Today, Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of the Campaign to Fix the Debt, told Congress dozens of lies — O.K., “incorrect non-facts.”.
The primary purpose of these “incorrect non-facts” is to support the myth that somehow our Monetarily Sovereign federal government will run short of dollars to pay its bills, and therefore, spending (especially social benefit spending) must be cut.
This myth is exactly what the rich want you to believe, so they can reduce your Social Security, cut your Medicare, eliminate poverty prevention and cure, worsen education for your children, and destroy many of the other benefits to the middle-income and the poor.
The motive has to do with Gap Psychology, which we previously have discussed many times, including here, here and here. It is the human desire to distance oneself from those below on any scale, and to near those above
The following represent just a few excerpts from her MacGuineas’s speech.
Testimony of Maya MacGuineas
Committee for a Responsible Federal Budget
Hearing before the House Financial Services Committee: The Peril of an Ignored National DebtI will touch on several points today:
1.The national debt is on an unsustainable path.
2.There are many reasons to care about the debt, ranging from detrimental effects on the economy, to interest payments crowding out the rest of the budget, to the economic, political, and security vulnerabilities of such a large debt.
3.There are many approaches Congress can take to fix the debt, but we must stop denying the problem, stop making it worse, and begin to address it.
The so-called national “debt” actually is the total of everyone’s (yours, mine, China’s) deposits into all our Treasury security accounts.
As these deposit accounts mature, the federal government pays them off by returning to our checking accounts the dollars that are in the accounts.
(The dollars remain in our T-security accounts until maturity. The federal government, being Monetarily Sovereign, neither borrows nor uses these dollars. It creates new dollars every time it pays a creditor).
Thus, paying off the so-called debt is no burden on the federal government or on taxpayers. It simply is a money transfer from one (T-security) of our accounts to another (checking) of our accounts. Tax dollars are not involved.
The federal “debt” (deposits) totaled $40 Billion in 1940. Today, the “debt” is $16 Trillion, a 40,000% increase. Every year since then, pundits have claimed the debt is “unsustainable,” “a ticking time bomb,” and/or in some other way, “detrimental to our economy.” See: “From ticking time bomb to looming collapse.”
But, in that same 1940 – 2018 period, the Gross Domestic Product has grown from $102 Billion to more than $20 Trillion. Yet still, we hear the obviously wrong incessant claim that the federal “debt” (deposits) is unsustainable.
To make matters worse, debt is expected to grow drastically in the coming decades. According to the Congressional Budget Office (CBO), debt under current law will grow from 78% of GDP this year to exceed the size of the economy in just 13 years and reach an unprecedented 152% of GDP in 30 years. Our estimates suggest debt under current law will reach 358% of GDP in 75 years.
The federal “debt” / GDP ratio is meaningless. The “debt” is not paid off with GDP. The two are unrelated. Japan, a wealthy nation, had a debt / GDP ratio of 253% in 2017, yet its debt remains “sustainable.
Putting debt on a sustainable path will require significant deficit reduction.
•Simply holding debt at today’s near-record as a share of GDP (78%) would require savings of $4.8 trillion of spending cuts and/or tax hikes over the next decade.
•Balancing the budget in 2028 would require about $7 trillion in savings over ten years.
•Reducing debt to its historical average of 41% of GDP in 30 years would require $7.6 trillion in deficit reduction over ten years.
•And waiting just ten years increases the size of the adjustments by half.
MacGuineas neglected to tell Congress that every depression in U.S. history was caused by a reduction in U.S. debt:
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.
And recessions begin with reductions in deficit growth.
The reason for this effect is simple: Deficits add dollars to the economy, and these added dollars are necessary for economic growth.
Macguineas’s article continues:
The risks and consequences of high and rising debt include:
•Slower economic and income growth due to debt crowding out private sector investment. As the government issues more debt, investors buy these bonds in place of private investment. Over time, this results in a smaller stock of buildings, machines, and equipment; fewer new ventures and new technologies; and slower wage growth. CBO estimates average income will be $6,000 ( 6%) lower in 2048 if we allow debt to rise rather than reduce it to historical levels.
Completely false. There is no crowding out. Higher debt results from federal deficit spending which adds investment dollars to the economy.
That is why massive debt growth has paralleled massive economic growth.
MacGuineas ignores these obvious facts.
•Higher interest rates on loans for households and businesses. Rising federal debt tends to put upward pressure on interest rates throughout the economy. This increase trickles into business and consumer loans, making it more expensive for Americans to take out mortgages, car loans, and credit card debt – not to mention small business loans and other borrowing that helps grow the economy.
Interest rates have remained low in past years despite growing debt due to Federal Reserve accommodation and a slow recovery, but there is a very strong risk those conditions will and have started to change as the economy has gotten stronger, the Federal Reserve tightens monetary policy, and we come closer to full employment.
Federal “debt” does not put pressure on interest rates. The Fed sets rates to combat inflation, not to sell federal “debt.”
Further, federal debt does not cause inflation, which instead is caused by shortages. Historically, they have been shortages of food, but more recently, they have been shortages of oil. See: Federal deficit spending doesn’t cause inflation; oil does.
•Higher government interest payments that displace other government priorities. Due to rising interest rates and an increasing stock of debt, interest payments are projected to be the fastest growing part of the federal budget.
Under current law, interest costs will tripleover the next decade. As a result, interest costs will exceed Medicaid spending by 2020, defense spending by 2023, and total discretionary spending by 2045.
We estimate that before 2050, net interest will be the single largest line item in the budget.
In the above comment about “displacing other government priorities,” MacGuineas makes the tacit and false assumption that the federal government can run short of its own sovereign currency, the U.S. dollar.
Because our Monetarily Sovereign federal government has the infinite ability to create dollars, the notion of “displacing” makes no sense.
Clearly, MacGuineas either does not understand Monetary Sovereignty, or she doesn’t want you to understand Monetary Sovereignty.
•Reduced fiscal space for the government to react to wars, recessions, or other emergencies. It is impossible to predict the timing of the next recession. However, the fact that one has not occurred in the last nine years suggests another may be on the horizon.
Unless there is a dramatic reduction in debt, we will enter the next recession with the highest debt in nearly 70 years (and higher than any time prior to World War II). This leads to legitimate concerns about the available “fiscal space” in the U.S., or the federal government’s financial capacity and willingness to respond to emergencies.
While it is impossible to know the precise amount available, the U.S. almost certainly has less fiscal space today than it did a decade ago, and it is projected to have even less in the coming years. The U.S. is less equipped to handle the next recession than it was in handling the Great Recession.
The “precise amount available” is infinite. That is why it’s impossible to know.
The “fiscal space” argument is identical with the “displace other priorities” argument. Again, MacGuineas wants you to believe the federal government can run short of its own sovereign currency.
While you and I, and the cities and states, and even the euro nations can run short of money, the U.S federal government cannot unintentionally run short of dollars.
•Lost opportunities to make thoughtful investments or reforms. Rising debt hinders our ability to enact good public policy. Whether you care about strengthening the military, developing clean energy, reducing burdensome taxes, or investing in education and infrastructure, rising debt will crowd it out.
Thanks to the increasing debt burden, next year the country will spend more on interest than on children, which means we will be spending more on financing our past than investing in our future.
And there are many new issues on the horizon, from the effects of technology to the future of work to new types of global threats that we are only just developing the capacity to withstand. As time goes on, we will increasingly lose the capability to address our debt situation through thoughtful, gradual, and targeted tax and spending reforms. At some point in the near future, our debt will be so high we will have to forgo new ideas and impose blunt spending cuts and tax hikes.
“Hinders our ability” is another statement of “crowding out,” and “reducing fiscal space.” MacGuineas keeps repeating the same false premise, just using different words
•Risk of an eventual fiscal crisis if changes are not made. The combination of our strong economy, steady monetary policy, and longstanding commitment to pay our debts has allowed us to amass significant debt without severe consequences. This will not last forever. Unsustainable debt may eventually lead some investors to demand higher interest rates, which could set off a chain of events that begins with a small selloff of existing federal bonds and ends with a global financial crisis.
No one knows what level of debt or combination of events would set off such a crisis ; I hope we will never have to find out.
The Fed, not investors, sets interest rates. Unlike with private bonds, demand is not an issue for federal bonds. If no one wished to buy federal bonds, the Federal Reserve could buy them, which is often has. (This is known as “Quantitative Easing.”)
In any event, the Treasury does not need to sell bonds to obtain dollars. It has an infinite supply of dollars.
Instead, the two most important reasons why the Treasury issues T-securities are:
- To provide a safe place to “park” unused dollars. This safety helps stabilize the dollar.
- To assist the Fed in controlling interest rates, which helps fight inflation.
Thus, the reasons for issuing of federal debt (aka “borrowing”) are quite unlike the reasons why you and I borrow.
Our Monetarily Sovereign federal government could stop issuing debt today — even stop collecting taxes today — and still retain the unlimited ability to pay for goods and services, forever.
Those unconcerned about our rising debt have sometimes pointed to the built- up debt in recent years as evidence that the United States can borrow with little consequence. That’s a mistake.
China owns $1.1 trillion of U.S. debt. Trade and other tensions with them can certainly affect their lending decisions. Moreover, given our unstable political relationship with China, it is less than ideal to be as dependent on them as we are for funds.
Japan, which holds another $1 trillion of our debt, has also halted net purchases – possibly due to its aging population.
As the population continues to age, this nation of savers is likely to draw down its savings to finance retirement and therefore have fewer assets available to purchase U.S. debt.
Currently, foreign investors and governments own about 40% of the publicly traded debt, a percentage that has decreased in recent years as China and Japan have pulled back and forced domestic investors to finance our debt instead.
As we’ve said, the federal government does not need to sell debt to anyone — not to China, not to Japan, not to you or me, not to anyone.
Further, “domestic investors” are not forced to do anything. I know of no “forcing” device the federal government uses to sell T-bonds. It’s all nonsense.
And now we come to the real reason why MacGuineas spreads the Big Lie that the federal government is running short of dollars:
The primary drivers of long-term debt are growing mandatory spending and the lack of revenue to pay for it. Over the next ten years, 82% of spending growth will be due to Social Security, health programs, and interest payments.
Mandatory spending, specifically the costs stemming from an aging population, remains the largest long-term problem to address. Congress should have offset the increased discretionary funding with mandatory cuts and revenues that led to growing deficit reduction over time.
The fastest growing parts of the budget are Social Security, health programs like Medicare and Medicaid, and interest payments on the debt – each of which does not go through the annual appropriations process and is growing faster than the economy.
Mandatory spending and interest have already grown from 61% of the budget in 2010 to 69% today, and they are projected to be at 77% in 2028.
Get it? Her pay comes from the wealthy. So, on behalf of the wealthy, she wants the government to cut Social Security, Medicare, and Medicaid, programs that are vital for the middle classes and the poor, but mean little to the rich.
In short, the rich want to widen the Gap between the rich and the rest, and MacGuineas acts as their mouthpiece.
One of the many reasons this concerns me is the extent to which it has squeezed productive investments.
The best first step our leaders could make is to pledge to not make the debt situation worse(unless there is a smart reason to borrow such as a recession).
“Squeezed productive investments” is yet another synonym for “hinders our ability,” “crowding out,” and “reducing fiscal space.” It’s completely phony when referring to a Monetarily Sovereign government.
And notice she acknowledges that deficit spending is good during a recession (because deficit spending grows the economy), but she doesn’t want to grow the economy unless we have a recession. That’s totally illogical.
Lawmakers should focus on making changes to two of the largest drivers of our long-term debt problem: health care spending and Social Security. Reforms in these areas have the most potential for significant savings, and it would be between difficult and impossible to control our debt problem without making changes to these programs.
The largest driver of future costs is health care. The other major area needing attention is Social Security. The program’s trust fund is on track to exhaust its reserves by 2034, at which point benefits will be cut by 20% to 25% without legislative action to stop it.
Starting this year, the Social Security trust fund is being drawn down to pay benefits, meaning that the government must borrow from elsewhere so that Social Security can redeem its trust fund reserves.
In other words, Social Security is increasing the current deficit and will continue to do so dramatically in the future if the program is not reformed.
We can fix this program by adjusting benefits, raising revenues, or both.
First, there is no Social Security Trust Fund. It’s an accounting fiction. See: “The End of Social Security.” Being Monetarily Sovereign, the federal government has no need for Trust Funds. See: “Fake federal trust funds and fake concerns.”
In fact, get this:
The Supplemental Medical Insurance fund, which pays for Medicare Part B and Part D benefits, is funded by Congress. It doesn’t rely on a “trust fund.” Congress directly authorizes what funds are needed.
So, while Medicare and Social Security supposedly are paid through trust funds, in reality, half of Medicare doesn’t even pretend to go through a “trust fund.”
Second, “raising revenues: means increasing FICA, which is deducted from salaries. The rich, who do not receive most of their income via salaries, don’t care about FICA, and in any event, the salary from which FICA is deducted is a comparatively piddling $100K.
This all demonstrates that the federal government has the unlimited ability to fund Social Security and Medicare forever, with no trust funds and not even a FICA tax.
In Summary:
The rich, who run America, want to widen the Gap between them and the rest of the populace.
It is the Gap that makes them rich. Without the Gap, we all would be the same, and the wider the Gap, the richer they are.
The rich don’t want you to understand that:
1. A growing economy requires a growing supply of money
2. Deficits increase the supply of money
3. Therefore, deficits grow the economy
4. The federal government, being Monetarily Sovereign, never can run short of dollars with which to pay its creditors
They just don’t want you to know it.
They want you to believe the government can’t afford to pay for benefits like Medicare for All, free college for all, and anti-poverty initiatives.
They certainly don’t want you to ask for the Ten Steps to Prosperity (below).
Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
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The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.
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 FICA2. 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
