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.
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:
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.
A Bloomberg analysisfound 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 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.
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:
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.
–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.
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:
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 banklends, 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:
“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?)
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:
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:
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.
Let’s say you wish to play the MonopolyⒸ game with three friends, but when you open the box you find it has no money.
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, like the MonopolyⒸ bank, the U.S. federal government creates brand new dollars, every time it spends.
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.
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
Of the nations measured, only Brazil and Mexico have greater inequality than the U.S.
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:
Pumping gasoline into your car is good. Therefore pumping gasoline into your dog is good. And while you’re at it, toss a couple bones into your gas tank
This would be O.K. if your dog was identical to your car.
Unfortunately, the writer of an article in THE WEEK doesn’t seem to know the difference between a dog and a car, or more to the point, he doesn’t know the differences between federal finances and state finances.
Here are a few excerpts from his article, followed by my comments:
Trump has taken the GOP’s ‘Kansas experiment’ national — with predictable results
Conor Lynch, August 28, 2019
It did not take long after former Kansas governor Sam Brownback signed the state’s historic 2012 tax cuts — hailed at the time as “one of the largest income tax cuts in Kansas history” — into law for it to become apparent that critics of the so-called “Kansas experiment” had been correct, while proponents of the legislation had been spectacularly and unambiguously wrong.
Advocates had promised enormous growth and a plethora of new jobs, but over the next few years the Kansas experiment went exactly as critics had anticipated: economic growth lagged behind other states (and the national average), the state budget collapsed, and Kansas gained fewer jobs than its northern neighbor, Nebraska, which has about a million fewer people.
Within a year of the bill’s passage, state revenues plummeted by about 10 percent, creating a massive deficit that led lawmakers to cut spending in infrastructure, Medicaid, education, and other areas.
The Kansas government, and indeed the governments of all U.S. states, counties, and cities, are monetarily non-sovereign.That means, they do not have their own sovereign currencies with which they can pay their bills.
Instead, they use the sovereign currency of theMonetarily Sovereign, United States government: The U. S dollar.
And so, the states can, and often do, run short of dollars.
(Some local government units, and even businesses, have created sovereign currencies for limited use within a defined area, but in no case do they have broad acceptance.)
Because the U.S. government uniquely is Monetarily Sovereign, it has the unlimited ability to create U.S. dollars. It never, unintentionally, can run short of dollars.
Even if the federal government did not collect a single penny in taxes, it could continue spending — even spending dramatically increased amounts — forever.
You might ask, “If the federal government doesn’t need tax dollars, why does it bother to collect tax dollars?”
There are four* main reasons, and two of them may shock you:
1. To control the economy. The government taxes heavily those activities it wishes to discourage (alcohol, tobacco), and offers tax breaks for those activities it wishes to encourage (homeownership vs. renting, deductions for health care, charitable deductions, IRAs, etc.).
2. To increase demand for the U.S. dollar, by requiring that taxes and other debts to the government be paid in U.S. dollars. This is considered the primary reason by followers of Modern Monetary Theory (MMT).
3. To please rich political donors. By taxing all forms of income, while providing the rich with shelters from those taxes that the rest of us must pay, the federal government appeals to the Gap Psychologydesires of the rich.
“Rich” is a comparative term. Someone owning $100 is rich if everyone else owns only $1, but someone owning $1 million is poor if everyone else owns $10 million.
The rich always want to be richer. To do so doesn’t require obtaining more money. Simply widening the gap between those below, makes them richer, by definition.
Gap Psychology is a description of the desire to be richer by distancing oneself from those below (on any measure), and by narrowing the gap with those above.
The federal tax laws are designed to appeal to the Gap Psychology of the rich. They are designed to make the rich, who run America, richer.
4. To hide the truth from you. If the government didn’t collect taxes, you would begin to understand that not only are federal taxes unnecessary, but more importantly, you would learn that federal spending is not dependent on federal income.
This means such benefits as Medicare and Social Security are not limited by so-called “trust funds,” and neither of these programs (or any other federal program) can run short of funds unless Congress and the President want it to run short.
Increased social spending would narrow the Gap between the rich and the rest of us, and so, in actuality, make the rich less rich. The is the last thing the rich, who run America, want.
The article continues:
The state’s public school system was shattered, its roads and bridges deteriorated as money from the “highway fund” was transferred to pay for growing budget shortfalls, and the state’s credit rating was downgraded, raising borrowing costs as debt piled up.
By 2017, the state’s Republican (and Democratic) lawmakers had no choice but to repeal many of the tax cuts after five years of fiscal and economic devastation, ultimately overriding Brownback’s veto of the repeal legislation.
Yes, that is exactly what happened and always will happen to any monetarily non-sovereign entity that loses income while increasing spending.
Like Kansas, you are monetarily non-sovereign, so if your income were cut (for instance, you lose your job) you very well might need to cut your spending.
This is not true of the Monetarily Sovereign federal government.
More from the article:
If what happened in Kansas from 2012 to 2017 was truly an experiment meant to prove or disprove certain theories about fiscal policy, then it was an unequivocal triumph for opponents of supply-side economics.
And if proponents were seriously interested in the truth, they would have at the very least begun to question the central claims that have guided Republican fiscal policy for the better part of the last 50 years.
For knowledgable and honest economists (who seem to be in scarce supply), Kansas was not an experiment to prove or disprove federal financing, any more than feeding gasoline to your car is an experiment to prove or disprove the effects of feeding gasoline to your dog.
This did not happen, of course, and just a few months after Kansas ended its disastrous “experiment,” Republicans in Washington started their own experiment, this time for the entire country.
Repeating the same talking points we heard five years earlier in the Sunflower State, Republicans cut federal income tax rates for the wealthy and slashed the corporate tax from 35 percent to 21 percent, all the while promising that it would spur massive growth that would make it essentially revenue neutral — “We can pay for these tax cuts with economic growth,” declared Treasury Secretary Steven Mnuchin.
This was completely contrary to reality, and analysts forecasted a drop in government revenue by around $1.5 trillion over the next 10 years. It was even questionable whether the tax cuts would really spur much growth.
As always, Munchin lied. We cannot “pay for these tax cuts with economic growth.” Nothing pays for a cut. It’s a cut, not an expense.
Ben Bernanke, former Fed Chairman: ” “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.”
State and local tax dollars are not destroyed. They are saved in public bank accounts, from which state and local bills are paid. At any moment in time, one can learn how much money his state has.
But it is not possible to learn how much money the federal government has, for the federal government has infinite money.
“The experiment in Kansas has important implications for federal tax reform,” wrote Brookings Institution’s William Gale before the GOP tax bill, “the first being not to expect tax cuts to boost the economy much, if at all.”
Actually, the tax cuts did boost “the economy,” somewhat. By the usual definition, “the economy” is Gross Domestic Product (GDP).
Gross Domestic Product = Federal Spending + Non-federal Spending + Net Exports
Tax cuts, by leaving more money in consumers’ and business pockets, allow more for Non-federal spending.
The tax cuts took effect in 2018, when they caused a significant bump in GDP growth.
Subsequent events, i.e. Trump’s trade war, which effectively was a tax increase in 2018, erased the effects of the tax cuts.
The article continues:
Just like the Kansas experiment, it hasn’t taken long for critics of the “Trump experiment” to be vindicated.
Last week, the Congressional Budget Office said that the federal deficit is set to reach $960 billion in the fiscal year of 2019 and projected that it would average $1.2 trillion annually over the next 10 years.
That’s an increase of nearly $400 billion from Obama’s last year in office (and $300 billion from Trump’s first year).
This unprecedented growth of the deficit during a time of economic boom (when the deficit is typically expected to remain steady or even decline) is a direct consequence of the Republican tax cuts, along with a sharp increase in the wasteful and bloated defense budget.
The critics of the are “vindicated” only by their own false beliefs.
The increase in the federal deficit merely means that that the federal government is pumping more growth dollars into the economy. I challenge any economist to provide evidence that this is bad for the economy.
And by the way, so-called “wasteful,” federal spending (by however one defines “wasteful”) actually helps grow the economy by putting dollars into consumers’ pockets.
Trump has been riding high on the economy for the past two years, but his reckless policies, from tax cuts to his trade war with China, are starting to catch up to him, and as signs of a coming recession become more apparent, the president has become even more detached from reality.
The trade war is just one of many stupid and reckless policies by a stupid and reckless President and his party. These policies can lead to a recession or worse.
And while the tax cuts for the rich may be widening the Gap, they are helping to prevent the recession. Whether they will be sufficient is the question.
The Daily Beast reported earlier this month that sources who have spoken with the president about a possible recession since 2017 say that Trump thinks “recessions or booms are often self-fulfilling prophecies,” and believes that he can “will the economy in a positive direction by feeding optimism to the ‘American spirit.'”
It’s unclear if this is what he was trying to do on Friday, when he went on an unhinged (even by his standards) Twitter rant against China, ordering American companies to “immediately start looking for an alternative to China,” which predictably caused the stock market to plunge.
After the market closed, Trump announced that he was raising his 25 percent tariffs on $250 billion in Chinese goods to 30 percent, while increasing his planned tariffs on the $300 billion in remaining imports from 10 to 15 percent, ratcheting up the trade war.
Yes, Trump is an incompetent psychopath. That cannot be denied. And he has inflicted great damage on many Americans and on people all over the world.
But again, this has nothing to do with the failed Kansas experiment.
Continuing the article:
The chief financial economist at MUFG Union Bank, Chris Rupkey, recently told the Washington Post that Congress and the Federal Reserve would be unable to combat another recession in the near future because of the already low interest rates (which have been close to zero for almost a decade) and the ballooning deficit.
“Both sides are out of bullets. I’ve never seen a situation where there’s a recession cloud on the horizon but Washington is totally unprepared to deal with a downturn in the economy.”
There are “precious few working tools left at policymakers’ disposal,” says another financial analyst for Société Générale, Albert Edwards, who sees a global recession right around the corner.
Rupkey and Edwards are absolutely wrong. The Federal Reserve has the unlimited ability to pump growth dollars into the economy.
Alan Greenspan, former Fed Chairman: “Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. A government cannot become insolvent with respect to obligations in its own currency.”
Congress has the unlimited ability to pump growth dollars into the economy by passing spending laws.
All recessions have at their core, a lack of real money in the economy, and all recessions can be cured by pumping real dollars into the economy.
Recessions (vertical gray bars) begin with reductions in federal money growth (red line) and are cured by increases in federal money growth.
*Earlier in this post, we listed four main reasons for federal taxes. There is a popular myth that federal taxes, by reducing deficit spending (aka “money creation), help prevent inflations.
This myth assumes deficit spending causes inflations, and those photos showing people using wheelbarrows to carry enough currency to buy bread, still linger in the public memory.
The false assumption is that money creation reduces money value, i.e inflation. Wrong. It was the inflation that caused the currency-printing, not the other way around.
Fact: Inflations are caused by shortages of food or energy (oil, gas, coal, etc.) Over the past 75 years, massive money creation by the federal government has coincided with moderate inflation.
While federal money creation (blue line) has grown significantly, inflation (red line) has been moderateThere is zero relationship between changes in federal money creation (blue line) and inflation (red line).
The article continues:
In Kansas, Republicans ultimately had to repeal their own policies and overrule their own governor’s veto; it is doubtful whether Republicans in Washington would be willing to stand up to Trump.
Yes, Kansas was doomed from the beginning. Economists could see that.
And yes, Republicans, formerly the moral party of “law and order,” have lost their moral center and despite ostentatious flag hugging, they have abdicated any real concern for America.
Republicans started this war long before Trump’s unceremonious arrival.
Now the president seems to think he can not only “will the economy” in a positive direction but will reality to fit his fictional universe.
As the economy stumbles, however, it may all come crashing down on that vision.
On Sunday, at the G-7 gathering in France, Trump floated the idea of declaring a “national emergency” because of the trade war that he started with China; if a recession comes between now and the 2020 election, how the president will respond is anyone’s guess.
The President will respond in the usual way: By pointing his finger at the Fed, exporters, importers, China, Barack Obama, Hillary Clinton, Bill Clinton, the “FAKE media,” and some of his advisors.
He will accept no blame.
Finally, the article ends with a perfect description of Trump’s followers — the people cheering his speeches, while he takes, takes, takes from them the beautiful American democracy in which they thought they lived.
Republicans have been stubbornly denying reality for decades, and the more discredited their economic worldview becomes, the more committed they seem to become, demonstrating the great psychologist Leon Festinger’s claim that those who are presented with “unequivocal and undeniable evidence” that their beliefs are wrong will frequently emerge “not only unshaken, but even more convinced of the truth of their beliefs than ever before.”
Unlike the false thrust of Conor Lynch’s article, that Kansas’s financing is an example of federal financing, his very last paragraph is frighteningly true.
In summary, Monetarily Sovereign financing is nothing like monetarily non-sovereign financing, and those who use one as an example of another, have no understanding of economics.
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:
