Tag: monetary sovereignty

–Why even the GAO is part of the movement for economic ignorance.

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Excerpt from a March 1, 2011 article in the “Federal Eye” by Ed O’Keefe, titled: “Government overlap costs taxpayers billions, GAO reports”

. . . according to a Government Accountability Office report released Tuesday. The U.S. government has more than 100 programs dealing with surface transportation issues, 82 monitoring teacher quality, 80 for economic development, 47 for job training, 20 offices or programs devoted to homelessness and 17 different grant programs for disaster preparedness. Another 15 agencies or offices handle food safety, and five are working to ensure the federal government uses less gasoline.

“Reducing or eliminating duplication, overlap, or fragmentation could potentially save billions of taxpayer dollars annually and help agencies provide more efficient and effective services,” the GAO said. Merging or terminating operations as recommended in the report could save up to several billion dollars.

You who understand Monetary Sovereignty are aware that taxpayers do not pay for federal spending. In fact, there is no relationship between federal taxes and federal spending (unlike the situation with monetarily non-sovereign governments, where taxes do pay for spending.) By using the words “taxpayer dollars,” the GAO demonstrates it does not understand the realities of federal finances. If you think this is amazing, bordering on the impossible, for the Government Accountability Office, not to understand federal finances, you may be right.

Without subscribing too deeply into conspiracy theory, one might conclude the GAO actually does understand, but has an axe to grind. Consider their decision to use the word, “taxpayer.” Why do they refer to “taxpayer dollars,” rather than just to “dollars”?

Clearly, they are attempting to make the point appear more shocking. We are not the government, but we all are taxpayers. So spending government dollars would not seem nearly as serious as spending yours and my (aka “taxpayer”) dollars.

According to the GAO website:

The U.S. Government Accountability Office (GAO) is known as “the investigative arm of Congress” and “the congressional watchdog.” GAO supports the Congress in meeting its constitutional responsibilities and helps improve the performance and accountability of the federal government for the benefit of the American people. The agency examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other data to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability.

We all know Congress loves to point with pride and view with alarm, and the GAO gives them the opportunity to do both. The GAO works for Congress and its purpose is to give Congress ammunition to criticize, and this ammunition is based on the believing federal dollars are limited, so must be used “efficiently” (i.e. minimally). Since, in fact, Monetarily Sovereign federal dollars are not limited, but taxpayer dollars are limited, referring to “taxpayer” dollars provides Congress with much greater alarm for viewing.

Now, consider this GAO press release:

U.S. GOVERNMENT’S 2010 FINANCIAL REPORT SHOWS SIGNIFICANT FINANCIAL MANAGEMENT AND FISCAL CHALLENGES

WASHINGTON (December 21, 2010) – The U.S. Government Accountability Office (GAO) cannot render an opinion on the 2010 consolidated financial statements of the federal government, because of widespread material internal control weaknesses, significant uncertainties, and other limitations.

“Even though significant progress has been made since the enactment of key financial management reforms in the 1990s, our report on the U.S. government’s consolidated financial statement illustrates that much work remains to be done to improve federal financial management. Shortcomings in three areas again prevented us from expressing an opinion on the accrual-based financial statements,” said Gene Dodaro, Acting Comptroller General of the United States.

The main obstacles to a GAO opinion were: (1) serious financial management problems at the Department of Defense (DOD) that made its financial statements unauditable, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government’s ineffective process for preparing the consolidated financial statements.

[. . . ] Dodaro also cited material weaknesses involving an estimated $125.4 billion in improper payments, information security across government, and tax collection activities. He noted that three major agencies—DOD, the Department of Homeland Security, and the Department of Labor—did not get clean opinions.

Not only does this report provide Congress with plenty of ammunition to view with alarm, but more importantly (for the GAO), it demonstrates the importance of the GAO. One almost can hear Congress sighing, “Thank God for the GAO.”

In short, it is in the GAO’s interest to make its reports seem as troubling as possible. The more grim its revelations, the more likely will the GAO receive increased funding, and the more likely will Comptroller General, Gene L. Dodaro, not only keep his job, but be hailed by Congress as a true guardian of the public domain. Imagine Mr. Dodaro coming before Congress and saying, “Everything is O.K.” They’d boot him out of town.

So why should Mr. Dodaro state concern about federal dollars, when the federal government has the unlimited ability to create dollars? Who cares about saving something that is endlessly available? Better he should talk about “taxpayer” dollars, and give the (false) impression innocent Americans are being injured by federal spending.

The myth of federal deficits and debt benefits so many vested interests, is here any wonder the plain facts are ignored?

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity, nor grow without money growth.

MONETARY SOVEREIGNTY

–What Japan needs now. Hint: It’s not what Michael Shuman suggests.

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Michael Schuman, yet another of those economic commentators who does not understand Monetary Sovereignty, the basis of modern economics, today wrote a column titled, “Could Japan’s earthquake cause a debt crisis.” In this column he said,

Japan already has the largest debt burden of any industrialized country, at about 200% of GDP, and even though Japan is not yet showing signs of following Ireland, Greece and the rest of the euro zone periphery into a full-blown debt crisis . . .

I wonder how much more evidence will be required, before Michael finally understands that Japan, like the U.S., is Monetarily Sovereign, while Ireland et al are monetarily non-sovereign. Monetarily Sovereign nations, having the unlimited ability to create their sovereign currency, never can have a “debt crisis” (assuming “debt crisis” means being unable to pay bills).

What will it take, Michael? A debt/GDP of 300%? 500%? 1,000,000%? At what point will you and the rest of the debt hawks finally come to the realization that debt/GDP is meaningless for a Monetarily Sovereign nation?

By the way, all the collections being taken up world wide to help Japan, while kind-hearted and praiseworthy, are useless. Japan is not short of money. It can create unlimited money. What Japan needs are equipment and people, to clean up the mess and to rebuild. Engineers, doctors, architects, planners + every kind of heavy machinery you can imagine. Japan can buy all the machinery it needs, but buying the people is much more difficult, so anyone truly wishing to help the Japanese people will try to learn what sort of human help is needed, and volunteer.

But save your money. Japan does not need it.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity, nor grow without money growth.

MONETARY SOVEREIGNTY

–Charles Krauthammer’s scary misinformation on Social Security

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Recently, the noted commentator, Charles Krauthammer, wrote an article titled, “Et tu, Jack Lew?” In this article, he said:

The Social Security trust fund is a fiction. If you don’t believe me, listen to the OMB’s own explanation (in the Clinton administration budget for fiscal 2000 under then-Director Jack Lew, the very same). The OMB explained that these trust fund “balances” are nothing more than a “bookkeeping” device. “They do not consist of real economic assets that can be drawn down in the future to fund benefits.”

In other words, the Social Security trust fund contains – nothing.

I was amazed. Krauthammer actually gets it? He’s right, of course. There are no dollars in the so-called “trust fund,” simply because FICA, and indeed all federal tax money, is destroyed upon receipt. This is one of the features of a Monetarily Sovereign government. It has the unlimited ability to create money, so it has no need to store money.

But alas, Krauthammer’s understanding was not to be, for in the very next paragraph he said:

Here’s why. When your FICA tax is taken out of your paycheck, it does not get squirreled away in some lockbox in West Virginia where it’s kept until you and your contemporaries retire. Most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury – and is spent. On roads, bridges, national defense, public television, whatever – spent, gone.

Wrong, wrong, wrong. Our Monetarily Sovereign federal government does not spend tax money on anything. In fact, there is no relationship whatsoever, between federal taxes and federal spending. This has been true since 1971, the end of the gold standard, and Krauthammer et al have not yet noticed the most influential economic change in our lifetimes. Today, even were federal taxes to fall to zero, this would not affect by even one dollar, the federal government’s ability to spend. (This is not the case for the states, counties and cities, which are not Monetarily Sovereign and so do spend tax money.)

Krauthammer goes on to say:

In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called “special issue” bonds.

Special they are: They are worthless. As the OMB explained, they are nothing more than “claims on the Treasury [i.e., promises] that, when redeemed [when you retire and are awaiting your check], will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.” That’s what it means to have a so-called trust fund with no “real economic assets.”

Wrong again. Federal spending is not financed by raising taxes or borrowing.

When you retire, the “trust fund” will have to go to the Treasury for the money for your Social Security check.

Yes, the Treasury will do what has been doing and is designed to do: Create the dollars to pay Social Security benefits.

So when (Office of Management and Budget Director Jack Lew) tells you that there are trillions in this lockbox that keep the system solvent until 2037, he is perpetrating a fiction certified as such by his own OMB. What happens when you retire? Your Social Security will come out of the taxes and borrowing of that fiscal year.

No, federal taxes and borrowing do not fund federal spending. Both could be eliminated, and the federal government could continue to spend trillions. Yes, there can be inflation implications, but the federal government neither needs nor uses tax money for anything.

Think about it. If you had a money-printing press in your basement, and had the unlimited ability to print money, would you borrow the money you previously had printed, and could continue to print, forever? Would you ask for tax money so you could pay your bills? Would you have any unpaid debts? Would creating money cause a “deficit”?

Krauthammer’s (as well as politician’s, other media writers’ and mainstream economists’) confusion comes from three sources:

1. Prior to 1971, when the federal government was not Monetarily Sovereign, it did spend borrowed and tax money.
2. The states, counties and cities, being monetarily non-sovereign, do spend borrowed and tax money.
3. You and I and all businesses, are not Monetarily Sovereign. We do need a source of income before we can spend.

In short, Krauthammer et al, do not realize the federal government is completely different from all the monetarily non-sovereign entities. He confuses federal “debt” and federal “borrowing” with personal debt and personal borrowing.

So when your Social Security benefits are cut needlessly, you’ll understand why. It’s the Krauthammers of the world, ignorant of economic reality, who are driving our economy. And this indeed is scary.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity, nor grow without money growth.

MONETARY SOVEREIGNTY

–An update on “The conversation Barry Ritholtz wouldn’t publish”

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Background: This began with “The conversation Barry Ritholtz wouldn’t publish.” You also could read Barry’s impressive description of himself at Barry Ritholtz, Curriculum Vitae.

Summary: I frequently have commented on Barry’s blog that he seemed not to understand Monetary Sovereignty and seldom supported his theories with facts, and in each case I’ve provided facts to counter his assertions. Barry became so exasperated with being doubted, that he refused to publish my final comment and instead published an “f-bomb,” which usually indicates a paucity of facts.

I offered to send him an outline of Monetary Sovereignty, which he could critique, so rather than merely disagreeing on generalities, we could disagree on facts. He answered, “My response to you was that your premise — I had been saying federal debt and deficit were too high — was wrong. If you want to send some bullet points, go ahead. ( I have seen much of the standard literature on it)”

O.K., so that was progress. Barry is on record as not believing the federal debt and deficit are too high, a point I have been making for 15 years (although his denial doesn’t seem to square with the comments he has made all these years. But hey, anyone is allowed to change their mind.) Following up on his invitation, I sent him this on March 6th, 2011:
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Sounds good. I look forward to an educational discussion. Here are some points describing Monetary Sovereignty:

1. In August, 1971, the U.S. became Monetarily Sovereign, meaning the U.S. federal government’s ability to create dollars no longer was constrained by gold supplies nor by the supply of any other physical substance. Dollars no longer existed in any physical sense, but like the score of a game, existed only as an accounting notation.

2. The federal government pays its bills simply by changing the numbers in the bank accounts of its creditors, which it can do endlessly. Federal dollar creation is constrained neither by borrowing nor by taxing, but only by inflation. Thus, inflation aside, even were taxes and borrowing to fall to zero, the federal government would retain the unlimited ability to create the dollars to pay its bills. There is no connection between federal taxes and federal spending. Either could exist without the other. Therefore, taxpayers do not pay for federal spending.

3. The federal government “borrows” by creating T-securities out of thin air, then exchanging them for dollars it previously created out of thin air. Using China as an example, the “borrowing” process is:
a. China first deposits dollars into its checking account at the Federal Reserve Bank
b. The U.S. debits China’s checking account and simultaneously credits China’s T-security account, also at the Federal Reserve Bank.
c. To redeem those T-securities, the U.S. reverses the process; it debits China’s T-security account and credits China’s checking account.
d. The U.S. has the unlimited ability to credit China’s checking account at any time. Thus, the U.S. could eliminate the federal “debt” to China, tomorrow.
e. Dollars are more liquid, and T-securities pay interest and have expirations dates, but both are forms of U.S. money. (Dollars are part of “M1;” T-securities are part of “L.”)
f. Exchanging one form of U.S. money for another form of U.S. money, neither adds nor subtracts money from the economy; the exchange has no inflationary implications.

4. Only federal law, and not dollar need, requires the Treasury to create and exchange T-securities in an amount equal to federal deficits (the difference between taxes and spending). Federal “debt” is the total of outstanding T-securities, not the total of federal deficits. Federal debt could exist without federal deficits and federal deficits could exist without federal debt. The two are related only by law and not by function. Federal “borrowing” is a relic of gold standard days; it neither is needed nor used to support federal spending.

5. Taxes too, do not support federal spending. Were federal taxes eliminated, this would not reduce by even one cent, the federal government’s ability to credit bank accounts.

6. Though federal taxes do not support federal spending, they do serve to destroy dollars. Every federal tax dollar is destroyed upon receipt. For this reason, federal taxes reduce the money supply, and if taxes were eliminated, the money supply would increase dramatically, potentially leading to inflation. Therefore federal taxes help prevent inflation.

7. By definition, a large economy has more money than does a small economy. Thus, a growing economy requires a growing money supply. Historically, all depressions and most recessions have coincided with reductions in federal deficit growth, and all recoveries have coincided with increases in federal deficit growth.

8. A sufficiently large increase in money supply could cause inflation. However, since the U.S. went off the gold standard, there has been no relationship between federal deficits and inflation, which instead has been related to oil prices.

9. The U.S. states, counties, cities, businesses and residents are not Monetarily Sovereign, nor are the euro nations, Greece, Italy et al. Unlike the U.S., they do not have the unlimited ability to credit bank accounts. They do rely on income to pay their bills. They cannot eliminate debt instantly. In monetarily non-sovereign nations, taxpayers do pay for national spending.

10. The terms “debt,” “borrow” and “deficit” have entirely different meanings for Monetarily Sovereign governments than for monetarily non-sovereign entities. The confusion caused by using the same terms for Monetarily Sovereign nations as for monetarily non-sovereign entities, is responsible for many false economic beliefs and harmful actions.

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On 3/9, not having heard from Barry, I wrote: “Barry, I hope you received this (I don’t trust Emails), and will give me your thoughts. Because you don’t believe the federal debt and deficit are too high, much of this will be obvious to you, but I’d welcome your ideas where you disagree.

Today, is 3/10. I hold out hope Barry respond will with facts, though he never has in the past. If he does, I’ll keep you apprised.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity, nor grow without money growth.

MONETARY SOVEREIGNTY