U.S. Wealth Account

Sometimes, you don’t know whether to laugh or cry. That’s when you encounter an idea that is so bad the people who favor it are wrong, and those who oppose it are also wrong. Now, that is a bad idea. Here (in red) is a short article from the February 14th THE WEEK Magazine:

President Trump wants the United States to be in the investment business, said Jenny Leonard and Katherine Burton in Bloomberg. This week, Trump signed an executive order directing officials to create a national wealth fund. Trump floated the idea of a sovereign wealth fund –in essence, an investment fund owned by the government– during the campaign, proposing the “money from tariffs” could be used to “invest in manufacturing hubs, defense, and medical research.”

The Monetarily Sovereign U.S. government does not use any income for spending. It does not use taxes or “money from tariffs” (which effectively are taxes on American consumers). Having the infinite ability to create dollars, the federal government destroys all the dollars it receives and newly creates every dollar it spends. Even if the U.S. government did not receive a single tax or tariff dollar, it could continue spending dollars forever. Thus, the “wealth fund” could pay any amount it chose, at any time, to whomever it chose. Unlike a privately owned fund, a government fund can do whatever it wants with investors’ money, including keeping it. Witness America’s Social Security, which changes the rules every year. You have been told that your FICA dollars fund Social Security. They don’t. If they did, the government couldn’t change the qualifying dates at will and couldn’t tax the benefits you supposedly paid for. Trump and the Republicans have promised to eliminate income taxes on Social Security benefits, which they have the power to do. Or they could double the taxes, at will. The “wealth fund” could pay you any amount it chose, whenever it chose, and change the rules every day, at whim. So, what would be the purpose of a government investment fund, and how would that be different from accepting deposits in T-bills, T-notes, and T-bonds? Further, funds must have an investment philosophy. That is, will the fund mimic the S&P? The largest growth stocks? The total stock market? Include foreign stocks? Or will it be traded according to some other formula, and if so, which? Never one to be bothered with details, Trump doesn’t say. But those are vital questions.

Other wealth funds generally exist in nations with excess money, either from “large foreign exchange reserves, like China, or revenue from the sale of oil.”

Uncle Sam sitting on a giant pile of money — **The U.S. government has infinite dollar**s.

The U.S. always has “excess money” because it has infinite money. When a government can create money at will and at no cost, at what point could it be said to have “excess money”? China has funds in dollars and other currencies. It can exchange those dollars for yuan if it wishes to use them for spending (on oil, which is traded in dollars) or do anything else.

Trump floated the suggestion that “the fund could facilitate the sale of TikTok.”

Utter nonsense. The U.S. government has the financial ability to buy TikTok along with FaceBook, X, and every other app, and still has plenty left for politicians to pave their local streets in gold.

Let’s hope this doesn’t go anywhere, said Dominic Pino in National Review. A sovereign wealth fund makes sense for oil-rich states like Saudi Arabia and the United Arab Emirates, which pull in massive revenues and “don’t have a ton to spend it on.”

According to the U.S. Energy Information Administration, the United States has produced more crude oil than any nation at any time, according to our International Energy Statistics, for the past six years.

Crude oil production in the United States, including condensate, averaged 12.9 million barrels per day (b/d) in 2023, breaking the previous U.S. and global record of 12.3 million b/d, set in 2019.

Average monthly U.S. crude oil production established a monthly record high in December 2023 at more than 13.3 million b/d.

A sovereign wealth fund in oil-rich nations facilitates the foreign exchange of local currencies and eliminates the need to rely on foreign exchange markets. The money is invested and banked, transforming into whatever currency the nation desires. In dollars, the U.S. is the world’s second-largest oil exporter. That fact has nothing to do with the U.S. creating a government-owned fund. The U.S. government has infinite money and infinite things to spend it on.

Among Western countries, “Norway is the canonical example of a successful sovereign wealth fund,” But it has money to spend, averaging a budget surplus of 10 percent of GDP since the 1970s.

A “budget surplus” means the government takes more money out of the economy than it puts in. The formula for GDP is GDP=Total Spending + Net Exports. Norway is a major exporter, and though it technically is Monetarily Sovereign, when was the last time you accepted payment in Norwegian Krones? Still, it has the unlimited ability to pay its own people in Krones, so its fund cannot run short of money unless the government wants it to. And finally, we come to the most naive statement in the entire article.

The U.S. is running enormous deficits, “would have to borrow even more money to start a wealth fund,” and is a “poor steward of the money it already controls.“

The authors display that they have no idea about the differences between Monetary Sovereignty and monetary non-sovereignty. 1: The U.S. government never borrows dollars. Think about it. Given the unlimited ability to create dollars, why would it ever borrow? It makes no sense. The economically naive think that allowing deposits in Treasury Security Accounts (T-bills et al.) represents borrowing. It doesn’t. A borrower takes ownership of money to spend or invest that money. However, the U.S. government never takes ownership of T-security dollars, and it never spends those dollars. Think of T-security dollars as being similar to dollars placed in a bank safe deposit box. The bank takes possession of the dollars but does not have ownership of the dollars. The T-security dollars remain the property of the depositors; the federal government never touches those dollars. It doesn’t use them for spending purposes. It only possesses the dollars. This is not borrowing. It is safekeeping. T-securities’ sole purposes are to help the Fed control interest rates and provide a safe storage place for unused dollars. They do not provide spending money to the government. 2: Federal deficits are not a burden on the federal government. Unlike you, me, business, and the state and local governments, the federal government could deficit spend, forever. It neither needs nor uses tax dollars or any other form of income. 3: Federal deficits are essential for GDP growth. Every depression in history has come when the federal government ran a surplus; government surpluses take dollars out of the economy, which reduces GDP. A reduction in GDP is known as a recession (short term) or a depression (long term). The federal government would not have to borrow even one dime in order to start a wealth fund. It could begin to one tomorrow — a fund containing a trillion dollars or a trillion, trillion dollars — at the touch of a computer key. (The government also has the Constitutional power to create a multi-trillion dollar platinum coin, and deposit in the General Account from which to write checks. It’s unnecessary, but legal.) And as far as the government is a “poor steward of the money it already controls,” who does the author think would control the investments in the wealth fund if not the “poor steward” federal government? In summary, both the proponents and opponents of the “wealth fund” demonstrate ignorance about federal financing. Their pro and con comments apply to a private-sector fund, not to a Monetarily Sovereign government fund. Trump, as usual, wants something he can twist into his own self-enrichment. Imagine him controlling a few trillion in assets, that the Supreme Court has ruled he can steal at will because he is immune to prosecution for actions taken as part of his official duties. You can be sure that pumping a few billion or trillion into Trump properties will be considered “official duties” by the compliant Republican-controlled Senate and House. These bodies currently have no duties but to attend, vote “Yes,” and leave. And yes, to cash their paychecks and take advantage of their ill-gotten perks. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell; https://www.academia.edu/

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A Government’s Sole Purpose is to Improve and Protect The People’s Lives.

MONETARY SOVEREIGNTY

The federal cost-saving myth

When Elon Musk bought Twitter, now “X,” his primary objective was to own a giant megaphone for his political ambitions. He immediately began to cut costs.

Twitter Layoffs: The Before and After of Elon Musk’s Staff Cuts

Massive Restructuring: Elon Musk’s $44 billion acquisition of Twitter led to layoffs of nearly 80% of its workforce, altogether redefining the company’s structure, operations, and mission.

Redistribution of Talent: Former Twitter employees have transitioned to leading tech companies like TikTok, Reddit, and Google, with many moving into senior and executive roles.

Industry Ripple Effects: Musk’s drastic cost-cutting set a precedent for widespread layoffs across the tech industry, reshaping talent dynamics and organizational strategies.

Mixed Platform Performance: X (formerly Twitter) reports growth metrics, but independent studies show contrasting metrics in user engagement and traffic since the rebranding.

Applying Organizational Philosophy: Musk is now set to apply his organizational reforms to government through his involvement in DOGE and the Trump administration.

He cut costs because X is a private enterprise, a for-profit, monetarily non-sovereign enterprise. As such, it is the opposite of the Monetarily Sovereign federal government: Different problems; different solutions. (Think of the difference between solutions for overweight and underweight, and you’ll get the idea.)

Musk claimed that the layoffs were necessary to save the company from financial ruin. Fast forward to 2024, and Musk promises to bring these draconian cuts to government bureaucracy.

Elon Musk’s takeover of San Francisco-based Twitter significantly transformed the social media platform. Musk’s acquisition, valued at $44 billion, led to drastic measures to restructure the company, starting in November 2022. This included laying off more than 6,000 Twitter employees—a reduction of nearly 80% of Twitter’s workforce.

The problem is that the federal government cannot experience “financial ruin,” Its primary task of growing the economy requires the federal government to spend more than it receives — in short, to run deficits. Every time the federal government has spent less than it received — i.e., run a surplus, it has caused a depression, except once when it “only” caused a recession.

U.S. depressions 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.

The relationship between federal deficit spending and economic growth is demonstrated by the following graph:

**“Debt Securities” (red) tracks federal deficit spending. Gross Domestic Product (blue) tracks economic growth**

The lines are essentially parallel. A growing economy requires a growing supply of money, and federal deficits increase the money supply. Unlike the federal government, X:

Does not have the infinite ability to create dollars.
Requires income to survive, long term.
Its primary financial goal is profits.
It reports to shareholders, in this case, Musk, and is designed to help achieve one shareholder’s personal goals.

By contrast, the U.S. federal government:

Has the infinite ability to create dollars simply by touching computer keys
Needs no income and, in fact, destroys any income it receives.
Needs no profits, and in fact, profits would be counterproductive to its mission of protecting and improving people’s lives. Federal losses are the economy’s gains.
It reports to the people of the United States and to a lesser extent, the people of the world.

Thus, when the ad hoc creation of the so-called “Department of Government Efficiency (DOGE) fires employees, it does nothing to help the government or American taxpayers. Federal savings do not fund federal spending. On the contrary, firing federal workers to save money hurts the American economy. It hurts the workers individually and every American because the government will pump fewer growth dollars into the economy. Gross Domestic Product (GDP) = Federal Spending + Non-federal Spending + Net Exports. This demonstrates why great businessmen seldom make good Presidents. The entire motivation and process are different from what they know. What a businessman does instinctively (minimize spending and maximize profits) is exactly the opposite of what a Monetarily Sovereign government leader should do (although it is perfect for leaders of monetarily non-sovereign state and local governments). Musk may know this, but even so, he knows the public doesn’t understand it. The public is conditioned to believe nine of the myths mentioned in Inflation: The Bugaboo That Confuses Our Leaders:

Federal finances are similar to state and local government, business, and/or personal finances
The federal government should live within its means, just as people and businesses should.
The federal government should be frugal.
Wasteful federal spending is a significant economic problem.
Excessive federal spending causes inflation.
Inflation is too much money chasing too few goods.
Federal deficits and debt are financial burdens on federal taxpayers and the government
The federal government levies taxes to pay for its spending.
The federal government borrows to pay for its spending.
Give me more, more, more money while I fire more, more, more people.

Wrong on all nine counts. Having the infinite and unique ability to create dollars, the federal government has no “means,” and even “wasteful” spending is beneficial. Taxpayers don’t pay for spending; the government spends with newly created dollars, so it never borrows. And shortages like oil and food, not federal spending, cause inflation. Actions that are good for a non-sovereign business often will be disastrous when applied to a Monetarily Sovereign government. Musk’s and Trump’s combination of economic ignorance, hubris, laziness, and massive power, together with an insatiable craving for self-enrichment, will create a disaster for America and all Americans. Finally, it’s one thing to fire employees of a disseminator of rumor and silliness like “X,” but do you really want fewer people inspecting your food for disease and poisons. Do you want fewer people to provide family assistance, child support, childcare, Head Start, child welfare, and other programs that help children and families? How about fewer people to help improve the quality, safety, efficiency, and effectiveness of health care for Americans? Do you really want less effort to protect people from harmful chemical exposures? Or less effort to enforce federal criminal laws regulating the firearms and explosives industries? Or a smaller staff to preserve U.S. government records, manage the Presidential Libraries system, and publish rules, regulations, Presidential, and other public documents? Is it your opinion that the Army Corps of Engineers and the rest of our military have too many people? Should we devote fewer resources to measuring labor market activity, working conditions, and economic price changes? Maybe we should have fewer U.S. Capitol Police Officers to protect life and property, investigate criminal acts, and enforce traffic regulations on U.S. Capitol Grounds, while protecting members, officers of Congress, and their families. No one ever would attack the Capitol (right?), and if they did, the President would pardon them, so why have police? And, of course, we should cut the Centers for Medicare and Medicaid Services (CMS), which provides health coverage to more than 100 million people through Medicare, Medicaid, the Children’s Health Insurance Program, and the Health Insurance Marketplace (right?) And, what’s the good of the U.S. Courts of Appeals that hear appeals from lower courts of both civil and criminal trials to investigate whether or not the law has been fairly and correctly applied by the lower courts? Don’t we already have too many people protecting the public from investment fraud, manipulation, and abusive practices? Then there are the useless patent and copyright offices. Shouldn’t they be cut? And certainly, we could do without all those people whose jobs involve customs, border, immigration enforcement, emergency response to natural and manmade disasters, antiterrorism work, and cybersecurity. There are thousands of examples of federal agency people who devote their lives to protecting you and national leaders (including the President) and visiting heads of state. I would vote right now to get rid of the group risking their lives to protect the President. When you go through the list of federal agencies, you learn how vital these people are in improving and protecting all our lives. Sadly, Musk’s casual, broadscale firing makes no allowance for individuals. That simply is too much work for him. His deferred resignation program already has received thousands of acceptances of his “deferred resignation” offer. Are these good employees, bad employees, vital employees, young, old, experienced, recently hired? No one knows, and no one seemingly cares. To Musk and Trump, employees aren’t people who provide valuable services. They are job titles we can do without and without suffering losses. Ignorance, hubris, laziness, and massive power together with an insatiable craving for self-enrichment — was there ever a better description of today’s White House? SUMMARY Federal deficit spending is necessary for economic growth and to fulfill the federal government’s mission to improve and protect the people’s lives. GDP = Federal Spending + Nonfederal Spending + Net Exports. Even “wasteful” federal spending grows the economy. Federal taxes do not fund federal spending. Spending cuts do not lead to tax cuts, but they do lead to service cuts. Running a for-profit business is entirely unlike running a for-service Monetarily Sovereign federal government. A Monetarily Sovereign government is not better when it is smaller and spending less. It is better when it is providing more services and collecting less tax, regardless of cost. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell; https://www.academia.edu/

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY

What are the purposes of the student loan program?

What are the purposes of the student loan program?

A street made out of dollars leads to a school — **The road to school is paved with dollars.**

1. It provides financial assistance to students who may not be able to pay for their education upfront. 2. Educated individuals tend to have higher earning potential and contribute more to the economy. 3. Education provides individuals with critical thinking, problem-solving, and communication skills that are valuable in both personal and professional life. 4. Education can be a pathway out of poverty for many individuals, providing them with the tools and opportunities to improve their socioeconomic status. 5. Student loans provide a significant source of revenue for educational institutions, helping them maintain and improve their programs and facilities.

Federal student loans account for about 92% of the total outstanding student loan debt in the United States, while private student loans account for approximately 8%. Federal loan rates range from 6.5% to 9%, and private loan rates range from 3.5% to 17%. Approximately 40% of the loans provided by the government to help students pay for their education are delinquent or in default. The federal government collected approximately $4.92 trillion in tax revenue for the most recent fiscal year (FY 2024). According to the Federal Reserve, the student loan debt balance in the U.S. has increased by 66% over the past decade and now totals more than $1.74 trillion.

Washington Post, January 18, 2025, By Danielle Douglas-Gabriel In his last week in office, President Joe Biden capped a tumultuous effort to deliver widespread student loan forgiveness by canceling another $600 million in education debt for longtime borrowers and those defrauded by their colleges. With Biden’s final round of student debt relief, he has approved a total of $189 billion in loan cancellation for 5.3 million borrowers — more than any other president. Yet higher education experts are split on whether his mission to ease the debt burden for millions of Americans did more harm than good. Many of Biden’s sweeping debt relief policies have either been struck down by the courts or tied up in litigation that has left the student loan repayment system in disarray.

Ironically, the lawsuits and court cases depend on Republican obstruction, the party of the wealthy. Millions of people who would have benefited from debt relief voted for Trump. Now, more than ever, the wealthy have control over America. They always wish to be more prosperous, which requires widening the income/wealth/power Gap between the rich and the rest. The children of the rich do not need to borrow for college, but the children of the rest do. Therefore, forcing the rest to be indebted widens the Gap, making the rich richer. It’s the same motivation for why the rich complain about the cost of Medicare and Social Security but never about the costs of special tax breaks available only to the rich.

college graduates are higher than the poor — **College graduates see a successful future**

The “federal spending causes inflation” trope is how the rich justify voting against spending that benefits the not-rich.

Still, the president’s relentless pursuit of debt forgiveness, primarily through long-existing federal programs, has helped millions of people. “Four years ago, President Biden made a promise to fix a broken student loan system. We rolled up our sleeves and, together, we fixed existing programs that had failed to deliver the relief they promised,” Education Secretary Miguel Cardona said Thursday. The Education Department announced three separate rounds of student loan forgiveness in Biden’s last week in office. On Monday, the department canceled loans for 150,000 borrowers mostly through a 1994 statute called “borrower defense to repayment,” which lets the agency cancel federal student loans when colleges violate students’ rights and state law. A majority of those cancellations were for students who attended defunct schools owned by the Center for Excellence in Higher Education, including Stevens-Henager College, Independence University and California College San Diego. “My Administration has taken historic action to reduce the burden of student debt, hold bad actors accountable, and fight on behalf of students across the country,” Biden said Monday. “For the first time in the history of the student loan system, we saw the federal loan program deliver on its promise to more than 5 million student loan borrowers,” said Persis Yu, deputy executive director at the Student Borrower Protection Center (SBPC), an advocacy group. Conservatives have also succeeded in stalling Biden’s Saving on a Valuable Education (Save) repayment plan, which ties monthly student loan payments to earnings and family size, and offers a shorter path to loan forgiveness. A court injunction has halted Save and the Education Department has suspended payments for the 8 million people enrolled in the plan but denied them credit toward loan forgiveness during the forbearance period. While President-elect Donald Trump is likely to end the program, it is unclear what his administration will do with all of those borrowers. Republicans have become hardened against what many have called a fiscally irresponsible giveaway to college graduates at the expense of taxpayers.

To the Trump right-wing, “fiscally irresponsible” means anything that benefits the middle and the poor. It does not include tax breaks for the rich. Think of :

Private foundations or charitable trusts
Real estate depreciation deductions, tax-deferred exchanges (like 1031 exchanges)
Family limited partnerships (FLPs)
Offshore accounts and trusts
Business owners can deduct expenses, including travel, entertainment, and even personal use of company assets.
Grantor-retained annuity trusts (GRATs) and dynasty trusts
Carried interest
Deferred compensation plans
Foreign tax credits
Opportunity zone investments
Grantor trusts
Conservation easements
Like-kind Exchanges (Section 1031)

a doctor overworked overburdened drowning in patients — **The future of the poorly educated**.

Have you taken advantage of any of the above? They all reduce federal taxes, thus taking dollars from the federal government. If they were used by middle—and lower-income taxpayers, the rich would complain that they are “fiscally irresponsible giveaways” or that programs (like Medicare and Social Security) are running short of money. But you will hear no complaints from the rich about the abovementioned tax breaks. The rich complain only when the rest of us receive something from the government.

House Education and the Workforce Committee Chairman Tim Walberg (R-Michigan) accused the Biden administration of giving “handouts with zero accountability.”

“Handouts with zero accountability” is how Donald Trump paid virtually no taxes during the years he made billions.

“Instead, the administration should have been working to address the fact that student loan debt is too high, completion rates are too low, and far too many students are left worse off after paying for college than if they had never enrolled in the first place,” Walberg said Monday. “

Which is precisely what Biden’s loan forgiveness does.

It is shameful that, in its final days, the Biden-Harris administration is doubling down on efforts to push as much forgiveness as possible through the door, once again ignoring the rule of law.”

Neither Walbert nor the rest of the Republican Party has solutions for reducing excessive student loan debt, low completion rates, and the financial strains students face after college. In fact, as the techies say about flawed programs, “Those aren’t bugs; they’re features.”

Congressional Republicans are likely to push wholesale changes to the federal lending system through the budget reconciliation process, including a proposal to eliminate Plus loan programs for graduate students and parents. For his part, Trump has derided Biden’s student loan forgiveness policies as “vile,” but has not put forth a plan of his own.

This is a common complaint by Trump, who routinely criticizes anything the Democrats do, then promises to come up with a better plan and, in the end, fails to do so. Who could forget the eight years of broken promises to develop an “improved” version of Obamacare?

Persis Yu, the Deputy Executive Director and Managing Counsel at the Student Borrower Protection Center (SBPC) said, “The last Trump administration looked the other way when students’ and borrowers’ rights were denied — routinely siding with predatory schools and servicers.

The fact that education benefits America was known to our first settlers, whose first acts were to create schools. The first free public school in what is now the United States was established in 1635 in Boston, Massachusetts, funded by taxpayer dollars Today, grades K-12 are still funded by taxpayer dollars, without direct student cost, by monetarily non-sovereign governments. So surely, grades 13+ can be financed by our Monetarily Sovereign government without taxpayer dollars. These days, advanced education is more important than it was four centuries ago, so all the same reasons for free elementary and high school now exist for free college and advanced. The solution to educating everyone who wants it is federal funding of all education. Further, the federal government should fund student salaries to compensate for lost working hours. The “federal debt” excuse is meaningless for a Monetarily Sovereign government. The “inflation” excuse is false. Inflation is caused by shortages of oil, food, shipping, labor, etc., none of which is affected by federal spending on education. We seem to have plenty of money for the military, Congress, the White House, and SCOTUS, as well as tax breaks that benefit the rich. (There is no FICA for tax shelters.) Rich property and business owners receive massive tax breaks; renters and salaried employees get nothing. Trump famously stated, “I love the poorly educated.” It seems he is so enthusiastic about the poorly educated that he wants millions more to join that group. The federal government does not need to lend. Federal lending is a Mafia-like solution for students of modest means who are desperate to climb the social/financial ladder, but become trapped in future-destroying debt. The government should give benefits to the people rather than lend, which would not only help the individuals receiving benefits but, unlike lending, add growth dollars to the economy. We should end all student loan programs and start anew with comprehensive student support programs for grades K-16+, financed by the federal government at no cost to federal, state, or local taxpayers. “Comprehensive” should encompass tuition, books and materials, room and board, tutoring, transportation, and salaries to cover lost work time. This would decrease the number of poorly educated individuals, increase the number of well-educated individuals, and alleviate a significant financial burden on students, their families, and state or local governments. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell; https://www.academia.edu/

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY

The solution to inflation: View inflation as a lack of supply problem, not an excessive demand problem

Background

Inflation is a general, progressive elevation in the prices of services and goods within the economy.

It is not an increase in one price or a dozen prices. It is a general increase in prices. And it is not a momentary price change; it is a progressive change taking place over months and years.

The U.S. government is Monetarily Sovereign. It has the unlimited ability to create U.S. dollars.

The Federal Reserve views inflation as an “excessive demand” problem, raising interest rates to combat it. The Fed’s theory is:

–Higher interest rates make borrowing more expensive for consumers and businesses. This tends to reduce spending on big-ticket items like houses and cars and can lead to decreased business investment.

–As interest rates rise, saving becomes more attractive. People may save more rather than spend, reducing overall economic demand.

–Higher interest rates reduce the overall demand for goods and services by curbing spending and borrowing. With lower demand, prices will stabilize or decrease, helping control inflation.

–The Fed aims to bring demand in line with supply by slowing down economic activity. This helps prevent the economy from overheating and keeps prices from rising too quickly.

–Higher interest rates can also influence inflation expectations. If businesses and consumers expect inflation to be controlled, it can become a self-fulfilling prophecy, helping stabilize prices.

Unfortunately, bringing down demand is recessionary. Also, when interest rates rise, businesses’ borrowing costs increase. This includes loans for expansion, equipment, and operational expenses.

Businesses facing higher borrowing costs may raise prices to maintain profit margins, potentially leading to higher consumer prices.

Historically, however, inflation has not been an excessive demand problem but a lack of supply problem.

business owner talks to customer — **I’m sorry, ma’am. We could lower our prices if we didn’t have to pay such high interest rates on our business debt.**

Rule #1. A price or prices can rise progressively only if there is a scarcity of crucial products or services- notably oil, food, and labor.

Prices cannot increase when products and services are plentiful.

Price increases would be temporary without scarcity as plentiful supply would naturally reduce prices.

For instance, it is believed that inflation can be caused by:

Expectations: If consumers or businesses expect prices to rise, they may temporarily increase their purchases or adjust their pricing.

However, without underlying scarcity, the market will self-correct.

Currency Devaluation: Devaluation can increase import costs, resulting in higher prices for imported goods.

However, if these goods are plentiful globally and alternative sources exist, the price increases may be reversed.

Devaluation is intended to boost exports, thereby injecting money into the economy. Contrarily, the supporters of devaluation often criticize government deficit spending for the same reason, as it also increases the money supply.

Increased Demand: Increasing demand typically indicates a healthy economy. If supply can match demand, prices will stabilize.

However, when supply falls short of demand, shortages lead to prolonged price increases.

Inflation occurs due to scarcity. Whether it involves oil, food, labor, or other essential inputs, this scarcity increases prices.

When there is no underlying scarcity, price increases due to expectations, devaluation, or demand growth will be temporary and self-correcting.

Rule #2. There is no “excessive demand”; instead, there is “inadequate supply.” Inflation always is supply-based, never demand-based.

Increased demand is an essential requirement for economic growth that should be encouraged rather than suppressed.

This perspective alters the understanding of demand-pull and cost-push inflation typically taught in economics classes.

Demand-pull inflation supposedly occurs when demand for goods and services exceeds supply, leading to higher prices. This should be viewed as inadequate supply, i.e., shortages, and cured by addressing the scarcity of goods and services, not the demand.

Cost-push inflation has been said to occur when rising production costs (e.g., wages and raw materials) lead businesses to increase prices, resulting in inflation. Production costs rise only when shortages, e.g., labor shortages push up wages, and raw material shortages push up purchase costs.

This inflation should be cured by addressing the shortages of labor and raw materials.

Rule #3. Recession is not an effective cure for inflation. Both recession and inflation can exist simultaneously (i.e., “stagflation”).

The two frequently attempted solutions for inflation—reducing federal spending and raising interest rates—are detrimental to growth and can lead to recession.

Reducing federal spending can worsen inflation by creating raw materials and labor shortages. Raising interest rates may also increase inflation by elevating business and consumer costs.

Rule # 4. To prevent/cure problems, cure the cause(s). Because inflation should be viewed as a supply problem, not a demand problem, curing supply constraints is the preferred approach to managing inflation.

This includes increased government investment in infrastructure, shipping, basic materials, innovation (R&D), and workforce development through education and training.

Encouraging demand and ensuring supply keeps pace supports sustainable economic growth and helps combat inflation without leading to a recession.

Summary: To prevent and cure inflation:

Government policies should prioritize increasing supply through strategic investments rather than relying on monetary policy to reduce demand. Increasing demand is essential for economic growth.
When inflation is related to oil shortages, the government should fund increased oil exploration, drilling, refining, and delivery, as well as increased funding for renewable energy creation and distribution.
When inflation is related to food costs, the government should fund aid to farming, farm education, farm equipment, storage, and shipping.
When inflation is related to increased labor costs, the government should fund education and training. It should also reduce labor costs by eliminating FICA and reducing business taxes.
Other inflation-causing shortages should be addressed via federal support
Discontinue efforts to reduce federal spending, the deficit, and the debt. So-called “excessive” federal spending does not cause inflation, and it can be part of the cure.
Stop raising interest rates as a cure for inflation. Low rates do not cause inflation, and high rates increase the cost of goods and services—exactly the opposite approach to inflation prevention and cure.

A Monetarily Sovereign government should view inflation as a lack of supply problem, not an excessive demand problem, to prevent and cure inflation without a recession.

Cure the supply problem, and you cure inflation without a recession.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY