the debt. The dollars exist at the Bank, and to pay off these accounts, the Bank simply does what every banks does. It transfers these existing dollars to the T-security holders’ checking accounts.

How far off is the reckoning? There was some progress last year when the deficit clocked in at $405 billion, the lowest since 2008. But . . .

Ah, the day of “reckoning,” which supposedly has been looming over us since at least 1940, when the NY Times referred to our mere $50 billion (now $13 or $18 trillion, depending on what you count) as a “ticking time bomb”.

That surely is the slowest time bomb in history.

I can’t continue. This is too painful.

Let’s move away from Ms. Gibbs (How did she ever get to be the editor of Time Magazine?) and her ignorant? stupid? intentionally misleading? article and go to something that makes actual sense:

Why America’s gigantic national debt is a good thing
by Jeff Spross

America’s chattering class always seems to try to make the “debt crisis” a thing. Just take the new Time Magazine cover story by James Grant.

For anyone who follows this stuff, Grant’s argument is exasperatingly familiar: The $13.9 trillion the U.S. owes to creditors is unmanageable; the Federal Reserve artificially lowers interest rates with its magical money-creating powers; we’d be better off with “sound money” and balanced budgets.

There is too much error-by-way-of-half-truth here to directly rebut. Instead, let me tell you the correct story.

Let’s start where Grant does, with the idea that the federal budget is like a family’s budget. As Grant awkwardly half admits later, this is totally wrong.

Individuals, families, and businesses are all cash-constrained. To get money, they have to go out and do something: get a job, sell goods and services, or borrow.

That’s not true of the federal government, since the Constitution invests it with the unique power to create money.

So any government with a fiat currency system, which is what America and most advanced Western nations have now, can always just create money to pay off creditors in a pinch.

That’s why interest rates on U.S. debt are so low — a sign of investors’ trust. It’s why we’ve happily run a debt for almost two centuries, and why Japan’s interest rates remain quite low despite a debt load far larger than ours.

Perfect. Well, almost perfect. The euro nations have a fiat money system, but being monetarily non-sovereign, they can’t create money at will.

And anyway, the U.S. government does not create money to pay off it’s so-called “debt,” though it does create money to pay off creditors.

Confused? There are two, completely different processes:

  1. The so-called “debt,” which consists of T-security investment accounts at the Federal Reserve Bank are “paid off” by transferring existing dollars from those investment accounts to holders’ checking accounts. No new money involved.
  2.  However, creditors — i.e. those people who sell to the federal government — are paid off by money creation. The federal government sends instructions to the creditors’ banks, instructing those banks to increase the balances in the creditors’ checking accounts. When the banks obey those instructions, dollars are created.

That does not mean investors are somehow getting hoodwinked. A government with a fiat currency is simply a one-of-a-kind thing in the economy. Its bonds are distinct from those of a corporation or even a state.

They’re a uniquely safe investment, and the people buying them know this.

. . . super-low interest rates are effectively a demand from the financial markets for more U.S. debt. . . a signal the government needs to use its powers to step in and do something about the economy.

Correct. And what is that “something about the economy” the federal government must do?

Deficit spend. Deficit spending creates dollars and dollar creation stimulates economic growth.

It’s true, as Grant says, that printing money is not wealth creation. But it can enable wealth creation.

Grant mocks the idea of stimulus, saying we doubled the size of the federal debt after the Great Recession and got only a sluggish recovery for our efforts.

But plenty of economists looked at the economic hole left by the 2008 financial crisis, and concluded the stimulus policies on the table weren’t nearly big enough to fill it.

Absolutely correct.  Contrary to pundits’ claims that the stimulus didn’t work, the stimulus was far too little, and way too late.

It’s like feeding a starving child a single cracker, and afterward, when the child still starves, saying, “Well feeding doesn’t cure starvation.”

And why has the stimulus been too little and too late? Because of the debt hawks — the people like Nancy Gibbs and Jim Grant, who publicly wring their hands about the “excessive” size of the meager cracker we gave that starving child.

Then, Jeff Spross addresses the debt hawks favorite (phony) bugaboo: Hyperinflation, as in “We’ll turn into Zimbabwe or the Weimar Republic.”

Historically, hyperinflations have been really hard to pull off, precisely because the government has to go to such an extreme.

Most have been associated with war or some other similar calamity. Even our massive  debt and deficit buildups in WWII only briefly rocketed inflation to 10 percent before quickly falling back to earth.

Moreover, inflation is not a universal evil. Moderate inflation, in the range of 3 to 4 percent, is one sign of a healthy economy.

It means employment is plentiful, labor markets are tight, and wages are increasing — which is what puts upward pressure on prices.

What’s remarkable is not that the Fed is trying to increase inflation, as Grant complains. It’s that inflation is rock bottom and the Fed can’t seem to make it go higher.

The Fed can’t create new economic activity out of nothing. And if the private markets aren’t doing so on their own either, even with low interest rates, government fiscal stimulus is the only remaining option.

Ironically, those in Congress often have complained the Fed isn’t doing enough to stimulate the economy. But stimulating the economy is not the Fed’s job.  It’s Congress’s job, a job Congress has shied away from doing.

The repeated complaints about deficit spending are, in fact, complaints about economic growth.  The primary way to grow the economy is via deficit spending, but Congress, bought and paid for by the rich, pretends otherwise.

The rich are perfectly happy with a weak economy and the begging-for-jobs people it produces. Low salaries, high profits, big bonuses for the .1% and shareholders.  What could be better?

So there you have it, A Tale of Two Publications, Time Magazine and theweek.com. The former repeatedly has published the most wrongheaded, truly harmful claims that the federal “deficit” will send us into economic hell, while the latter, in a few short paragraphs, demolishes the Times’ — what else can I call it –the Times’ bullsh*t.

Nice going Jeff Spross. America, indeed the world, needs more like you.

Rodger Malcolm Mitchell
Monetary Sovereignty

 

===================================================================================
Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually Click here
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)

10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)

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

10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

THE RECESSION CLOCK

Recessions begin an average of 2 years after the blue line first dips below zero. A common phenomenon is for the line briefly to dip below zero, then rise above zero, before falling dramatically below zero. There was a brief dip below zero in 2015, followed by another dip – the familiar pre-recession pattern.
Recessions are cured by a rising red line.

Monetary Sovereignty

Vertical gray bars mark recessions.

As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.

————————————————————————————————————————————————————————————————————————————————————————————————-

Mitchell’s laws:
•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money.
•The more federal budgets are cut and taxes increased, the weaker an economy becomes..

•No nation can tax itself into prosperity, nor grow without money growth.
•Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
•A growing economy requires a growing supply of money (GDP = Federal Spending + Non-federal Spending + Net Exports)
•Deficit spending grows the supply of money
•The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
•The limit to non-federal deficit spending is the ability to borrow.

Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.

•The single most important problem in economics is the Gap between rich and the rest..
•Austerity is the government’s method for widening
the Gap between rich and poor.
•Until the 99% understand the need for federal deficits, the upper 1% will rule.
•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..

MONETARY SOVEREIGNTY