What is “inflation”? Not what you might think. How to ignore the facts in plain sight.

Lately, we’ve been hearing and reading a great deal about inflation, and how it’s either nothing to worry about or it’s the end of the world, depending on the motive of the author. Currently, the Republicans are all atwitter about inflation, because they ascribe it to federal benefits for the not-rich, which they loathe — both the not-rich and the benefits for them. The Democrats pooh-pooh inflation as nothing-to-worry-about because they want to put more dollars into the pockets of the poor while buying votes. But what exactly is “inflation”? Surely, the science of economics can provide the answer to so basic a question. For your confusion, I turn you to “The Definition of Inflation” by Ludwig von Mises. No, not really. It’s nonsense. I mention it, not as a reference, but as a reference to the confused nature of economics. “Inflation,” as most people (except von Mises) think of it, is a general increase in prices. That might seem simple enough on its face, but dig below and it becomes rather muddled. According to Investopedia:

PCE Price Index (PCEPI) vs. Consumer Price Index (CPI) The CPI is the most well-known economic indicator and usually gets a lot more attention from the media. But the Federal Reserve prefers to use the PCE Price Index when gauging inflation and the overall economic stability of the United States. There are other indicators that are used to measure inflation, including the Producer Price Index and the GDP Price Index. So why does the Fed prefer the PCE Price Index? That’s because this metric is composed of a broad range of expenditures. The PCE Price Index is also weighted by data acquired through business surveys, which tend to be more reliable than the consumer surveys used by the CPI. The CPI, on the other hand, provides more granular transparency in its monthly reporting. As such, economists can more clearly see categories like cereal, fruit, apparel, and vehicles. Another difference between the PCE Price Index and CPI is that the PCE Price Index uses a formula that allows for changes in consumer behavior and changes that occur in the short term. These adjustments are not made in the CPI formula. These factors result in a more comprehensive metric for measuring inflation. The Federal Reserve depends on the nuances that the PCE Price Index reveals because even minimal inflation can be considered an indicator of a growing and healthy economy.

In reading the above you might conclude that each measures inflation in a slightly different way, but overall, the results should be similar, differing only in detail. Right? Well, here they are:

The above graph shows each measure on the index: November, 1970 = 100. Hmmm . . . Three of the four are similar, but the blue line, Personal Consumption Expenditures (PCE), the one the “Federal Reserve prefers to use,” shows massively different inflation. So, how much has been the “general increase in prices”? Has there been a lot of inflation? A little? Economists can’t tell you. Let’s look at exactly the same basic data, but instead show Annual Percentage Change from the Year Ago:

The prior graph indicated that inflation at some unknown level, has existed for many years, though measurements differ significantly. The second graph shows that year-to-year inflation changes generally have trended down. The outlier continues to be the Fed’s preference, PCE, while GDP Price Index and Consumer Price Index move in lockstep, as would be expected. Now, we’ll include federal deficit spending, the great bugaboo of the right-wing (except when the deficits favor the rich):

We find no relationship between deficits and any commonly-used measure of inflation. Look closely, and you will see that the maroon line (Federal Debt Held By The Public), the measure of federal deficit spending, does not move in concert with any measure of inflation. There simply is no evidence to support the commonly held notion that inflation is caused by federal deficit spending. The belief in the monetary cause of inflation simply is wrong, though that belief is a primary source of federal debt fear. Here is the “logic,” as expressed by Investopedia:

Financing a Deficit All deficits need to be financed. This is initially done through the sale of government securities, such as Treasury bonds (T-bonds).

Wrong. Treasury securities do not finance anything. They merely are deposits into T-security accounts, the money in which is not touched by the federal government. Like the money in safe deposit boxes, the dollars just sit in the T-security accounts, gathering interest until maturity, at which time the contents of those accounts are returned to the owners. Federal deficit spending is financed by federal money creation, not by borrowing.

Individuals, businesses, and other governments purchase Treasury bonds and lend money to the government with the promise of future payment.

No “lending” is involved. The federal government has no need for, nor use of, the dollars residing in Treasury Security accounts.

To pay for its deficit spending, the federal government sends instructions (not dollars) to each creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account. The instant the bank does as instructed, new dollars are created and added to the money measure known as M1. The bank then clears the transaction through the Federal Reserve, a federal government agency, and the circle is closed. The government simply creates its own laws and approves its own money creation.

The clear, initial impact of government borrowing is that it reduces the pool of available funds to be lent to or invested in other businesses.

As noted earlier, the U.S. federal government, being Monetarily Sovereign, has the unlimited ability to create U.S. dollars. So it does not borrow dollars. The so-called “borrowing” (i.e. deposits into T-security accounts) would “reduce the pool of available funds to be lent to or invested in other businesses,” but for three facts:

Federal deficit spending adds dollars to the economy, which increases the pool of available funds
The deposits earn interest dollars created ad hoc, by the federal government, which also increases the pool of available funds.
Upon maturity, the dollars in the T-security accounts are returned to M1, which again adds to the pool of available funds.

This is necessarily true: an individual who lends $5,000 to the government cannot use that same $5,000 to purchase the stocks or bonds of a private company.

But some other individual, the individual who sold the $5,000 worth of goods and services to the federal government, has received newly-created $5,000 that can be used “to purchase the stocks or bonds of a private company.”

Thus, all deficits have the effect of reducing the potential capital stock in the economy.

Wrong. All federal deficits have the effect of increasing the potential capital stock in the economy, which why, as federal debt has increased, there is more capital stock in the economy today than there was in prior years.

This would differ if the Federal Reserve monetized the debt entirely; the danger would be inflation rather than capital reduction.

The so-called federal debt already is monetized by the money-creation involved in the federal government paying for goods and services.

Additionally, the sale of government securities used to finance the deficit has a direct impact on interest rates.

It isn’t the sale of T-securities that impacts interest rates. It’s the existence of T-securities that gives the Fed a platform for controlling interest rates. Accepting an extra billion or trillion dollars in T-security deposits doesn’t change that fact.

Federal Limits on Deficits Even though deficits seem to grow with abandon and the total debt liabilities on the federal ledger have risen to astronomical proportions, there are practical, legal, theoretical and political limitations on just how far into the red the government’s balance sheet can run, even if those limits aren’t nearly as low as many would like.

As a practical matter, the U.S. government cannot fund its deficits without attracting borrowers.

False. They probably mean, without attracting lenders, but that too would be false. Deficits are the difference between tax collections and federal spending, which already is funded by federal money creation. Deficits are not funded. It is the spending that is funded. And there are no financial limits to federal spending.

Backed only by the full faith and credit of the federal government, U.S. bonds and Treasury bills (T-bills) are purchased by individuals, businesses, and other governments on the market, all of whom are agreeing to lend money to the government.

True that U.S. Treasury securities are backed only by the full faith and credit of the U.S. government. But the federal government does not borrow U.S. dollars. Even if the U.S. government didn’t offer a single T-bill, T-note, or T-bond, it could continue deficit spending forever.

No one lends money to a government that has, via its own laws, given itself the unlimited ability to create its own sovereign currency. The U.S. federal government never unwillingly can run short of laws, and it never unwillingly can run short of dollars.

The Federal Reserve also purchases bonds as part of its monetary policy procedures. Should the government ever run out of willing borrowers, there is a genuine sense that deficits would be limited and default would become a possibility.

That may be the “general sense,” but it is wrong. The debt-worriers have been making the same “default” claim for more than 80 years, while the federal debt has risen 5,500%.

If interest payments on the debt ever become untenable through normal tax-and-borrow revenue streams, the government faces three options. They can cut spending and sell assets to make payments, they can print money to cover the shortfall, or the country can default on loan obligations. The second of these options, an overly aggressive expansion of the money supply, could lead to high levels of inflation, effectively (though inexactly) capping the use of this strategy.

The author has no understanding of the financial differences between monetary non-sovereignty (you, me, cities, counties, states, businesses) vs. Monetary Sovereignty (the federal government). Neither taxing nor borrowing supplies dollars to the federal government. Tax dollars are destroyed upon receipt. And the federal government (unlike state and local governments) does not borrow. The purpose of federal taxes (unlike state/local taxes) is not to provide spending money to the government. The purpose of federal taxes is to:

Help the government control the economy by taxing what it wishes to discourage and by giving tax-breaks to what it wishes to encourage, and
To make the populace believe that benefits are limited, a myth promulgated by the very rich in order to widen the Gap between the rich and the rest.

The federal government always creates new dollars to pay for interest, and this never leads to inflation.

The Bottom Line Deficits are seen in a largely negative light.

By those who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty.

While macroeconomic proposals under the Keynesian school argue that deficits are sometimes necessary to stimulate aggregate demand, other economists argue that deficits crowd out private borrowing and distort the marketplace.

Deficits always are necessary to stimulate demand. When deficits are lacking, or even too small, the economy falls into recession or depression. A growing economy requires a growing supply of money, and this is created via federal deficit spending.

**Recessions (vertical gray bars) are *preceded by* *reductions* in deficit growth, and are *cured by* *increases* in deficit growth.**

U.S. depressions tend to come on the heels of federal surpluses.

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807. 1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819. 1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837. 1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857. 1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873. 1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893. 1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929. 1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

Since deficit spending adds dollars to the economy, it is senseless to claim that deficits crowd out private borrowing. Deficits have grown massively over the years, and there has been no “crowding out” of private borrowing.

Still, other economists suggest that borrowing money today necessitates higher taxes in the future, which unfairly punishes future generations of taxpayers to service the needs of (or purchase the votes of) current beneficiaries. If it becomes politically unprofitable to run higher deficits, there is a sense that the democratic process might enforce a limit on current account deficits.

And yet, there has been no relationship between tax levels and federal deficits. No future generations have been punished. And the democratic process has not enforced a limit on federal deficits. All of the above demonstrates the “science” of economics’s uncanny ability to ignore the facts in plain sight, and instead promulgate unproven and unprovable hypotheses. . IN BRIEF: Many people expect the Federal Reserve to control inflation. But inflation is not a financial problem. Inflation is a scarcity problem that only Congress and the President can fix. Money is neutral. Deficit spending is not an inflation issue. The amount of deficit spending is not an inflation issue. The issue is how the money is spent. Deficit spending that causes shortages is inflationary. Deficit spending the cures shortages is anti-inflationary. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell ………………………………………………………………………………………………………………………………

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

Monetary Sovereignty describes money creation and destruction.
Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

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 Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps: Ten Steps To Prosperity:

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest. MONETARY SOVEREIGNTY

INFLATION! No, no, it isn’t the stimulus.

INFLATION! You can hear it now, can’t you? The sound of hands wringing in concert. The GOP is owned by the very rich. And the rich are terrified that you ever-so-slightly will narrow the Gap between you and them. So their GOP flunkees, having already given a huge tax deduction to their rich patrons, now will tell you that the Democrats’ stimulus packages are wrecking the economy and causing not just inflation, but hyperinflation. It’s all a great big fat lie, a repeated myth designed to calm your requests for more stimulus dollars to flow to your benefit. It goes like this:

Because the unemployment benefits are too generous, people won’t come back to work. So the GOP solution is to cut benefits, thereby starving people into working for low pay at unpleasant jobs.
The inflation theory is that increasing the supply of dollars when the demand for dollars remains constant, reduces the value of the dollar, and that reduction is known as “inflation.”
The GOP solution to inflation and unemployment.

Nice hypotheses, except:

There is a way to pay people good wages and also encourage work, and
The value of dollars does not decrease just because the supply increases.

Dollars are not like oranges, oil, or opera tickets. Money is a unique commodity. Increase the supply and people want still more. Give a person a million or a billion, and he will want yet another million or billion. Ask Jeff Bezos, Elon Musk, Mark Zuckerberg, or Warren Buffet. They all still work — for money. The one thing that affects the demand for money is the reward for owning money, i.e. interest rates, and that effect is modest. So, though interest rates today are quite low, the demand for dollars remains high. As I have demonstrated in previous posts, inflations have not been caused by federal deficits. Nor have hyperinflations. All have been caused by shortages.

Inflations are caused by shortages, not by money supply.

If deficit spending (red line) caused inflations (blue line) you would expect to see the two lines reasonably parallel. But there seems to be no relationship between the lines. Cuts in deficit spending lead to recessions (gray bars).

The shortages that most likely to lead to inflations involve food, energy, and personnel.

Consumer prices surge again, rising 5% over the past year By Martin Crutsinger Associated Press WASHINGTON — American consumers absorbed another surge in prices in May — a 0.6% increase over April and 5% over the past year, the biggest 12-month inflation spike since 2008. The May rise in consumer prices that the Labor Department reported Thursday reflected a range of goods and services now in growing demand as people increasingly shop, travel, dine out and attend entertainment events in a rapidly reopening economy. The increased consumer appetite is bumping up against a shortage of components, from lumber and steel to chemicals and semiconductors, that supply such key products as autos and computer equipment, all of which has forced up prices. And as consumers increasingly venture away from home, demandhas spread from manufactured goods to services — airline fares, for example, along with restaurant meals and hotel prices — raising inflation in those areas, too. Among specific items in May, prices for used vehicles, which had surged by a record 10% in April, shot up an additional 7.3% and accounted for one-third of May’s overall price jump. The price of new cars, too, rose 1.6% — the largest one-month increase since 2009. The jump in new and used vehicle prices reflects supply chain problems that have caused a shortage of semiconductors. The lack of computer chips has limited production of new cars, which, in turn, has reduced the supply of used cars. As demand for vehicles has risen, prices have followed. But higher prices were evident in a wide variety of categories in May, including household furnishings, which rose 0.9%, driven by a record jump in the price of floor coverings. Airline fares rose 7% after having increased 10.2% in April. Food prices rose 0.4%, with beef prices jumping 2.3%. Energy costs, though unchanged in May, are still up 56.2% in the past year.

The problem isn’t excessive money. Furnishings, floor coverings, airline tickets, beef, and oil prices all reflect the lack of production or availability, which in turn reflects the lack of demand during COVID-19. Only now, is supply beginning to grow to meet demand.

From the cereal maker General Mills to Chipotle Mexican Grill to the paint maker Sherwin-Williams, a range of companies have been raising prices or plan to do so, in some cases to make up for higher wages they’re now paying to keep or attract workers.

The GOP’s solution to the shortage of workers is to stop paying unemployment compensation. For the benefit of the rich, the GOP wishes to starve the people until they are forced to return to low wages and poor working conditions. That “solution” is a disgusting, medieval approach when a modern solution is available. The solution is not for the federal government to pay the unemployed instead of salaries, but rather for the government to pay everyone in addition to salaries. Don’t compensate people for staying home. Compensate people for being people. Institute Social Security for all. That way, there would be no temptation to stay home (when salaries are lower than the unemployment pay), and the public would be enriched, which means the entire economy would be enriched.

This week, for example, Chipotle Mexican Grill announced it was boosting menu prices by roughly 4% to cover the cost of raising its workers’ wages. In May, Chipotle had said that it would raise wages for its restaurant workers to reach an average of $15 an hour by the end of June. Andrew Hunter, a senior U.S. economist at Capital Economics, noted that the price category that covers restaurant meals jumped 0.6% last month. He took that as evidence that labor shortages at restaurants, hotels and other service sector companies are beginning to fuel wage and price increases.

The best cure for inflation, i.e. the best cure for shortages, is for the federal government to spend more either to obtain and distribute the scarce goods or to encourage the production of the scarce goods. Rather than paying people to be unemployed, let employment serve as the marginal reward for labor. And finally, the purpose of federal taxes is not to supply money to the federal government, which already has the unlimited ability to create money. The purpose of federal taxes is to discourage what the government doesn’t want by taxing it, and to encourage what the government does want by giving tax breaks. So why does the federal government tax businesses? To discourage the profits that pay salaries? It makes no sense. Rather than discouraging business profits by taxing, encourage business profits and salaries by eliminating business taxes. Punishing the poor to send them back to work, is a solution only in the eyes of the rich and the GOP. SUMMARY

Federal deficit spending does not cause inflations. Shortages of goods and services cause inflations.
Cuts in federal deficit spending lead to recessions and depressions.
A Monetarily Sovereign federal government can prevent/cure inflations by more spending to cure shortages
Paying people not to work (unemployment compensation) should be eliminated in favor of Social Security for All.
The purpose of federal taxes is not to provide the government with spending money, but rather to discourage what the federal government wishes to limit.
Federal taxes on businesses should be eliminated

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

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

Monetary Sovereignty describes money creation and destruction.
Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

Is poverty harmful, harmless, or a benefit?

Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
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Evolution requires that for any physical feature to last a long time it either must be harmless or a benefit. Over the eons, harmful features tend to disappear.

Consider toenails. Once we came down from the trees, toenails were of no imaginable use, but they require so little energy to grow, they have not been an evolutionary inhibition. So we still have them.

Poverty too, has been with our species for thousands of years. But one is reluctant to say it is harmless. So that leaves the possibility that poverty is a benefit.

Or, because it is a social feature, rather than a physical feature, rather than a physical benefit, might it only be a perceived benefit?

Regarding perception, the Democrats are about to pass what can be one of the most meaningful bills in many years — meaningful because that one bill can change common economics perceptions.

Child tax credit expansion sets up showdown with GOP
By ALEXANDRA JAFFE and JOSH BOAK
March 8, 2021

WASHINGTON (AP) — The massive ($1.9 trillion) coronavirus relief plan making its way to President Joe Biden’s desk includes a plan to temporarily raise the child tax credit that could end up permanently changing the way the country deals with child poverty.

The American Rescue Plan, expected to receive final approval this week, temporarily raises the child tax credit, now at a maximum of $2,000, to as much as $3,600 per child annually.

The plan also expands the credit so it’s fully available to the poorest families, instead of restricting it based on the parents’ tax liability. And it will be paid out in monthly installments, to offer families struggling during the pandemic a more consistent lifeline.

If the Democrats are smart (big “if”), they will resist the calls to raise taxes to “pay for” the bill. The Democrats simply should allow the federal debt to rise significantly. Let debt fear-mongers wring their hands, and offer up dire predictions, none of which will occur.

The legislation gives families up to $3,600 annually for each child under age 6 and as much as $3,000 for those up to 17.

The benefit is aimed at providing support to millions of families affected by the coronavirus pandemic. Democrats have embraced an analysis that found the proposal would cut child poverty 45%.

Republicans charge the move amounts to an expansion of the welfare state that will disincentivize parents from seeking work.

But Democrats hold out the proposal as a fundamental rethinking of the way the country approaches child poverty and an opportunity to address the income inequality that’s been exacerbated by the pandemic.

The old “disincentivize” myth simply means: “Give poor people some money, and they won’t work.”

Thus poverty is wrongly portrayed as a benefit to the economy in that it supposedly stimulates labor. That false belief provides a ready excuse to widen the Gap between the rich and the rest.

It’s utter nonsense of course, as demonstrated by all the middle, upper-middle, and even rich people who have plenty of money yet still work. It’s the common “laziness” slur on the poor, most of whom actually labor much harder than do most of the rich.,

Connecticut Rep. Rosa DeLauro, a Democrat who has been advocating for an expansion of the credit since 2003, said in a statement that “this legislation forever changes the way that our nation supports both middle-class families and children in poverty.”

DeLauro and other Democrats on Capitol Hill see the current legislation as laying the groundwork for a permanent expansion of the credit.

Indeed, Biden himself told House Democrats during a private call last week that he supports legislation that would permanently increase the child tax credit to $3,000 per child.

While Republicans broadly support the idea of expanding benefits for children, some have opposed the Biden plan for its price tag, and others have criticized it for divorcing the benefit from any work requirement.

“Price tag” is an argument that takes several forms, among which are the false notions that:

1. Federal taxes fund federal spending. FALSE

The Federal government uniquely is Monetarily Sovereign. It never can run short of its own sovereign currency. Even if it collected $0 taxes, it could continue spending, forever.

Rather than using tax dollars, the federal government creates new dollars, ad hoc, each time it pays a creditor.

While state and local governments (which are monetarily non-sovereign) do use state and local taxes to fund spending, the federal government actually destroys federal taxes upon receipt.

That is why no one can answer the question, “How much money does the federal government have?” The best answer is, “Infinite.”

Tax dollars never become part of any money measure (i.e. M1, M2, M3, et al). They simply are destroyed

2. Federal deficit spending causes inflation. FALSE

All inflations are caused by scarcity, usually a shortage of food and/or energy.

Federal deficit spending actually can cure inflation, if the spending is directed toward reducing the scarcity (for instance, by buying overseas and distributing the scarce goods, or by supporting the manufacture of the scarce goods).

3. Federal deficit spending slows the economy. FALSE

The most common measure of the economy is Gross Domestic Product (GDP), the formula for which is:

GDP = Federal Spending + Non-federal Spending + Net Exports

Increases in federal deficit spending increase all three terms in the GDP formula.

4. Federal borrowing competes with private borrowing. FALSE

Though state and local governments do borrow, the U.S. federal government does not borrow. Federal financing is nothing like state and local government financing.

Banks and credit card companies, which do the vast majority of lending in America, do not lend to the federal government.

5. Future taxpayers will have to pay for the federal debt. FALSE

Because the federal government has the unlimited ability to create dollars, it does not borrow. Instead, it allows for deposits into T-security (T-bill, T-note, T-bond) accounts.

When you buy a T-security, you are not lending money to the federal government. You are making a deposit into your own T-security account, held at the Federal Reserve Bank. There your dollars remain, collecting interest until maturity, at which time the government returns your dollars.

The federal government does not use those dollars to pay its creditors or for any other purpose.

No borrowing or taxpayer money ever is involved in T-security transactions. All taxpayer dollars are destroyed upon receipt.

6. Federal interest payments crowd out other federal spending. FALSE

The federal government has the unlimited power to create dollars. It can pay an infinite amount of interest.

Scott Winship, director of poverty studies at the conservative American Enterprise Institute, said his concern is that a permanent child allowance might make parents less likely to work and reduce the number of two-parent households, since there would be a stream of income from the government.

He wants to reduce child poverty but is concerned that doing so this way might worsen factors such as unemployment and single-parenthood that contribute to policy.

“The feeling is we win the battle against child poverty but we lose the war in the long run because we’ve created incentives that make it tougher to reduce poverty,” Winship said.

The conservatives want you to believe that giving the impoverished money increases poverty. Remember that bit of nonsense, every time to make a contribution to charity. According to the conservatives, when you drop a dollar into the bell-ringer-Santa’s pail, you are worsening poverty!

“If pulling families out of poverty were as simple as handing moms and dads a check, we would have solved poverty a long time ago,” Sen. Marco Rubio wrote.

Pulling families out of poverty is as simple as handing moms and dads checks, but ignorant and/or dishonest politicians won’t admit it.

But the expanded benefits included in the coronavirus relief plan set up a precedent that could put Republicans on defense on the issue. Because the benefit currently expires after a year, the Biden plan essentially creates a potential fiscal cliff for child poverty.

This could set up a political showdown during an election year on whether voters believe it’s acceptable for millions of children to lose the added aid and become impoverished once again.

“When it’s up for renewal, Republicans will be in the awkward position of opposing payments to families delivered through a credit that they pioneered, and championed as recently as 2017,” said Samuel Hammond, director of poverty and welfare policy at the Niskanen Center.

“No Republican wants to run on taking money away from families of any income,” Hammond said.

The Republicans never have expressed sympathy for the less-than-rich families. They tend to blame the impoverished for their own poverty, rather than to admit that good or bad fortune are the primary determinants of wealth.

Looking toward the midterm elections, the attack ads aimed at Republicans would simply highlight the party’s votes for tax cuts during the Trump administration in contrast with their votes against the Biden plan.

“It’s as simple as, when it was a vote on tax cuts for billionaires, Republicans voted yes, and when it was a check for you, they voted no,” he said.

If the Democrats avoid the pressure from the economics-ignorant, unnecessarily to raise taxes, the results might at long last demonstrate the facts of Monetary Sovereignty, and maybe, just maybe, we wouldn’t be subjected to the following Big Lies from such as the Committee For A Responsible Federal Budget (CFRB):

How High Are Federal Interest Payments?
Mar 10, 2021

This year, the federal government will spend $300 billion on interest payments on the national debt. This is the equivalent of nearly 9 percent of all federal revenue collection and over $2,400 per household.

Households don’t pay for federal interest payments.

The federal government spends more on interest than on transportation, education, and research and development combined.

The above statement is irrelevant. It only demonstrates that the government could spend more on transportation, education, and research and development.

The household share of federal interest is larger than average household spending on many typical expenditures, including gas, clothing, education, or personal care.

Again, irrelevant. Households do not pay for federal interest.

Growing debt levels add to the cost and risk associated with them.

The federal government has the unlimited ability to fund interest payments, which actually stimulate economic growth. There is no risk associated with federal spending.

Even with exceptionally low interest rates, the federal government is projected to spend just over $300 billion on net interest payments in fiscal year 2021. This amount is more than it will spend on food stamps and Social Security Disability Insurance combined.

It is nearly twice what the federal government will spend on transportation infrastructure, over four times as much as it will spend on K-12 education, almost four times what it will spend on housing, and over eight times what it will spend on research and development.

All the above demonstrates is the that government could, and should, spend more on food stamps, Social Security, infrastructure, education, housing, and research and development.

Interest payments effectively consume more than half of the worker-side payroll tax paid by households and are almost twice as large as total payments received through federal excise taxes and customs duties.

Interest payments do not “consume” any taxes. Federal taxes do not fund federal spending.

If interest rates were one percent higher than projected for all of 2021, interest costs would total $530 billion — more than the cost of Medicaid.

If rates were two percent higher, interest costs would total $750 billion, which is more than the federal governments spends on defense or Medicare. And at three percent higher, interest costs would total $975 billion — almost as much as is spent on Social Security benefits.

On a per-household basis, a one percent increase in the interest rate would increase costs by $1,805, to $4,210.

The CRFB keeps repeating the same lie, that federal taxes fund federal spending. They learned from Hitler that if you repeat a lie often enough, people will begin to believe it.

Trump used the same strategy with his repeat of the lie that the election was stolen. Millions of people believe that lie, too.

The higher the federal debt, the more exposed the federal government is to interest rate risk.

There is no risk to the federal government or to taxpayers. The government has the unlimited ability to pay its bills. There also is no risk of inflation, which is not caused by government deficit spending, but rather by shortages, usually of food and/or energy.

And now, here is the CRFB’s Big Lie in all its glory:

Once the U.S. recovers from the COVID-19 pandemic, policymakers should work to adopt a combination of entitlement reforms, smart spending reductions, and revenue increases that will ultimately put debt and deficits on a more sustainable path.

“Entitlement reforms” and “spending reductions” mean “cut Social Security, cut Medicare, cut all social benefits for the poor and middle-income.”

“Revenue increases” means “increase FICA and other taxes on the poor and middle-income.”

“Sustainable” is the CRFB’s favorite word, that actually has no meaning at all, but it sounds oh, so prudent, doesn’t it?

SUMMARY

The Big Lie in economics is: The Monetarily Sovereign U.S. government uses tax dollars to pay its bills. This lie prevents the government from supplying benefits to those who are not rich.

A corollary to the Big Lie is the notion that spending for social benefits discourages people from working.

The Big Lie and its corollary are disseminated by the media, the politicians, and the economists who are bribed by the rich so as to widen the Gap between the rich and the rest.

Rodger Malcolm Mitchell

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

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

Monetary Sovereignty describes money creation and destruction.
Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Ten Steps To Prosperity:

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

And just when I began to feel so good about Congress and the President, at long last, . . .

And just when I began to feel so good about Congress and the President at long last beginning to understand and tell the truth about economics, then I am splashed by ice water coming from the Committee for a Responsible Federal Budget. Image result for splashed with ice water

You know the CRFB.

They are the ones who run interference for those in Congress who want you to believe the common myth that federal finances are just like your finances.

Here’s what they say:

Important to Pay For Child Tax Credit Expansion

Democratic lawmakers are planning to unveil legislation to substantially boost the child tax credit from $2,000 to $3,000, providing monthly payments to households and higher payments for younger children.

While this thoughtful proposal to expand support for children deserves consideration, it cannot legitimately be classified as COVID relief and should be fully paid for under the House PAYGO rules and normal principles of budgeting.

Briefly, “PAYGO” is an ill-considered concept that requires federal spending to be matched by taxes or T-security deposits.

It’s part of the myth that federal finances are like personal finances (and state/local government finances), where outgo must be funded by income. That’s why CRFB speaks of “normal principles of budgeting.”

Those “normal principles” are normal for you, normal for your state, county, and city, and normal for businesses. But they are not normal for the federal government, and this is what CRFB does not want you to understand.

When you pay for your spending, you must have a money source.

You must have a paying job, or you must borrow, or you must have savings. That’s because you are monetarily non-sovereign.

State and local governments, and businesses operate the same way. They too are monetarily non-sovereign.

The federal government is different. It is Monetarily Sovereign. It uses neither income nor borrowing. It creates, ad hoc, every dollar it spends,, each time it pays a creditor.

The federal government does not borrow and the taxes it collects are destroyed upon receipt.

The federal government does not have money; it creates money. Last year, it was able to spend trillions of dollars it did not have, and yet never ran short, and never bounced a check.

You can’t do that, nor can any other monetarily non-sovereign entity.

Soon, the Biden administration will spend another $2 trillion the government doesn’t have, and still no checks will bounce. That is Monetary Sovereignty.

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

We are still in the midst of a pandemic and economic crisis, and more borrowing will be needed to provide necessary relief and support the economic recovery.

However, emergency borrowing authority must be reserved for pandemic-related needs, not for enacting long-sought-after policy priorities.

It’s amazing how many misstatements the CRFB can pack into three short sentences:

What they call “borrowing” (T-bills, T-notes, T-bonds) merely consists of accepting deposits into T-security accounts. The government does not use those deposits. They remain in the accounts, accumulating interest, until maturity, at which time they are returned. You do not lend to the federal government. You make deposits into your own T-security account.
There is no need to “reserve emergency borrowing authority.” The government can accept as many dollars into T-securities accounts as it wishes, any time it wishes (though again, it doesn’t use the dollars in those accounts. That’s why it isn’t “borrowing.)
I’m not sure why the CRFB tries to differentiate between “pandemic-related needs” and “long-sought-after policy priorities.” Spending is spending. All federal spending is funded exactly the same way: Via money creation.

House PAYGO rules make clear that new spending increases and tax cuts not related to the COVID response or climate change must be paid for.

Expanding the child tax credit clearly doesn’t qualify under either of these exemptions, as it is clearly meant as a permanent policy and is in many ways duplicative with the proposed $2,000 per child recovery rebates.

All federal spending is “paid for.” Apparently, the CRFB falsely means, “paid for via borrowing or taxing.” This demonstrably false statement has been disproven every year. In 2020 alone, trillions of dollars of federal spending easily were “paid for” without the need for tax increases or borrowing.

Replacing the current $2,000 child tax credit with a more broadly available $3,000 to $3,600 credit would help address the disadvantages that kids face in the federal budget.

But we shouldn’t borrow from our kids in order to pay for their care when there are plenty of offsets available.

This mixed-up sentence speaks of “borrowing from our kids,” which probably means future (totally unnecessary) tax increases. But then it talks about “offsets.” And what are those so-called “offsets” that don’t “borrow from our kids?

Overall, this policy will cost over $100 billion per year and more than $1 trillion over a decade if made permanent. Reducing child poverty is a worthy policy priority and one worth paying for.

Senator Mitt Romney’s recent proposal to consolidate existing support for children and workers and repeal regressive tax breaks represents one possible package of offsets.

The $5.8 trillion of tax increases and budget savings proposed by President Biden during the campaign also offers many alternatives.

Offsets could also be phased in to avoid imposing tax increases during a pandemic or disrupting a fragile recovery.

So, to help reduce child poverty, we should “consolidate existing support for children and workers”?? Ah, that lovely little word “consolidate” which in CRFB language means an even smaller word: “Cut.”

And, of course, “repealing tax breaks” is a synonym for “increasing taxes.” (Historically, the breaks the CRFB has seemed to favor eliminating are those that benefit the poor and middle classes.)

It is the “children and workers” who would have to pay the increased taxes and suffer the reduced support.

Offsets could also be phased in to avoid imposing tax increases during a pandemic or disrupting a fragile recovery.

This is a worthy policy aimed at achieving a worthy goal. That’s no reason to throw budget discipline out the window. Borrowing for the pandemic isn’t an excuse for unrelated tax cuts, nor is it a reason to enact permanent policies that aren’t properly financed.

So let’s see. The recovery is “fragile,” but we should have “budget discipline,” which means increasing taxes during this fragile recovery. How wise.

So the government should do something temporary — cut taxes and increase spending — and when we recover the government can increase taxes and cut spending.

“But we shouldn’t borrow from our kids.” Except that “borrowing from our kids” is exactly what future tax increases and spending cuts would do.

If empty-headed claims were dollars, the CRFB would be the wealthiest organization in the world.

Rodger Malcolm Mitchell

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

Monetary Sovereignty describes money creation and destruction.
Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Ten Steps To Prosperity:

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

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