Because the populace has been pumped with wrong information about Monetary Sovereignty (MS), what should be easily understood is widely misunderstood. Does even the great Warren Buffett not get it?
He understands federal finance and strongly favors Social Security, yet does even he not know how that program is financed?
We have tried to make the simple even simpler with such posts as:
Airlines are sovereign over their mileage points. They cannot run short of points and can give them any value they choose. They are in “points debt” because they issue more points than they receive back from customers.
At its core, Monetary Sovereignty is dead simple. It merely says:
The U.S. federal government created an arbitrary number of dollars and gave them an arbitrary value by passing laws.
The government retains the power to pass infinite laws, create infinite dollars, and give dollars any values it chooses.
Because of these powers, the government cannot run short of dollars. It pays all its obligations with newly created dollars and does not need tax dollars.
Even if the federal government didn’t collect a penny in taxes, it could continue spending forever. No payment, however large, is a burden on the federal government or on federal taxpayers.
The posts gave examples of Monetary Sovereignty with airline mileage points, Monopoly dollars, and store coupons.
In each case, the issuer cannot run short of the points/dollars/coupons because all are numbers on computers typed at the creator’s whim.
Warren Buffett
Yet, despite that simplicity, even great financial brains seem confused:
Social Security has long been a subject of intense discussion in America, but investing legend Warren Buffett’s position on the issue is unmistakably clear.
During Buffett’s company, Berkshire Hathaway’s annual shareholders meeting in 2005, an audience member posed a blunt question: “I’m asking for your opinion on Social Security. Shall we call it the government-sponsored Ponzi scheme for retirees?”
Buffett’s answer was wrong.
He explained that, while it was proposed as insurance because that was “the only way [President Franklin] Roosevelt could get it passed,” Social Security is essentially a “transfer payment by the people who are in their productive years to the people who are past their productive years.”
And Buffett liked that mechanism.
“I think that the obligation for the people who do well in this society is to provide a reasonable level of sustenance for those beyond their productive years,” he said.
No, no, no. Social Security is nothing like “a transfer payment from people in their productive years to people past their productive years.”
And while he may imply there is a moral obligation for the productive people to aid those past productive years, that is not how Social Security operates.
Target is sovereign over its coupons. It cannot run short of coupons; it makes all the rules re. its coupons, and it runs “coupon deficits” (receives fewer coupons than it issues) and is in “coupon debt” (the total coupons issued is more than the coupons received.)
If it did, two things would be necessary:
1. Social Security would have to be supported by more affluent people, which it is not. Even the FICA tax, which ostensibly supports SS, is collected mostly from medium-to-lower salariedpeople — and only from the first $160K of salary.
I wonder whether Mr. Buffett collects any salary at all. If he obtains all his income via stock gains, dividends, interest, and other non-salary sources, he doesn’t pay FICA. No “transfer” there.
2. More importantly, and contrary to popular belief, FICA does not fund Social Security (or Medicare.) All federal spending is funded by newly created dollars.
Tax dollars, which begin, in the M2 money supply measure, suddenly disappear from anymoney supply measure when they hit the U.S. Treasury. They effectively are destroyed.
Ask yourself , “How much money can the federal government spend in any given year? Given that the government has the infinite ability to create dollars, how many dollars can it spend?
Right, it can spend infinite dollars. It never can run short.
What is any number added to infinity? Infinity. Those FICA dollars disappear into an infinite dollar hole, never heard from again.
The fake Social Security and Medicare Trust Funds, which supposedly receive FICA dollars and spend those dollars on benefits, do no such thing. In fact, they aren’t even trust funds.
They are bookkeeping mechanisms that only record inflows and outflows. They aren’t “trust funds” if the federal government can add to them, take from them, or revise them in any way and at any time it chooses?
If you go to any federal finance website, you will see how the government implies or even states outright that federal taxes fund federal spending. Yet, clearly, this isn’t true. Even if the federal government collected zero taxes, it could continue spending forever.
That is the reality of all large Monetarily Sovereign entities.
Consider the European Union, which is sovereign over the euro:
The federal government is sovereign over its “coupons,” aka dollars. It cannot run short of dollars; it makes all the rules re. its dollars, and it runs “dollar deficits” (receives fewer dollars than it issues) and is in ” debt” (the total dollars issued is more than the dollars received.)
No large Monetarily Sovereign nation can run short of its own sovereign currency — unless it wants to.
Why would it want to? To foster the false belief that benefits to the middle- and lower-income groups are unaffordable and unsustainable without benefit cuts or tax increases.
That is the basis for the Big Lie: “Social Security and Medicare can’t continue unless we cut your benefits or increase your taxes.”
Who benefits from the Big Lie: The rich who run America. They are rich because of a wide financial Gapbetween them and the rest of us. The wider the Gap, the richer they are.
There are two ways the rich widen the Gap:
They increase their net income with tax dodges for which they bribe politicians.
They reduce your net income by falsely claiming that benefits are unaffordable and unsustainable. They bribe the media and politicians to tell that lie.
Although Mr. Buffett seems to try to claim the high ground by “complaining” that his secretary pays a higher tax rate than he does, it’s hard to believe he doesn’t understand the realities of Monetary Sovereignty.
Therefore, I believe he intentionally lies about Social Security being a “transfer payment by the people who are in their productive years to the people who are past their productive years.”
Sadly, you receive the Big Lie from three groups the rich bribe: Politicians, news media, and educators. And there are the lies coming from the rich, themselves.
That Niagara Falls of false information drowns out the truth, which is why the simplicity of Monetary Sovereignty is so difficult for many people to understand.
We have discussed this for many, many years.But because of the new, ultra-partisan, endlessly repeated efforts led by the right wing to reduce any benefits to the non-rich, the truth must be repeated so it can fight through the fog of lies to be remembered.
No rational person would take dollars from the economy and give them to a federal government that has the infinite ability to create new dollars.
Yet, that same rational person approves collecting tax dollars from the private sector and giving them to the federal government.
It is illogical to the extreme, yet it is universally countenanced. So much for human mental superiority.
Economics is a combination of mathematics and psychology. Economists lose their place during attempts to blend the two, for instance, when they claim that something must happen when historically it seldom or never happens.
The most important problems in economics involve just two issues:
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.
Insolvency, the phony issue: Cutting SS and Medicare is again being touted as the “only” way to avoid national insolvency. It is a lie.
The federal government, being Monetarily Sovereign, has infinite money to support all its agencies. No federal agency becomes insolvent unless Congress and the President want that.
The notion that funds for Medicare and Social Security — and no other federal agency — are limited by a tax on the lower side of the income scale — FICA — is absurd. Billionaire Donald Trump doesn’t pay that tax; you do.
The fact that the so-called “debt ceiling” has arbitrarily been raised 94 times should give any thinking person pause to consider the idiocy of the ceiling itself.
An astounding 94 increases, the sky hasn’t fallen, and still we debate it.
Ask your neighbor why we have a debt ceiling that we have increased 94 times. I promise he will give you an ignorant answer. Why?
Because the sole purpose of the debt ceiling is to take advantage of the ignorant.
Your neighbors believe they understand economics. They don’t. They think federal financing resembles personal financing. It doesn’t.
If you try to explain it to them, they will resist understanding it. In their ignorance, they will laugh at what they perceive as your ignorance.
Their ignorance is akin to flat-earth believers, who assure you that ships sailing west eventually will fall over the edge. No amount of evidence can convince a flat-earther or a federal debt worrier. They are beyond the evidence.
Ignaz Semmelweis failed to convince doctors to wash their hands
How do I know? I’ve been doing this for nearly 30 years. Why do I keep doing it? Every so seldom, I meet someone open to learning, which requires changing one’s beliefs.
So despite meeting thousands of learning-resistant people, the relatively few who use their brains give me hope.
Federal Taxes: They do not fund federal spending. The U.S. Treasury destroys all dollars it receives and creates new dollars every time it pays a creditor.
To pay an invoice, the federal government sends instructionsas a check or wires (not dollars) to the creditor’s bank, telling the bank to raise the balance in the creditor’s checking account.
When you send your M2 tax dollars to the Treasury, those dollars immediately disappear from any money supply measure. The reason: Our Monetarily Sovereign government has the infinite ability to create dollars from thin air, so trying to measure its supply of dollars would make no sense.
Adding dollars to infinite dollars yields infinite dollars. No change.
The sole purposes of federal taxes are:
To discourage what the government doesn’t like and to give tax breaks to what the goverment likes
To create demand for the dollar by requiring taxes to be paid in dollars.
That’s it. Taxes do not provide the federal government with spending money.
The sole purpose of the debt ceiling is to sell the lower-income groups the false idea that the government cannot afford to give them benefits.
There is a political purpose, however: To give the party that is out of power leverage over the party that is in power.
Federal finances are nothing like personal finances.
The useless and misleading “debt limit” should be eliminated. The so-called “debt” is the net total of deposits into T-security accounts (T-bills, T-notes, T=bonds). These deposits are:
Like the contents of safe deposit boxes: Owned by the depositors, not by the federal government
Not used by the federal government
Not borrowed by the federal government. The federal government never borrows dollars.
Not touched by the federal government
Not a debt of the federal government
Paid back simply by returning the dollars in the accounts.
The useless and misleading Social Security “trust funds” are:
Not recipients of FICA tax dollars, which are destroyed upon receipt by the Treasury.
Not paying for Social Security or Medicare, which are funded by new dollar creation like all federal programs.
Illusions, established by President Franklin D. Roosevelt, in a (failed) psychological attempt to keep Congress from cutting Social Security.
And contrary to popular myth, federal deficit spending never has caused inflation. There is no historical relationship between federal spending and inflation.
If federal deficit spending (red) caused inflation (blue), the lines would be parallel. They are not.
Rather than causing inflation, federal deficit spending prevents and cures recessions.
Recessions (vertical gray bars) follow decreases in federal deficit spending (red line) and are cured by increases in federal deficit spending.
Federal “debt” reduction caused every depression in U.S. history.
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%. A recession began 2001.
All inflations in history have been caused by the scarcity of critical goods and services, mainly oil and food. This is demonstrated by the graph below:
The graph showing federal deficit spending vs. inflation shows no relationship between the two. The graph showing oil prices vs. inflation shows a strong relationship. Oil prices reflect oil scarcity. Thus, inflation is not caused by federal spending but rather by scarcity.
As we said, this has been discussed before on this site.
But past Republican parties, though heavily favoring the rich over the poor, were not led by demonic, psychopathic dictator wannabe who would burn down your house and our entire nation for the chance to rule the ashes.
IN SUMMARY
The federal government is uniquely Monetarily Sovereign. It cannot unintentionally run short of dollars.
When you are told that Medicare and Social Security benefits must be decreased and FICA taxes must be increased, that is a lie, and the person saying it is a liar, ignorant, or both.
The federal “debt” is not a problem, not even a debt, not paid for by your grandchildren, and is necessary for economic growth.
Efforts to decrease the federal “debt” are, in reality, efforts to make the rich richer by widening the Gap between the rich and the rest. The wider the Gap, the richer they are.
Unfortunately, when you try to explain this to your friends, their previous indoctrination will prevent them from believing what is in their self-interest.
So they naively will continue approving and justifying federal tax increases and federal benefit decreases, much to the amusement of the rich, who have blessed themselves with tax loopholes and income not subject to FICA taxes.
All you can do is to keep fighting, and forgive them, for they know not what they do.
If you follow policy debates long enough, arguments you never thought you’d hear can become key components of the two parties’ policy platforms.
That’s certainly the case when it comes to some Republicans, and their new “never touch Social Security and Medicare” position.
Over the weekend, newly elected Sen. J.D. Vance (R–Ohio) tweeted that former President Donald Trump was 100 percent correct to demand that “under no circumstances should Republicans vote to cut a single penny from Medicare or Social Security.”
Vance’s tweet was issued amid the debt ceiling fight, but Trump has long held this position.
The Republicans would love to cut Medicare and Social Security benefits because that would increase the income/wealth/power Gap between the rich and the rest.
The Gap is what makes the rich rich. If not for the Gap, no one would be rich. We all would be the same. The wider the Gap, the richer are the rich.
The GOP, the party of the rich, is always ready to help make the rich richer. Their big tax reduction during the Trump years enriched the rich and did nothing for the middle and poor.
The GOP complaints about funding the IRS had to do with protecting the rich. So long as the IRS is underfunded, they don’t have the manpower to investigate the complex tax returns of the rich, so currently, they focus on the middle and lower levels.
The only reason the GOP won’t try to cut Medicare and Social Security benefits is that they would be punished at the polls, not because they care about the health and well-being of the middle or poor. They don’t.
Watch for the GOP “solution” to the non-problem of Social Security and Medicare finances to be something that doesn’t hurt the rich, such as increasing the FICA income limit. Rich people aren’t worried about paying FICA taxes on an above $150M salary. Not only is that chump change for the rich, but many don’t pay any FICA because they aren’t salaried.
Now, to be fair, the GOP’s well-intentioned engagement in the overall debt ceiling dispute is limited by the short time Congress has to raise the limit, all but ruling out credible reforms of Medicare or Social Security.
GOP’s “well-intentioned” engagement in the debt ceiling dispute?? I didn’t realize Veronique was a humor writer. Or perhaps she believes her readers are fools.
Reforming these two programs will take a considerable amount of time and requires bipartisan action. However, this reality is no reason to assert that the programs’ benefits should never be touched.
In right-wing speak (Yes, Libertarians are closet right-wingers), “reform” Social Security and Medicare means cut benefits to the middle class and the poor.
I cannot wait to hear the grand plan that the “don’t touch Social Security and Medicare” Republican caucus has to address the $116 trillion over 30-year shortfall—that’s 6 percent of U.S. GDP—facing the two programs.
No action from Congress means no money to pay for all the benefits. That means enormous cuts that will hurt the low-income seniors who depend on the programs.
That is a bald-faced lie. The federal government could double, triple, or quadruple benefits for both programs while eliminating all FICA collections and still have money to pay Congressional, Presidential, and SCOTUS salaries.
Contrary to popular myth, FICA pays for nothing. Every FICA dollar ripped from your paycheck and sent to the U.S. Treasury is destroyed upon receipt.
The dollars come from the M2 money supply, so when you pay $1 in federal taxes, the M2 money supply declines by $1. But when those M2 dollars reach the Treasury, they instantly cease to exist in any money supply measure.
There is no money supply measure for federal funds simply because the federal government has the infinite ability to create dollars. Thus, the federal government, being Monetarily Sovereign, has infinite dollars.
Adding your tax dollars to infinity doesn’t change infinity.
Of course, if Vance and friends insist on not touching benefits, they could address the Social Security and Medicare shortfalls with enormous tax hikes.
Federal taxes don’t fund federal spending, so they can’t “address Social Security and Medicare shortfalls.”
For Social Security alone, when the trust fund dries out, they will have to agree to immediately raise the payroll tax from 12.4 percent to 15.64 percent—or close to a 25 percent tax increase.
Add to that the tax hike necessary for Medicare and then repeat the exercise over the years to fill the entire shortfall.
The tax hikes would have no effect on Social Security and Medicare solvency. These federal agencies and all other federal agencies are solvent because they are funded by the infinitely solvent U.S. government.
The misnamed federal “debt” is not a debt of the federal government. The government has paid all its debt the same way: By creating dollars from thin air.
The federal debt is the net total of all federal deficits — the difference between total spending and total taxing. That difference is bridged by federal money creation so that all obligations are paid on time.
Have you ever wondered how the federal government can raise the debt ceiling whenever it wishes? According to the U.S. Department of the Treasury, the debt ceiling has been raised, extended, or revised 78 separate times since 1960.
And all these increases were done without tax increases (otherwise, the debt ceiling would not have been reached) because federal taxes don’t fund anything.
(State and local governments (unlike the federal government) are monetarily NON-sovereign. They don’t have the unlimited ability to create dollars, so their taxes do fund their spending.)
It’s not as if we haven’t been warning politicians that these troubles were brewing. Back in 2000, roughly when I started working on fiscal issues, experts already warned that the Social Security trust fund would run out of assets by 2037, triggering painful benefit cuts.
Not only does the Social Security trust fund not pay SS benefits, but it isn’t even a trust fund. To quote right-winger Pete Peterson:
A federal trust fund is an accounting mechanism used by the federal government to track earmarked receipts (money designated for a specific purpose or program) and corresponding expenditures.
The largest and best-known funds finance Social Security, Medicare, highways and mass transit, and pensions for government employees.
Federal trust funds bear little resemblance to their private-sector counterparts.
In private-sector trust funds, receipts are deposited and assets are held and invested by trustees on behalf of the stated beneficiaries.
In federal trust funds, the federal government does not set aside the receipts or invest them in private assets.
Rather, the receipts are recorded as accounting credits in the trust funds, and the receipts themselves are comingled with other receipts that Treasury collects and spends.
The misnamed trust funds are wholly owned and controlled by the federal government. It can add to them, subtract from them or do whatever else it wishes with them.
The notion that the trust funds will run out of money and so can’t pay Social Security or Medicare benefits is ridiculous on its face. The federal government pays whatever benefits it wishes, regardless of so-called “trust funds.’
Further, the government has the unlimited power to add to, or subtract from those fake trust funds whenever it wishes.
The whole Social Security/Medicare trust fund fiction is a giant scam to make you believe the government can’t afford SS and Medicare benefits.
When politicians whined that Medicare for All or Social Security for All needed to be “paid for” by tax increases or benefit cuts, the sole purpose was to make you agree to widening the income/wealth/power Gap between you and the rich.
It is America’s biggest, most crooked scam, and you have been falling for it since Social Security began on August 14, 1935. And you still fall for it without complaint.
It’s a scam that makes Bernie Madoff look like an angel.
One wonders why you don’t fret about the White House trust fund, the SCOTUS trust fund, the Congress trust fund, the Bureau of Labor Statistics trust fund, the Capitol Police trust fund, the Army trust fund, the Coast Guard trust fund, and all the other federal department and agency trust funds.
Oh, they don’t have trust funds? So where do they get their money?
Ah, the federal government simply pays the bills by creating dollars from thin air. Just pay thepreciselyand stop lying about “trust funds.” that is exactly what the federal government should do about Social Security and Medicare.
Today, the situation has deteriorated further, with the trust fund now on track to run dry in 2035, along with any practicable hope for fixing the problem.
The fake “trust fund” will run dry only if Congress and the President want it to run dry.
In other words, these problems shouldn’t surprise anyone. When Social Security started, life expectancies were lower. In 1950, there were more than 16 workers for every beneficiary. That ratio is now below three workers per retiree and will be only 2.3 workers per retiree by 2035.
The number of workers per beneficiary is completely irrelevant. Workers do not pay for beneficiaries. FICA does not pay for anything. It’s destroyed. It exists only to con you. Period.
Add to this trend decades of politicians buying votes by expanding benefits beyond incoming payroll taxes, and you have a true fiscal crisis.
To the Libertains’ sneering and twisted minds, giving the populace benefits is “buying votes.” But the sole purpose of any government is to protect and enhance the people’s lives.
If any government doesn’t provide benefits, it’s not doing what it was created to do.
That’s why it’s so alarming that so many in the GOP are giving up on educating a public that’s been brainwashed for years with misleading soundbites like “You earned your Social Security benefits, so you are entitled to the benefits now promised,” or “There’s an account with your name on it.”
There is, in fact, an account with your name on it, and it’s called a T-security account. If you have deposited money into a T-bill, T-note, or a T-bond, you have put dollars into your T-security account.
Those dollars belong to you. The federal government never touches them. When your account matures, the government returns the dollars in your account. The total of dollars in all T-security accounts is erroneously termed, “the federal debt.”
But it not federal and it is not debt. Your dollars belong to you, not the federal government, and there is no debt. Your dollars are safe and comfortably resting in your account just as though they were in your pocket or safe deposit box.
Just as the contents of bank safe deposit boxes are not bank debt, the contents of T-security accounts are not federal debt.
Such misinformation has made serious discussion of reform very difficult.
Yes, that is exactly what misinformation has done.
There’s no question that retirees deserve fair treatment, but the facts are that the Supreme Court ruled in 1960 that workers do not have a legally binding right to Social Security benefits, and if Congress cuts benefits even by, say, 50 percent, it can do so—no matter how much anyone has paid into the program.
And so goes the “trust fund” myth. If they were trust funds, you would have a legal right to those benefits, but you don’t and SCOTUS has said so. And they are not trust funds.
Congress and the President have 100% control over benefits, which can be raised or cut, arbitrarily, as can the amount of money claimed to be in those fake “trust funds.”
What does that say about the mythical trust funds? What does that say about Veronique de Rugy’s claims?
It won’t come to that, but the ruling still stands. It’s also fiction that all the benefits that have been promised were earned by workers—they weren’t.
That’s in part because current retirees are paid with taxes from current workers, not from funds saved out of the payroll taxes retirees paid when they were in the workforce.
No, no, no. Current retirees are not paid with federal taxes. They are paid by the federal government’s infinite ability to create dollars.
The purpose of federal taxes is not to fund federal spending. The purpose of federal taxes is to control the economy by punishing what the government wishes to discourage and by rewarding (via tax breaks) what the government wishes to encourage.
It’s magical thinking to say that touching Social Security and Medicare is a nonstarter.
Touching Social Security and Medicare is not a financial nonstarter. The government could increase or decrease benefits at will.
But decreasing benefits could be a voter nonstarter and increasing benefits could a rich-donor nonstarter. That rug-of-war is the called the “debt-limit-debate. It’s a debate between the rich and the rest, except the “rest” don’t even know there is a debate, much less a solution.
Even more strange, many of the same Republicans want to spare these two programs while still putting Medicaid on the chopping block. Medicaid should be reformed too, but at least that program serves poor people.
By contrast, the seniors who receive Social Security and Medicare today are overrepresented in the top income quintile while younger Americans are overrepresented in the bottom quintile.
So these guys want to cut benefits for poor people on Medicaid while subsidizing relatively wealthy boomers with taxes taken from relatively poor youngsters.
Yikes.
No, the real “yikes” to to writers like Veroique de Rugy who repeatedly promulgate misinformation about the federal “debt” and the fictional Social Security and Medicare “trust funds.”
YIKES!!!!!
The GOP’s transformation into the party of big and fiscally reckless government is proceeding apace.
It’s not the hammer. My problem is that I have a headache. Get me an aspirin.
What is America’s most dangerous and harmful conspiracy theory?
No, it’s not the idiocy from QAnon. There is no group of Satanists, cannibals, and child sex abusers plotting against Donald Trump.
Only the mentally challenged believe that tripe.
No, it’s not the ages-old, anti-Semitic B.S. that Jews drink children’s blood on holidays. Jews famously love children. Mogen David wine is the preferred imbibement.
And no, it isn’t that Trump was cheated out of the election (though he and the entire GOP already plan to make the same claim if they lose again).
Fifty lawsuits, dozens of judges — some Republican — and numerous recounts have demonstrated the ongoing perfidy of that assertion.
The guy lost by over 7 MILLION individual votes and 74 electoral votes! And still, he whines. What does it take to convince the MAGAs?
Only the bottom segment of America’s intelligence range still believes those ideas.
The single most dangerous and harmful conspiracy theory is believed by the majority of America because it is repeated by the majority of America. Repetition is convincing.
The United States faces numerous economic and fiscal challenges, including surging inflation, rising interest rates, trust funds heading toward insolvency, a broken budget process, and an unsustainably increasing national debt.
The CRFB (Committee for a Responsible Federal Budget) is part of a conspiracy to spread the false theory that these are problems caused by too much federal deficit spending.
The very rich, who support the CRFB, want you to believe that if you would accept less help from Medicare and Social Security while paying more of your salary to FICA, America could survive financially.
You working stiffs who struggle to pay for food, clothing, a car, a few days of vacation, and education for your kids are simply being selfish by asking the government to help you with your medical bills and retirement.
Shame on you, especially when the rich have to scrimp along on the few millions they get from tax loopholes. After all, rich Donald Trump paid minimal taxes in three of the past ten years. What more do you expect?
In order to help the Federal Reserve fight inflation, reduce interest costs, and support economic growth, policymakers should put forward a plan to put the national debt on a sustainable long-term path.
Though there is no one single “correct” fiscal metric, the higher the debt-to-Gross-Domestic-Product (GDP) ratio and its growth trajectory, the more vulnerable the U.S. economy is.
If you believe those two sentences, you have been royally conned. They are lies.
You have been fed the same baloney since at least 1940 when the “debt” first was called a “ticking time bomb.” The so-called “national debt” was only $40 billion back then.
Today, it’s somewhere in the neighborhood of $25 TRILLION, an astounding 62,400% increase. Yet here we are. Still sustaining. How is that possible?
First, the so-called national debt isn’t really a debt; second, it is infinitely sustainable. The federal “debt” is two different things united by an unnecessary law.
I. The so-called “debt” is the net total of federal deficits, i.e., the difference between federal income (mainly tax collections) and federal spending.
But, while state/local government taxes fund state/local government spending, federal taxes do not fund federal spending. The Monetarily Sovereign federal government destroys every tax dollar it receives, and it funds all its spending by creating new dollars, ad hoc, every time it pays a bill. It works like this:
When you pay taxes, you take dollars from your checking account. Those dollars are part of the “M2” money supply measure.
When those dollars reach the U.S. Treasury, they suddenly are not part of any money supply measure. Because the federal government has infinite dollars, there is no measure of the government’s money.
Your tax dollars disappear from existence. They effectively are destroyed.
State/local governments, being monetarily non-sovereign, put tax dollars into banks, where they continue to be part of the M2 money supply measure. While state/local government debt really is debt, the federal government has infinite money, so it has no measurable debt.
II. The so-called “debt” is the total of deposits into Treasury security accounts resembling bank safe deposit boxes. You put money into your T-security account, the government adds some money, and later, when the account matures, the government returns the dollars already in your account — just like your safe deposit box.
The contents of the boxes are yours, from beginning to end. The government doesn’t “owe” them to you because you never lose ownership of them. The government isn’t indebted to you for those dollars any more than the banks are indebted to you for the box’s contents.
In both cases, the bank and the government do not touch the contents of the “account box.” The government and banks simply store them for you.
Another reason why that misnamed “debt-that-isn’t-a-debt” is infinitely sustainable: The federal government, being Monetarily Sovereign, has the infinite ability to create its sovereign currency, the U.S. dollar.
It never, never, never can unintentionally run short of dollars.
Quote from former Fed Chairman Ben Bernanke when he was on 60 Minutes:Scott Pelley: Is that tax money the Fed is spending?Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.
Statement from the St. Louis Fed:“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”
In plain English, the federal government does not borrow dollars. Nor does it rely on taxes. It creates dollars, at will, by pressing computer keys.
Implant this in your mind: THE U.S. GOVERNMENT CANNOT UNINTENTIONALLY RUN SHORT OF DOLLARS. NOT TODAY. NOT TOMORROW. NOT EVER.
Even if the misnamed “debt” doubled or tripled tomorrow, that would have zero effect on the federal government’s ability to pay its bills.
And what goes for the government as a whole also goes for federal agencies. Medicare cannot run short of dollars unless that is what the President and Congress want.
Similarly, Social Security cannot run short of dollars unless that is what our leaders want.
The next time you hear some Congressperson expressing anguish about the “debt” or the “debt ceiling,” you can be sure he/she is lying or ignorant about federal finances.
And when you hear that the Medicare or Social Security fake “trust funds” are running short of money, you will know you are hearing the most dangerous and harmful conspiracy theory in America.
The conspiracy theory continues:
Ideally, debt should be gradually reduced to its half-century historical average of about 50 percent of GDP.
The “debt”/GDP ratio is 100% meaningless. It has no predictive value. It tells you nothing about the federal government’s ability to pay its bills. “Debt” is a measure that accounts for the full lifetime of America. GDP is a one-yearmeasure.
“Debt” is the difference between federal income and federal spending. GDP is total spending (federal + non-federal) + net exports. They are as comparable as apples vs. Apple computers.
Here are the nations having the lowestDebt/GDP ratios: Suriname, United Kingdom, Mauritania, Costa Rica, Tunisia, Brazil, El Salvador, Croatia, Sao Tome/Prin, Austria, Belize, India, Bahamas, Hungary, Morocco, Slovenia, Albania, Qatar, Mauritius, Yemen, Trinidad/Tobago, Sierra Leone, Montenegro, South Africa, Sudan
Here are the nations having the highest Debt/GDP ratios: Japan, Greece, Lebanon, Italy, Singapore, Cape Verde, Portugal, Angola, Bhutan, Mozambique, United States, Djibouti, Jamaica, Belgium, France, Spain, Cyprus, Bahrain, Jordan, Egypt, Canada, Argentina.
What generalizations can you make about these nations? What does the Debt/GDP ratio tell you about their financial health? Absolutely nothing.
Yet it is quoted frequently by those who either want to fool you or are ignorant about national finances.
Every time you see or hear someone quoting that ratio as having some importance, know this: That person should not be listened to.
Given political constraints, we suggest at least stabilizing the debt at its current level within a decade, requiring roughly $7 trillion in savings.
The CRFB wants to reduce the “debt” by $7 trillion — about 25% — guaranteeing a depression that would make 1929 look like Christmas. What the CRFB doesn’t want you to know is every time we reduce the “debt,” we have a recession or a depression:
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.
The Great Depression, which some “experts” claim was caused by “excessive speculation” or some other myth, actually was caused by federal surpluses.
The federal surplus President Clinton loves to boast about led to a recession that President Bush had to deal with.
Mathematically, a growing economy requires a growing supply of money, but federal surpluses take dollars out of the economy and destroy them, which leads to reduced economic growth or negative economic growth.
America’s money supply growth parallels America’s GDP growth.
(The CRFB) blueprint puts forward a framework to achieve these goals through a combination of revenue and spending changes – with savings from health care, tax reform, discretionary spending caps, energy reforms, Social Security solvency, and other changes to the budget.
About 40 percent of the deficit reduction comes from revenue and 60 percent from changes in spending.
And virtually all of the deficit reduction comes from the middle classes and the poor.
Translation: The CRFB wants to cut Medicare (“health care”), increase the FICA tax (“tax reform”), reduce aids to the poor (“discretionary spending caps”), ignore global warming (“energy reforms”), and cut Social Security (“Social Security solvency”).
The very rich are laughing all the way to the bank.
#Monetary Sovereignty - Mitchell 