More evidence that the federal government should own all banks

The description of Step #9 of the Ten Steps to Properity (below), “Federal Ownership of All Banks,” begins this way:

Banks are involved in most U.S. dollar creation. Even the dollars created at the direction of the federal government originate with banks.

The two primary dollar-creation methods in the U.S. are bank lending and federal spending:

Each time a bank lends, it simply increases the numbers in the borrower’s checking account. That instantly adds dollars to the money supply.

When the federal government spends, it sends instructions to a creditor’s bank, instructing the bank to increase the numbers in the creditor’s checking account. When the bank does as instructed, dollars are added to the money supply.

This participation in the vast majority of all dollar creation gives banks enormous financial power, and as we all know — and the “Great Recession of 2008” reminds us — power corrupts banks, especially when multiplied by a profit motive and government complicity.

Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, and that makes all the difference. The government neither needs nor uses profits, and unlike bank employees, federal government employees do not receive remunerations based on federal agency profits.

Because the vast majority of banks are not federally owned, and so are monetarily non-sovereign and directed by the profit motive, America’s money supply is subject to criminality and insolvency.

Now, the Trump administration wishes to make an extremely dangerous situation even worse:

Officials Spar With Senators Over Plan For Mortgage Giants
THE ASSOCIATED PRESS — BY MARCY GORDON – AP BUSINESS WRITER

WASHINGTON (AP) — Trump administration officials on Tuesday defended their plan to Congress for ending federal government control of mortgage finance giants Fannie Mae and Freddie Mac, clashing with Democratic senators on whether the change would raise home borrowing costs and neglect lower-income homeowners.

The two finance companies nearly collapsed in the financial crisis 11 years ago and were bailed out at a cost to taxpayers of nearly $190 billion.

Bailing out Fannie and Freddie would have been unnecessary had they been owned by the federal government. The government, being Monetarily Sovereign, cannot unintentionally be insolvent.

Image result for federal reserve bank — 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.”**

Because the federal government cannot run short of dollars, no agency of the federal government can run short of dollars, unless Congress and the President will it.

As agencies of the federal government, Fannie and Freddie and all of America’s banks, never unintentionally would run short of dollars.

The “Great Recession” of 2008 was exacerbated by privately-owned banks running short of dollars, requiring “bailouts” by the federal government.

Though these bailouts cost taxpayers nothing (no tax was levied as a result and federal taxes do not fund federal spending), the need for bailouts did inject fear and uncertainty into the economy, which acted accordingly. The fear and uncertainty were nearly as harmful as the actuality.

Treasury Secretary Steven Mnuchin and Housing and Urban Development Secretary Ben Carson, along with regulator Mark Calabria, director of the Federal Housing Finance Agency, testified before the Senate Banking Committee on the plan for returning Fannie and Freddie to private ownership.

The companies have become profitable again and have fully repaid their bailouts. Under the plan, their profits would no longer go to the Treasury but would be used to build up their capital bases as a cushion against possible future losses.

If Freddie and Fannie were owned by the federal government, there would be no need to “build up their capital bases as a cushion against possible future losses.” Having an unlimited supply of money, the federal government creates money, ad hoc.

Fannie and Freddie together guarantee roughly half of the $10 trillion U.S. home loan market. They don’t make home loans.

They buy them from banks and other lenders, and bundle them into securities, guarantee them against default and sell them to Wall Street investors.

Calabria said Fannie and Freddie’s capital must be bulked up “to match their risk profiles” and avoid another bailout. “In their current financial condition, the (companies) are not equipped to withstand a downturn in the housing market,” he testified, adding, “It keeps me up at night.”

Mr. Cabria would not need to “stay up at night” if Fannie and Freddie were owned by the federal government.

The federal government would not have to “bulk up to match and risk profile” and never would need a bailout.

The administration promises in the plan to preserve homebuyers’ access to 30-year, fixed-rate mortgages, which are the pillar of housing finance.

The plan “would preserve the longstanding government support of the 30-year, fixed-rate mortgage loan,” Mnuchin said. “That support, however, should be explicitly defined, tailored and paid for.”

The administration’s “30-year” promises are humorous at best and deceptive at worst. Not only does this administration have zero credibility (the President lies incessantly), but at worst he will be in office for only five more years. What happens when a new administration takes over?

(Would you buy life insurance from a company that doesn’t pay its policyholders, and is guaranteed to go out of business in five years?)

Mnuchin acknowledged that for prices of 30-year mortgages to remain close to current market levels, some level of government support would be needed.

The most secure “level of support” would be ownership.

The administration initially looked to Congress for legislation to overhaul the housing finance system and return the companies to private shareholders.

But Congress hasn’t acted, and now officials say they will take administrative action for the core change, ending the Fannie and Freddie conservatorships. They haven’t given a timeline for the administrative action.

“Administrative action is even less secure than a law. It easily could be changed, without Congressional action, by the next administration. IF (big “IF”) legal, it still would be a silly step, even for the feckless Trump administration.

“The Trump plan will make mortgages more expensive and harder to get,” said Sen. Sherrod Brown of Ohio, the committee’s senior Democrat.

A flashpoint came over the issue of affordable housing. Fannie and Freddie currently have mandated targets for helping low-income and minority borrowers to buy homes.

A change outlined in the plan, which would have to be approved by Congress, would replace Fannie and Freddie’s affordable housing goals with more “tailored support” for first-time homebuyers and low- and moderate-income borrowers. “We want to do it in the most effective way,” Mnuchin said.

For a Trump appointee, “the most effective way” means a way that will most benefit rich investors.

And then we come to the always dependable Trump toady, Ben Carson:

Under Carson, HUD proposed last month to make it harder for people to prove unintentional discrimination, known as “disparate impact,” against mortgage lenders and landlords.

And finally, we come to the single most humorous comment in the article:

Sen. John Kennedy, R-La., implored the officials to put a proposal before Congress. “This whole thing is a car wreck; it’s a dumpster fire,” Kennedy said. Put it before the committee, “and let senators be senators.”

Letting senators be senators is something that has not happened under the leadership of Sen. Mitch McConnell, who frequently has vowed not to bring any legislation to the floor unless Donald Trump approves of it.

So in what way will senators be senators?

As we said in Step #9:

Allowing private ownership of banks and expecting honesty is like putting meat on a dog’s tongue, and expecting him not to swallow.

In Summary: No public purpose is served when the banking industry is in private hands. For many of the same reasons the U.S. Treasury is owned by the federal government, the federal government also should nationalize and run all banks.

Privatization is favored by the very rich because it almost always puts dollars into their pockets, while seldom working for the public. That is the Trump administration’s reason for wanting to privatize Fannie and Freddie.

All bank problems boil down to the profit motive.

We should eliminate those fundamental problems, and there is no better way to eliminate the profit motive than to put all banks under total federal government control, i.e. ownership.

Contact your Senators and tell them not to allow Trump and his cronies to steal at your expense.

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

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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 will narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

Why does the federal government resist education?

Intelligent Americans long have recognized that our future national success rests on the shoulders of our educated populace. They are the ones who will lead us.

That is why today, every municipality offers free education for grades K-12.

On April 23, 1635, the first public school in what would become the United States was established in Boston, Massachusetts. Known as the Boston Latin School..

After the U.S. Revolution, northern states especially emphasized education and rapidly established public schools.

By the year 1870, all states had tax-subsidized elementary schools. The US population had one of the highest literacy rates in the world at the time.

Private academies also flourished in the towns across the country, but rural areas (where most people lived) had few schools before the 1880s.

By the close of the 19th century, public secondary schools began to outnumber private ones.

We live in the 21st century, when a widespread college education is as important to America’s success as a high school education was in the 19th century. Yet still, we cling to the archaic notion that while elementary school and high school are paid for by governments, college and beyond must be paid for by individuals.

The time has come to realize that American leadership always has required universal education, the only difference being that in the 1800’s an elementary school, and then later a high school education were sufficient, while here in the 2000’s, advanced education has becomes necessary.

Sadly, we have not yet learned that lesson. We insist on making it difficult for American students to receive the best possible education:

Bloomberg: U.S. Student Loan Debt Sets Record, Doubling Since Recession
By Alexandre Tanzi, December 17, 2018, 4:00 AM CST
Student debt outstanding reaches a record $1.465 trillion
Borrowers over age 50 debt rises by $28.8 billion in one year

U.S. student loan debt outstanding reached a record $1.465 trillion last month.

American college students are drowning in debt.

“Over 90% of student loans are guaranteed by the U.S. Department of Education, meaning that if a recession causes a rise in youth unemployment and triggers mass defaults, this contingent liability could prove burdensome for the U.S. government budget,” said Paul Della Guardia, economist at the Institute of International Finance in emailed comments.

Get it? Mr. Della Guardia is more concerned about a non-existent burden on the U.S. government than on the real problems of youth unemployment and mass defaults.

The so-called “burden” on the U.S. government is non-existent because the U.S. government is Monetarily Sovereign. It never can run short of its own sovereign currency, the U.S. dollar. It can pay any size debt denominated in dollars. Federal debt, no matter how large, never can be a burden on the federal government.

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

By contrast, indebted students are monetarily non-sovereign. They can and often do, run short of dollars and become insolvent. Related image

A Bloomberg analysis found that students who took a loan in 2012 have had a much more difficult time making their monthly payments compared to students who received loans shortly before and after — students who have had a similar amount of time to pay them down.

A large percentage of those who took out loans in 2012 are currently 24-33 years old, an age where many are generally establishing themselves in their careers.

Borrowers in this group entered the labor force when the unemployment rate was twice as high as today and may have found it difficult to find a career track in their desired field.

Further adding to the difficulties faced by this group was that finding a position in 2012 took almost three times longer than today, according to data from the Bureau of Labor Statistics.

The interest rate for a direct student loan disbursed on or after July 1, 2018, and before July 1, 2019, is more than 100 basis point higher than those issued in 2012 adding to the concern about the size of student loan debt outstanding.

Many student loan borrowers face significant debt burdens. Over 2.7 million borrowers owe in excess of $100,000, of which, about 700,000 owe $200,000 or more, according to data from the U.S. Department of Education. One year earlier, 2.5 million owed in excess of $100,000.

The single largest asset on the Federal government’s balance sheet is Student Loans— the amount students owe to the federal government, which neither needs nor uses the money.

By not recognizing the national importance of advanced education, we have doomed an entire generation to failure — a failure that significantly will reduce America’s competitive and strategic successes.

This is more than shortsighted. It is part of the same plan that attempted to eliminate ACA (“Obamacare”), cut Medicare, cut food stamps, cut Social Security, and cut consumers’ protections against business fraud.

It is a reflection of the Gap Psychology of the rich who run America.

Gap Psychology is the desire to distance oneself from lower-income/wealth/power people, while coming closer to the higher income/wealth/power people.

There were times in America, when Gap Psychology ruled:

When it was a crime to teach slaves how to read and write.

When women were not allowed to vote.

When immigration from Ireland was blocked: “The refugees seeking haven in America were poor and disease-ridden. They threatened to take jobs away from Americans and strain welfare budgets. They practiced an alien religion and pledged allegiance to a foreign leader. They were bringing with them crime. They were accused of being rapists. And, worst of all, these undesirables were Irish.” (Does this sound familiar?)

As is usual with the very rich, Gap Psychology is far more important than compassion for the less fortunate or concern for America’s future. Thus anything that would benefit the middle- and lower-income groups, i.e. narrow the Gap, is strenuously resisted.

Even some in the middle-classes are complicit, when they adopt the shortsighted, “If I had to pay, they should pay” position.

It’s the old question, “Why can’t crabs escape a bucket? Answer: When some try to climb out, the others pull them back down.” That is a version of Gap Psychology in which a man doesn’t want former peers to succeed, opening a new Gap between him and them (aka, “envy.”)

And that is why today, we do not have a national system of free advanced education. It’s urgently needed, but the rich don’t want it.

Most parents can’t afford to place their children in exclusive, private or preparatory schools.

For the majority of U.S. families, public education is the only option. Public elementary and secondary education money usually flows from three sources: the federal, state and local governments. According to the U.S. Department of Education, states contribute nearly as much as local governments, while the federal government supplies the smallest share.

Yet, it is the federal government that is best able financially to pay for education.

We’ll close with excerpts from the following article:

The former student loan ombudsman for the Consumer Financial Protection Bureau (CFPB) believes that agency has been a “complete failure” over the last year and has “completely walked away from its mission” regarding student loan borrowers.

Seth Frotman, who resigned in protest in August 2018, expressing outrage at the then-leadership’s treatment of the nearly $1.5 trillion student loan industry, asserted that things have gotten even worse since his departure.

“I honestly don’t say this lightly, but I don’t know how you could look at the things that have happened over the last year … [and] under the new leadership of the bureau and not say that it is a complete failure in doing its job on behalf of student loan borrowers,” Frotman said. “The current political leadership at the CFPB has prioritized the interests of the student loan industry over the very real plight of the 44 million Americans who have student loan debt.”

We have suggested as part of the Ten Steps to Prosperity, Steps #:

See: 4. Free education (including post-grad) for everyone (Tuition, supplies, transportation, meals, etc. all should be funded by the federal government.)
See: 5. Salary for attending school (Many students drop out of high school to enter the employment world early because they and their families need the money. Even with scholarships, many families cannot afford to send their children to high school, let alone to college and beyond.)

In summary
Millions of our best and brightest young people are hamstrung by lack of money. Not only do finances force children to leave high school or college early, but those who are able to attend college face onerous loan repayments to a government that has unlimited money and does not need to collect money from students.

These loan repayments prevent many young people, who are in the usually most productive growth years of their lives, from investing time, money, and talent into businesses and scientific pursuits that would have benefitted America. Lack of finances turns productive years into lost years.

America is forgoing the national benefits that these young brains could provide.

As a result, America no longer is a world educational leader.

Excerpts from 11 FACTS ABOUT EDUCATION IN AMERICA

–30 years ago, America was the leader in quantity and quality of high school diplomas. Today, our nation is ranked 36th in the world.
–1.3 million high school students don’t graduate on time yearly. States with highest rates (80-89%) are Wisconsin, Iowa, Vermont, Pennsylvania and New Jersey. States with lowest (less than 60%) are Nevada, New Mexico, Louisiana, Georgia and S. Carolina.
–A student living in poverty is 13 times less likely to graduate high school on time.
–In the workplace, 85% of current jobs and 90% of new jobs require some or more college or post-secondary education.
–Only half of the students who enter a 4-year school will receive a bachelor’s degree within 6 years.

Advanced education is as important a protector of America’s future as is the military. The government should be doing everything possible to fulfill this need.

The federal government should stop resisting education, and pay off all student loans, then eliminate the need for student borrowing and student indebtedness. America needs an educated populace.

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

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

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

Another pro-rich, anti-you scam by Trump: Privatize Fannie Mae & Freddie Mac

The description of “The Ten Steps to Prosperity”, Step #9, “Federal Ownership of all Banks, “ (below) begins this way:

Banks are involved in most U.S. dollar creation. Even the dollars created at the direction of the federal government originate with banks.

The two primary dollar-creation methods in the U.S. are bank lending and federal spending:

Each time a bank lends, it simply increases the numbers in the borrower’s checking account. That instantly adds dollars to the money supply.

When the federal government spends, it sends instructions to a creditor’s bank, instructing the bank to increase the numbers in the creditor’s checking account. When the bank does as instructed, dollars are added to the money supply.

This participation in the vast majority of all dollar creation gives banks enormous financial power, and as we all know — and as the “Great Recession of 2008” reminds us — power corrupts banks, especially when multiplied by a profit motive and government complicity.

Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, and that makes all the difference.

The government neither needs nor uses profits, and unlike bank employees, federal government employees do not receive outlandish remunerations based on federal agency profits.

There is zero public purpose or benefit to be gained from private ownership of the primary money-creation sources in America. Creating and controlling the U.S. sovereign currency, the U.S. dollar, should be the province of the federal government.

And now, as usual, Donald Trump and his rich backers wish to take a giant step further in their desire for private (read, “rich”) ownership of America’s money supply.

Let us parse a brief article describing the latest scheme to make the rich richer:

Trump administration plan aims to privatize Fannie Mae and Freddie Mac
By Catherine Garcia, THE WEEK, September 5, 2019

The Treasury Department released a plan Thursday aimed at overhauling the U.S. housing market.

A key component of the plan has the government relinquishing control over Fannie Mae and Freddie Mac in order to privatize the mortgage buyers.

Privatization is a favorite ploy of the very rich, to cut services or benefits to the public and stuff dollars into the pockets of the wealthy. (See: “Here we go again: More privatization scam”, and “I smell the meat a’cookin’, The new privatization scam”

“Government relinquishing control” is a euphemism for “Lock up the police and let the crooks run wild.”

Fannie Mae and Freddie Mac, which back half of the country’s mortgages, have been under government conservatorship since the 2008 financial crisis.

The reason for the government conservatorship: Private bankers, whipped to an frenzy by the profit motive, proved they could not be trusted when their reckless greed plunged the nation into the worst recession since the Great Depression.

Under the Trump administration plan, Freddie Mac and Fannie Mae would be privatized again and required to pay a fee for government protection.

This approach does not require any approval from Congress, and the plan doesn’t detail what will happen to the government’s stakes in the firms or how they will build their capital up enough so they can go private again, The Washington Post reports.

“Government protection” is not “government supervision,” and much, much less secure than “government ownership.”

“Government protection” merely means: Lie, cheat, and steal all you want, and if you get caught, or the markets go against you, the government will bail you out, again — and no (rich) one will go to jail (though a couple of low-paid flunkees might).

There is not a single, public purpose that would be served by privatizing Freddie Mac and Fannie Mae.

Quite the opposite, it would free the profit-insatiable, salivating dogs of the banking industry, to do exactly what they did to cause the Great Recession: Lie, cheat, and steal.

The Trump administration hopes you have forgotten the Great Recession or at least will vote against your own best interests, because of loyalty to the Republican party.

Housing prices continue to rise across the country, and Treasury Secretary Steven Mnuchin said the proposal “will protect taxpayers and help Americans who want to buy a home.”

How will privatization “protect taxpayers” and “help Americans buy a home“? Trump’s Mnuchin never says, because there is no way. Instead, it will protect the rich and help them buy mansions (and yachts and other expensive toys).

Privatizing Freddie and Fannie will not reduce housing prices. Quite the opposite, as the profit motive will increase mortgage costs.
Taxpayers will not be protected. Federal taxpayers do not pay for federal spending. The only protection for federal taxpayers is cutting federal tax rates.
The GOP, historically and especially under Trump, has shown no penchant to “protect” anyone but the very rich. Trump’s cuts to regulations related to global warming, gas mileage, oil drilling, and bank security have benefitted the rich at the expense of the non-rich and our children.

Sen. Sherrod Brown (D-Ohio) disagrees, telling the Post that the plan “will make mortgages more expensive and harder to get.

I’m urging the president: Make it easier for working people to buy or rent their homes, not harder.”

The Monetary Sovereignty of the United States government helps make America great. Nations that have surrendered their Monetary Sovereignty (i.e. the euro nations) continue to struggle financially, while the U.S. has prospered.

The foundation of Monetary Sovereignty is the federal government’s control over its sovereign currency, the U.S. dollar. Anything that reduces federal control over the dollar makes America financially weaker.

Bankers cannot be trusted with America’s future. This President (who has taken his own companies into bankruptcies six times [!]) and his toadies do not wish to create consumer-friendly financial laws. (Who ever heard of a casino owner — a casino owner!! — repeatedly going bankrupt, just to cheat creditors?)

In fact, the Republicans have destroyed, wherever they could, the laws protecting the middle- and lower-income groups.

[See also here and here and here.]

The profit motive has many benefits for Americans, but allowing the very rich to create and rule America’s sovereign currency is not one of them.

Ownership of the U.S. dollar always has been the long-held dream of the GOP and its very rich membership; it will be a nightmare for America.

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

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

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

Why is there no federal “debt” or “deficit,” and 7 other interesting questions.

[According to the MonopolyⒸ game rules, money is unlimited; if the Bank runs out of money it may issue as much as needed “by merely writing on any ordinary paper”.]

BACKGROUND
We previously have discussed the parallels between the MonopolyⒸ game’s Bank and the U.S. federal government. Both are Monetarily Sovereign, which means:

Image result for four column chart — Create a column for each player.

They cannot run short of money.
They have no need to borrow money.
They do not need to collect taxes.
And the taxes they collect are destroyed upon receipt.

What do you do?

The paper “money” in a MonopolyⒸ game merely is a convenience, not a necessity. The game can be played in exactly the same way, without paper MonopolyⒸ dollars.

You simply can draw four columns on a sheet of paper — one column for each player. Then you write 5,000 (or any amount) at the top of each column. The total of the columns (say, 20,000) is the total amount of money in the game.

When any player spends money, you deduct that amount from the last number in the column, and when any player receives money, you add that amount.

But what happens when a player is required to pay money to the Bank? There is no column for the Bank. So, you simply deduct that amount from the player’s column.

Since the bank has no column, the money is destroyed. No record is kept of Bank “deficits.” The total in the game is now less than 20,000 MonopolyⒸ dollars.

This is similar to what happens when you pay taxes to the federal government. Although the federal government keeps a record of that payment, it doesn’t use those dollars for anything. Effectively, the U.S. dollars are destroyed.

And what happens when the MonopolyⒸ Bank spends money (for instance by paying 200 dollars when a player passes “GO”)? You add that 200 dollars to the appropriate player’s column. The total money in the game now increases by 200 Monopoly dollars.

The MonopolyⒸ Bank doesn’t have debt, because it simply creates new MonopolyⒸ dollars by the very act of spending. Similarly, the federal government creates new U.S. dollars by the very act of spending.

QUESTIONS
1. What is the federal “deficit”?
The so-called “deficit is the misleading name given to the difference between the amount of money the federal government collects vs. the amount it spends.

The deficit is just an arithmetic difference; it does not imply a real financial relationship between collections and spending.

Reductions in federal debt growth introduce recessions (vertical gray bars). Recessions are cured by increases in federal debt growth.

The federal government has the unlimited ability to create U.S. dollars, so the deficit merely shows how many dollars the government sends into the economy compared to the number of dollars the government takes from the economy.

Thus the so-called “deficit” more properly should be viewed as an “economic surplus.”

Because deficits add dollars to the private sector, they are necessary to cure recessions and depressions.

2. What is the federal debt?
The government accepts deposits into U.S. Treasury Security accounts. The purpose of these accounts is not to supply the government with dollars (it creates dollars at will), but rather:

To help the government control interest rates.
To provide the world with a safe “parking” place for unused U.S. dollars, which helps stabilize the dollar.

The total of deposits into the U.S. Treasury Security accounts is misleadingly known as the federal “debt,” though the accurate term would be “deposits.”

3. Do federal taxpayers pay for the federal debt?
These T-security accounts pose no burden on the federal government or on taxpayers. The government pays interest into these accounts by creating brand new dollars.

The accounts are paid off by sending the dollars that reside in the accounts, back to the account holders. No tax dollars are used.

4. Does the federal government borrow?
Unlike state and local governments, the U.S. federal government does not borrow. Why would it? Being Monetarily Sovereign, it has the unlimited ability to create dollars.

Though accepting deposits into Treasury Security accounts sometimes wrongly is called “borrowing,” those dollars are not used by the government. They stay in the accounts, earning interest, until maturity, at which time they return to the account owners.

The term “borrow,” implies that the borrower has some need of, or use for, the thing being borrowed. The federal government has neither need of, nor use for, the dollars deposited in T-security accounts.

The purposes of federal T-securities are:

To help the Federal Reserve control interest rates
To provide a safe parking place for unused dollars, which stabilizes the dollar.
To convince the public that the federal government does not have the unlimited ability to create dollars.

(#3 helps the very rich prevent the public from demanding more social spending.)

5. Does federal deficit spending cause inflation?
Federal deficit spending adds growth dollars to the economy.

There is a popular myth that “excessive” government spending causes inflation. The common belief is that increasing the supply of dollars, without increasing the demand for dollars, would make each dollar less valuable, which is the definition of “inflation.”

While the total of deficits (blue line) has increased massively, inflation (red line) has been comparatively modest.

In reality, however, adding dollars to the economy puts spending-dollars into consumers’ pockets, which grows the economy and increases the demand for dollars. (See #6.)

Since 1947, the U.S. federal deficit increases have totaled more than 80,000%, while prices have increased significantly less.

The illusion of deficit spending causing inflation comes partly from the images of wheelbarrows filled with money during hyperinflations.

But those were examples of hyperinflations causing currency printing, and not the other way around.

Example: Zimbabwe. Farmland was taken from white farmers and given to blacks who did not know how to farm. Food shortage and then hyperinflation predictable results.

Inflations are caused by shortages, usually shortages of food or oil.

6. How is inflation prevented and cured?
The standard, recommended cure for inflations and hyperinflations is to reduce government spending, aka “austerity.” Unfortunately, this actually can worsen the problem by exacerbating the shortages.

The best prevention/cure for modest inflation: First raise interest rates to increase the value of the currency. This can be done quickly and incrementally, without the need for time-consuming, politically-tilted debates in Congress.

Meanwhile, to prevent/cure more serious inflations, increase government financial support for farming and oil exploration. Because this requires a counter-intuitive increase in government spending, it can take longer for a government to implement, but it is the only path to ending an inflation.

In extraordinary circumstances, it may be necessary to introduce a new currency, while focusing financial efforts on food and oil supplies. Until food and oil shortages are cured, inflations and hyperinflations cannot be cured.

7. How does Modern Monetary Theory (MMT) differ from Monetary Sovereignty (MS)?
These two economic philosophies agree that the federal government cannot run short of its own sovereign currency, the U.S. dollar, federal taxing does not fund federal spending, and that federal deficit spending adds growth dollars to the economy.

They further agree that the federal “debt” is not a burden on the federal government or on federal taxpayers.

MMT’s primary goals are full employment (effected by a Jobs Guarantee) and a stable currency.

In contrast, MS’s primary goals are economic growth and a reduction in income/wealth inequality (via the Ten Steps to Prosperity, below).

Since the great recession of 2008, unemployment (blue line) has dropped to low levels, and inflation as been within the Federal Reserve target of 2.5%. That would mean the economy already has met MMT’s goals. Presumably then, for MMT, all is well.

But wealth/income inequality has grown markedly, so clearly MMT’s goals are inadequate.

GINI index for the United States

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

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

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

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