The “Bold Plan to Strengthen and Improve Social Security” Saturday, Nov 9 2019 

Social Security certainly needs “strengthening and improving.”

The amounts being paid are at starvation levels. The people who need it most often receive the least or none at all.

It contains an unnecessary “gambling” element; you must try to guess how long you will live, to determine when you should begin to receive benefits.

Image result for pickpocket

The sole purpose of FICA

Most of Social Security’s shortcomings are based on the myth that it is funded by FICA. It is not. FICA funds nothing — not Social Security, not Medicare, nothing.

FICA dollars disappear upon receipt by the Treasury. They do not enter those mythical “Social Security Trust Funds.”

They do not enter the economy. Federal spending is unrelated to tax collections, which is why there is a $20 trillion federal “debt.”

According to misleading statements by the federal government:

The Social Security Trust Funds are the Old-Age and Survivors Insurance (OASI) and the Disability Insurance (DI) Trust Funds. These funds are accounts managed by the Department of the Treasury.

They serve two purposes: (1) they provide an accounting mechanism for tracking all income to and disbursements from the trust funds, and (2) they hold the accumulated assets.

These accumulated assets provide automatic spending authority to pay benefits. The Social Security Act limits trust fund expenditures to benefits and administrative costs.

The funds do provide an unnecessary accounting mechanism, but they do not hold anything. They aren’t even trust funds.

According to The Motley Fool there are three elements to a trust fund:

  1. The Grantor: The person who establishes a trust fund and contributes property to it.
  2. The Beneficiary: The person or people who will eventually benefit from the assets in the trust fund.
  3. The Trustee: The person or organization responsible for administering the trust as it was intended.

In the Social Security “trust funds,” the grantor is the federal government, which supposedly populates the funds, but uses your property.

The trustee is the federal government which supposedly manages the assets, except you make the biggest management decisions of all: When to begin taking benefits.

Here is how the Foundation for Economic Education describes it:

Though Congress legislated the Trust Fund, it is not the grantor, because a grantor puts his own property into a trust, which Congress did not do.

As for the Board of Trustees, who in a true trust would hold the legal title to its property,  (the Board not have) title to anything.

Nor do the purported trust “beneficiaries” have property in the fund to which they have an enforceable property right, as beneficiaries of a true trust do.

Board Chairman Altmeyer revealed that Social Security maintains no accounts containing funds earmarked for individuals, and never had.

Its accounts, then, are just record-keeping entities: file folders, not piggy banks.

Assistant Attorney General Robert Jackson stated that under Social Security, “There is no contract created by which any person becomes entitled as a matter of right to sue the United States or to maintain a claim for any particular sum of money. Not only is there no contract implied but it is expressly negatived, because it is provided in the act, section 1104, that it may be repealed, altered, or amended in any of its provisions at any time.

And the government’s brief for the Supreme Court case Flemming v. Nestor (1960) argued that a current or prospective Social Security beneficiary does not acquire an interest in the Trust Fund—that is, a property right to its assets—and that the belief that Social Security benefits are “fully accrued property rights” is “wholly erroneous.” The Court concurred.

All this confirms the observations by Suffolk University Law School Professor Charles Rounds, a fellow of the American College of Trust and Estate Counsel:

“Despite the term ‘trust,’ the Social Security system contains nothing that remotely resembles the common law trust.

“There is no segregation of assets, no equitable property rights, no private right of enforcement (all characteristics of the common law trust).

“It is merely a system of taxation and appropriation sprinkled with trust terms to hide its true nature.”

Demonstrating the uselessness of FICA, is the “tax holiday”:

The Middle Class Tax Relief and Job Creation Act of 2012 temporarily reduced the amount of Federal Insurance Contributions Act (“FICA”) taxes owed by employees by two percentage points from 6.2% to 4.2%.  This reduction expired on December 31, 2012.

The “holiday” resulted in no change in Social Security benefits.

The purpose of the tax holiday was to stimulate economic growth, particularly favoring the lower- and middle-income Americans. Isn’t that something the government should do all the time?

To summarize, so far:

  1. Federal taxes do not fund federal spending, nor do they fund Social Security benefits. Federal spending does not rely on federal taxing.
  2. The federal government, being Monetarily Sovereign, cannot run short of its own sovereign currency, the U.S. dollar. It creates dollars, ad hoc, by paying creditors.
  3. Just as the federal government cannot run short of dollars, no agency of the federal government can run short of dollars, unless Congress wills it.
  4. There are no Social Security trust funds. They are just bookkeeping devices.
  5. The non-existent “trust funds” cannot run short of dollars unless Congress wills it.

Keep these points in mind as you read excerpts from the following article:

Dean Baker: A Bold Plan to Strengthen and Improve Social Security Is What America Needs
Posted on November 9, 2019 by Yves Smith
By Dean Baker, co-founder of the Center for Economic and Policy Research, where he is a senior economist.

The Social Security 2100 Act proposed by (Democrat) Connecticut Representative John Larson is getting closer to being passed by the House of Representatives. If it were to be approved and become law, it would both improve the program’s benefit structure and its financial picture.

The biggest item on the benefit side is that it guarantees a benefit of at least 125 percent of the poverty level for anyone who has worked for at least 30 years.

The logic here is straightforward; we should be able to ensure that anyone who has put in a full lifetime of work will not be in poverty in their retirement years.

An income of “At least 125 percent of the poverty level” does not guarantee anyone will not be in poverty, unless the government also can guarantee no one will live in a higher-cost area like New York, much of California, or many big American cities.

Further, why is it necessary for someone to have “worked for at least 30 years”?  Is there a moral code requiring labor for 30 years.

And what about people whose labor is not as a salaried employee? Does their labor not count?

The second big change on the benefit side is that it changes the cost-of-living formula for adjusting benefits by tying it to an index of consumption items purchased by the elderly rather than the overall Consumer Price Index.

The inflation adjustment for Social Security benefits has long been a major issue, with many politicians wanting to change the formula to reduce benefits.

Well, of course, that is what “many politicians” want. It is what the rich, motivated by Gap Psychology, pay them to “want.”

The third feature on benefits is a change in the formula that will increase average benefits for a bit less than $400 a year. This has provoked some opposition since this increase will go to not just lower-income seniors, but also middle-class and relatively affluent seniors.

The average benefit this year is just over $17,600, certainly not enough to maintain a middle-class lifestyle.

All this effort for a $400 per year benefit increase? And if $17,600 is “not enough to maintain a middle-class lifestyle” (It isn’t), would an increase of $400 to $18,000 be enough?

Hardly.

And now we come to the most economically ignorant part:

Rep. Larson proposes to cover this increase, as well as the projected Social Security shortfall, by having a gradual increase in the payroll tax and applying the tax to very high-income workers.

On the latter point, the income subject to the payroll tax is currently capped at just under $133,000. This means that someone earning millions of dollars each year would pay no more in Social Security taxes than someone earning $132,900.

Larson’s bill would make wages over $400,000 subject to the tax.

Note that the tax is on wages. But rich people receive most of their income from non-wage sources: Stocks, bonds, rents, etc.

And, as we have shown, taxes do not fund Social Security benefits. FICA taxes merely remove dollars from the economy, with a disproportionate coming from the pockets of the middle- and lower-income people.

In addition to being unnecessary and a burden on the economy, FICA is, and would remain, the most regressive tax in America.

No wonder the rich love it. FICA widens the Gap between the rich and the rest.

His other change is an increase in the payroll tax of 0.1 percentage point annually, split between workers and employers. This increase would continue for 24 years, for a total increase of 1.2 percentage points on both the worker and the employer.

While this is a middle tax increase, it is much smaller than increases we saw in the decades of the 1950s, 1960s, 1970s, and 1980s. More importantly, if we can sustain decent wage growth, it is a tax that should be easy to bear.

It is an unnecessary tax that is especially “easy to bear” for the rich, for they pay so little of it.

The article continues:

After adjusting for prices, wages have risen 1.5 percent annually over the last five years. If we can continue this pace of wage growth, the Larson bill would take back much less than 10 percent of the pay increase in taxes.

Of course, wage growth may not continue, but then our focus should be on getting decent wage growth, not blocking revenue needed for Social Security.

One wonders what “take back” means. The wage increases come from the private sector, and the taxes go to the federal government. So the government would not be taking “back” anything. It simply would be taking.

The article ends with this bit of nonsense:

In short, this is a well-considered bill that would accomplish good for current and future retirees. Congress should move on it.

No, it is an ill-considered bill, put forth by a Congress that either is ignorant of economics, or has been paid by the rich to widen the Gap between the rich and the rest — or both.

There is nothing “bold” about the plan, and it does nothing to “strengthen” Social Security, which is infinitely strong, based on the federal government’s infinite ability to fund it.

A “bold” plan would be to institute the “Ten Steps to Prosperity” (below), beginning with Step #1, Eliminate FICA.

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

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. 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:

1. Eliminate FICA

2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

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

MONETARY SOVEREIGNTY

An excellent article about Social Security, except for one small detail Friday, Jun 14 2019 

The Week Magazine published an excellent article titled, “Social Security’s looming crisis is political, not economic,” by Jeff Spross.

It begins by agreeing with much of what we have been saying for the past 20 years.

Here are excerpts:

There are few traditions in American politics as cherished as the semi-regular panic over Social Security. There are equally few that are such utter balderdash on the economic merits.

The latest example of this time-honored practice comes to us courtesy of The New York Times. “Social Security’s so-called trust funds are expected to be depleted within about 15 years,” the outlet warned this week.

“Benefit checks for retirees would be cut by about 20 percent across the board.” The cuts could potentially rise to 25 percent in later years.

The question is whether the cuts, at the basic structural level, are actually necessary at all.

It’s widely assumed the federal government is just like a private household or business; it can run out of money if it doesn’t manage its spending and revenue properly.

Indeed, Social Security’s trust funds are designed on this premise.

But that’s actually not how it works at all. The federal government can never “run out” of money, nor can it ever suffer an involuntary debt crisis. 

The implications for Social Security should be obvious.

As far as the federal government’s ability to procure dollars is concerned, the depletion of the trust funds is a meaningless event.

It can keep right on paying every last Social Security benefit it has promised in perpetuity.

Absolutely correct. So far, so good.

Image result for politician lying

If you don’t pay more taxes, we’ll have to cut your Social Security. Believe me.

Unlike state and local governments, and unlike businesses, you and me, the federal government uniquely is Monetarily Sovereign.

It created the very first dollars at will –from thin air — and arbitrarily gave them a value.

Today continues to create dollars at will, from thin air, and still controls the value.

Even if the federal government didn’t collect a single dollar in taxes, it could continue spending, forever. 

[There are two why the federal government levies taxes, and neither reason has anything to do with funding federal spending:

Reason 1. To control the economy be encouraging certain kinds of private spending and discouraging other kinds. (Tax breaks for home ownership are an example of the former. “Sin” taxes are examples of the latter.)

Reason 2. To create the illusion that the federal government’s spending ability is limited without sufficient taxes. (This is the method used by the government’s leaders — i.e. the rich — to justify cuts to benefits for the poor and middle classes and to increase their taxes.)] 

The very first Social Security beneficiary, Ida May Fuller, got her initial benefits check in 1939, after paying into the system for just three years — hardly enough time to build up the necessary “savings” to fund her retirement.

The very fact that benefit cuts would reduce Social Security to a cashflow basis demonstrates that current workers finance the benefits for current retirees, as opposed to payroll taxes being stored up for the future retirement of the citizens who payed them.

Oops! Now, Mr. Spross begins to slide off the rails, a bit.

Current workers pay FICA, but FICA does not finance benefits. Federal taxes do not fund federal spending.

Remember, Spross said it himself:

“As far as the federal government’s ability to procure dollars is concerned, the depletion of the trust funds is a meaningless event.

It can keep right on paying every last Social Security benefit it has promised in perpetuity.”

The actual function of the payroll taxes is to remove demand from the economy, thus making room for the demand that Social Security’s spending injects into the economy.

Which is what keeps inflation on an even keel.

The above is the old, “federal money printing causes inflation” myth.

Think about why the price of, say apples, would go up. Because people have too much money?

No, the price of apples or of any other products or services is caused by one thing: Shortages. 

The price of apples goes up when there is an apple tree disease, or a drought, not because your salary went up and you have more money to spend.

The notion that money creation (erroneously called, “money printing”) causes inflation, may stem from a misreading of hyperinflation.

Governments often respond to hyperinflation by printing currency.

But all hyperinflations begin and continue with shortages — usually, shortages of food — and they end only when the shortages are alleviated.

In short: the system is fine.

Of course, Congress still faces the fact that it made a rule for itself that benefits must be cut when the trust funds run dry.

If it wants to maintain the fiction, Congress could do what previous reforms have done, and bring spending and revenue back into line through some combination of benefit cuts and payroll tax hikes.

The above is exactly what the rich want you to believe: The benefits for the poor and middle classes must be cut, while their taxes are increased.

At some point, however, you’d think the better move would be to acknowledge the trust funds are a political gimmick, and just spend whatever benefits our elected representatives deem appropriate.

Social Security may face a very interesting political crisis in the coming decade or two. But in hard economic terms, there is no crisis at all.

Amen, brother Spross. The invented danger that Social Security (and Medicare and all other federal programs) could run short of dollars is a myth.

Now, while we’re at it, let’s get rid of that inflation myth, too.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

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

MONETARY SOVEREIGNTY

 

Social Security: How you are being conned Wednesday, May 29 2019 

Yes, you are being conned, and the following article from the May 10, 2019 issue of The Week magazine unintentionally tells you how.

Social Security will be insolvent in only 16 years, said Eric Boehm in Reason​.com. That’s the finding of a new report by the program’s trustees, which says Social Security’s costs will exceed its income in 2020.

To put this as gently as possible, you are being fed 100% bovine excrement, with some equus poop tossed in.

It is absolutely impossible for any agency of the U.S. government to become insolvent unless the government wants it to become insolvent. Period.

Image result for greenspan and bernanke

A.G.: “A government can’t become insolvent from obligations in its own currency.”
B.B. “And the suckers never catch on.”

Unlike our state and local governments, our federal government uniquely is Monetarily Sovereign, meaning it cannot run short of its own sovereign currency, the U.S. dollar.

In the beginning, the federal government created an arbitrary number of the original U.S. dollars from thin air.

It continues to do so. (See: “Does the U.S. Treasury really destroy your tax dollars?“)

It also gave those original dollars an arbitrary value, and it continues to do that, too. (See here.)

Even if total FICA collections, which you have been told (erroneously) fund Social Security, were $0, the U.S. government could continue paying SS benefits, without limit.

In fact, even if all federal tax collections were $0, the federal government could continue spending forever, and still not borrow.

To cover benefits, the program will have to start dipping into its $3 trillion trust fund.

“If nothing changes,” those reserves will be exhausted by 2035 and recipients will receive only about three-quarters of their expected benefits.

The so-called “trust fund” is a bookkeeping fiction, designed to make you think federal finances are like personal finances.

There is no trust fund. There merely is a bookkeeping account, over which the federal government has total control.

If the government (i.e. Congress and the President) wished, that fictional “trust fund” could show a balance of $100 trillion. Or $0.

Those dollars do not “come from” anywhere. The government owns the balance sheets and puts any entries it wishes into them. (See: Monopoly)

“That may sound like a long way off, but 51-year-old workers today will just be hitting retirement age when the cuts kick in.”

Americans have long known this shortfall is coming, said Noah Rothman in CommentaryMagazine​.com, “and they do not care.

More bovine scat being fed to you. Americans do care, but they have been conned into believing that the only solution is higher taxes or reduced benefits.

In 2005, President George W. Bush unveiled a major effort to reform Social Security. It failed.

In 2012, GOP presidential nominee Mitt Romney and his running mate Paul Ryan outlined ways to trim the program’s costs.

“They were defeated.” Then in 2016, Donald Trump “explicitly ran against conservative efforts to rein in entitlement spending.” He won.

Americans have voted themselves into an entitlement crisis.

The politicians lie when they tell you that “reforming” Social Security requires benefit cuts or increased taxes. The real reform would be to eliminate FICA taxes and to increase benefits.

There is not a single financial reason why this cannot be done.

Congress could restore the program to health by letting the government invest some “of the Social Security trust fund in the stock market,” said Brett Arends in Barron’s

A truly dopey idea. Not only is the stock market a high-risk investment, inappropriate for an annuity-like account, but the investment is completely unnecessary. The federal government has the unlimited ability to fund Social Security, and with no deductibles.

Further, the notion of the federal government investing in publicly-traded corporate stock is the ultimate of the socialism (i.e. federal ownership and control) that conservatives love to decry.

Federal law says the fund can invest only in low-yielding securities backed by the U.S. Treasury.

That’s why Social Security has earned a “dismal” return of 17 percent on its investments over the past five years.

U.S. stocks over the same period: 49 percent. “Stock returns are more volatile from year to year, to be sure.” But Canada, Australia, and New Zealand invest their national pension funds in stocks and other assets, “and the results have been amazing.”

The “invest in stocks” idea has only two purposes:

  1. To further brainwash you into believing that the Social Security “trust fund” is a real trust fund that is running short of dollars, and
  2. To enrich wealthy shareholders, stockbrokers, and bankers.

Such radical free-market solutions aren’t needed, said Michael Hiltzik in the Los Angeles Times.

There are low-risk ways to shore up the program. Right now, the payroll tax that largely funds Social Security only covers wage income up to $132,900.

Two Democratic bills in Congress would remove that cap over time and increase “the payroll tax on the wealthy, who get away with paying an unwarranted low tax rate.”

Wrong. The Social Security program could be “shored up” by completely eliminating FICA, and by ending the pretense that FICA funds Social Security benefits.

But hiking taxes won’t address the key reason Social Security has a cash-flow problem: our rapidly graying society, said Robert Samuelson in The Washington Post.

Wrong, again. The “cash-flow problem” is an invention of the rich, who do not want the non-rich to receive money. (See: “The Gap Psychology con job“)

An American who reaches age 65 can now expect to live for about another 20 years, up from 15 in 1950. That means retirees are claiming more from Social Security than the program’s creators ever intended.

But seniors today are far healthier than in previous generations. “We could be working longer—and should be.” Politicians could stabilize Social Security by gradually lifting its eligibility age to 70.

But our leaders won’t even propose this change “because it is not a vote getter. They should be ashamed.”

Speaking of the program’s intentions, here they are:

Luther Gulick recalling why President Franklin Roosevelt Social Security seeminly was based on payroll contributions, 1941:

“I raised the question of the ultimate abandonment the payroll taxes in connection with old age security and unemployment relief in the event of another period of depression.

“I suggested that it had been a mistake to levy these taxes in the 1930’s when the social security program was originally adopted.

“FDR said, ‘I guess you’re right on the economics. They are politics all the way through.

“‘We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits.

“‘With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.

“FDR also mentioned the psychological effect of contributions in destroying the ‘relief attitude.'”

In short, President Franklin D. Roosevelt, the creator of Social Security, did not intend that taxes fund Social Security. They only served as an excuse not to eliminate Social Security.

Image result for bernie madoff

I thought if the government can get away with it, I could, too.

Roosevelt knew that taxes only give the illusion of funding Social Security, but he believed that illusion would protect the program from the “damn politicians.”

Unfortunately, the dishonesty of politicians has proven too great, for they now have turned Roosevelt’s plan inside out; they use FICA as a false excuse for cutting benefits.

The fake FICA/Social Security relationship is a con that is far greater than anything Bernie Madoff ever thought of.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

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

MONETARY SOVEREIGNTY

Excerpts from Maya MacGuineas completely wrong testimony to Congress Thursday, Dec 20 2018 

Today, Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of the Campaign to Fix the Debt, told Congress dozens of lies — O.K., “incorrect non-facts.”.

The primary purpose of these “incorrect non-facts” is to support the myth that somehow our Monetarily Sovereign federal government will run short of dollars to pay its bills, and therefore, spending (especially social benefit spending) must be cut.

This myth is exactly what the rich want you to believe, so they can reduce your Social Security, cut your Medicare, eliminate poverty prevention and cure, worsen education for your children, and destroy many of the other benefits to the middle-income and the poor.

The motive has to do with Gap Psychology, which we previously have discussed many times, including here,  here and here. It is the human desire to distance oneself from those below on any scale, and to near those above

The following represent just a few excerpts from her MacGuineas’s speech.

Testimony of Maya MacGuineas
Committee for a Responsible Federal Budget
Hearing before the House Financial Services Committee: The Peril of an Ignored National Debt

I will touch on several points today:

1.The national debt is on an unsustainable path.

2.There are many reasons to care about the debt, ranging from detrimental effects on the economy, to interest payments crowding out the rest of the budget, to the economic, political, and security vulnerabilities of such a large debt.

3.There are many approaches Congress can take to fix the debt, but we must stop denying the problem, stop making it worse, and begin to address it.

The so-called national “debt” actually is the total of everyone’s (yours, mine, China’s) deposits into all our Treasury security accounts.

As these deposit accounts mature, the federal government pays them off by returning to our checking accounts the dollars that are in the accounts.

(The dollars remain in our T-security accounts until maturity. The federal government, being Monetarily Sovereign, neither borrows nor uses these dollars. It creates new dollars every time it pays a creditor).

Thus, paying off the so-called debt is no burden on the federal government or on taxpayers. It simply is a money transfer from one (T-security) of our accounts to another (checking) of our accounts. Tax dollars are not involved.

The federal “debt” (deposits) totaled $40 Billion in 1940. Today, the “debt” is $16 Trillion, a 40,000% increase. Every year since then, pundits have claimed the debt is “unsustainable,” “a ticking time bomb,” and/or in some other way, “detrimental to our economy.” See: “From ticking time bomb to looming collapse.”

But, in that same 1940 – 2018 period, the Gross Domestic Product has grown from $102 Billion to more than $20 Trillion. Yet still, we hear the obviously wrong incessant claim that the federal “debt” (deposits) is unsustainable.

To make matters worse, debt is expected to grow drastically in the coming decades. According to the Congressional Budget Office (CBO), debt under current law will grow from 78% of GDP this year to exceed the size of the economy in just 13 years and reach an unprecedented 152% of GDP in 30 years. Our estimates suggest debt under current law will reach 358% of GDP in 75 years.

The federal “debt” / GDP ratio is meaningless. The “debt” is not paid off with GDP. The two are unrelated.  Japan, a wealthy nation, had a debt / GDP ratio of 253% in 2017, yet its debt remains “sustainable.

Putting debt on a sustainable path will require significant deficit reduction.

•Simply holding debt at today’s near-record as a share of GDP (78%) would require savings of $4.8 trillion of spending cuts and/or tax hikes over the next decade.

•Balancing the budget in 2028 would require about $7 trillion in savings over ten years.

•Reducing debt to its historical average of 41% of GDP in 30 years would require $7.6 trillion in deficit reduction over ten years.

•And waiting just ten years increases the size of the adjustments by half.

MacGuineas neglected to tell Congress that every depression in U.S. history was caused by a reduction in U.S. debt:

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

And recessions begin with reductions in deficit growth.

Reductions in federal debt growth lead to inflation

Blue line = deficit growth. Vertical gray bars = recessions. Recessions are cured by increases in deficit growth.

The reason for this effect is simple: Deficits add dollars to the economy, and these added dollars are necessary for economic growth.

Macguineas’s article continues:

The risks and consequences of high and rising debt include:

•Slower economic and income growth due to debt crowding out private sector investment. As the government issues more debt, investors buy these bonds in place of private investment. Over time, this results in a smaller stock of buildings, machines, and equipment; fewer new ventures and new technologies; and slower wage growth. CBO estimates average income will be $6,000 ( 6%) lower in 2048 if we allow debt to rise rather than reduce it to historical levels.

Completely false. There is no crowding out. Higher debt results from federal deficit spending which adds investment dollars to the economy.

That is why massive debt growth has paralleled massive economic growth.

MacGuineas ignores these obvious facts.

•Higher interest rates on loans for households and businesses. Rising federal debt tends to put upward pressure on interest rates throughout the economy. This increase trickles into business and consumer loans, making it more expensive for Americans to take out mortgages, car loans, and credit card debt – not to mention small business loans and other borrowing that helps grow the economy.

Interest rates have remained low in past years despite growing debt due to Federal Reserve accommodation and a slow recovery, but there is a very strong risk those conditions will and have started to change as the economy has gotten stronger, the Federal Reserve tightens monetary policy, and we come closer to full employment.

Federal “debt” does not put pressure on interest rates. The Fed sets rates to combat inflation, not to sell federal “debt.”

Further, federal debt does not cause inflation, which instead is caused by shortages. Historically, they have been shortages of food, but more recently, they have been shortages of oil. See: Federal deficit spending doesn’t cause inflation; oil does.

•Higher government interest payments that displace other government priorities. Due to rising interest rates and an increasing stock of debt, interest payments are projected to be the fastest growing part of the federal budget.

Under current law, interest costs will tripleover the next decade. As a result, interest costs will exceed Medicaid spending by 2020, defense spending by 2023, and total discretionary spending by 2045.

We estimate that before 2050, net interest will be the single largest line item in the budget.

In the above comment about “displacing other government priorities,” MacGuineas makes the tacit and false assumption that the federal government can run short of its own sovereign currency, the U.S. dollar.

Because our Monetarily Sovereign federal government has the infinite ability to create dollars, the notion of “displacing” makes no sense.

Clearly, MacGuineas either does not understand Monetary Sovereignty, or she doesn’t want you to understand Monetary Sovereignty.

Reduced fiscal space for the government to react to wars, recessions, or other emergencies. It is impossible to predict the timing of the next recession. However, the fact that one has not occurred in the last nine years suggests another may be on the horizon.

Unless there is a dramatic reduction in debt, we will enter the next recession with the highest debt in nearly 70 years (and higher than any time prior to World War II). This leads to legitimate concerns about the available “fiscal space” in the U.S., or the federal government’s financial capacity and willingness to respond to emergencies.

While it is impossible to know the precise amount available, the U.S. almost certainly has less fiscal space today than it did a decade ago, and it is projected to have even less in the coming years. The U.S. is less equipped to handle the next recession than it was in handling the Great Recession.

The “precise amount available” is infinite. That is why it’s impossible to know.

The “fiscal space” argument is identical with the “displace other priorities” argument. Again, MacGuineas wants you to believe the federal government can run short of its own sovereign currency.

While you and I, and the cities and states, and even the euro nations can run short of money, the U.S federal government cannot unintentionally run short of dollars.

•Lost opportunities to make thoughtful investments or reforms. Rising debt hinders our ability to enact good public policy. Whether you care about strengthening the military, developing clean energy, reducing burdensome taxes, or investing in education and infrastructure, rising debt will crowd it out.

Thanks to the increasing debt burden, next year the country will spend more on interest than on children, which means we will be spending more on financing our past than investing in our future.

And there are many new issues on the horizon, from the effects of technology to the future of work to new types of global threats that we are only just developing the capacity to withstand. As time goes on, we will increasingly lose the capability to address our debt situation through thoughtful, gradual, and targeted tax and spending reforms. At some point in the near future, our debt will be so high we will have to forgo new ideas and impose blunt spending cuts and tax hikes.

Hinders our ability” is another statement of “crowding out,” and “reducing fiscal space.” MacGuineas keeps repeating the same false premise, just using different words

•Risk of an eventual fiscal crisis if changes are not made. The combination of our strong economy, steady monetary policy, and longstanding commitment to pay our debts has allowed us to amass significant debt without severe consequences. This will not last forever. Unsustainable debt may eventually lead some investors to demand higher interest rates, which could set off a chain of events that begins with a small selloff of existing federal bonds and ends with a global financial crisis.

No one knows what level of debt or combination of events would set off such a crisis ; I hope we will never have to find out.

The Fed, not investors, sets interest rates. Unlike with private bonds, demand is not an issue for federal bonds. If no one wished to buy federal bonds, the Federal Reserve could buy them, which is often has. (This is known as “Quantitative Easing.”)

In any event, the Treasury does not need to sell bonds to obtain dollars. It has an infinite supply of dollars.

Instead, the two most important reasons why the Treasury issues T-securities are:

  1. To provide a safe place to “park” unused dollars. This safety helps stabilize the dollar.
  2. To assist the Fed in controlling interest rates, which helps fight inflation.

Thus, the reasons for issuing of federal debt (aka “borrowing”) are quite unlike the reasons why you and I borrow.

Our Monetarily Sovereign federal government could stop issuing debt today — even stop collecting taxes today — and still retain the unlimited ability to pay for goods and services, forever.

Those unconcerned about our rising debt have sometimes pointed to the built- up debt in recent years as evidence that the United States can borrow with little consequence. That’s a mistake.

China owns $1.1 trillion of U.S. debt. Trade and other tensions with them can certainly affect their lending decisions. Moreover, given our unstable political relationship with China, it is less than ideal to be as dependent on them as we are for funds.

Japan, which holds another $1 trillion of our debt, has also halted net purchases – possibly due to its aging population.

As the population continues to age, this nation of savers is likely to draw down its savings to finance retirement and therefore have fewer assets available to purchase U.S. debt.

Currently, foreign investors and governments own about 40% of the publicly traded debt, a percentage that has decreased in recent years as China and Japan have pulled back and forced domestic investors to finance our debt instead.

As we’ve said, the federal government does not need to sell debt to anyone — not to China, not to Japan, not to you or me, not to anyone.

Further, “domestic investors” are not forced to do anything. I know of no “forcing” device the federal government uses to sell T-bonds. It’s all nonsense.

And now we come to the real reason why MacGuineas spreads the Big Lie that the federal government is running short of dollars:

The primary drivers of long-term debt are growing mandatory spending and the lack of revenue to pay for it. Over the next ten years, 82% of spending growth will be due to Social Security, health programs, and interest payments.

Mandatory spending, specifically the costs stemming from an aging population, remains the largest long-term problem to address. Congress should have offset the increased discretionary funding with mandatory cuts and revenues that led to growing deficit reduction over time.

The fastest growing parts of the budget are Social Security, health programs like Medicare and Medicaid, and interest payments on the debt – each of which does not go through the annual appropriations process and is growing faster than the economy.

Mandatory spending and interest have already grown from 61% of the budget in 2010 to 69% today, and they are projected to be at 77% in 2028.

Get it? Her pay comes from the wealthy. So, on behalf of the wealthy, she wants the government to cut Social Security, Medicare, and Medicaid, programs that are vital for the middle classes and the poor, but mean little to the rich.

In short, the rich want to widen the Gap between the rich and the rest, and MacGuineas acts as their mouthpiece.

One of the many reasons this concerns me is the extent to which it has squeezed productive investments.

The best first step our leaders could make is to pledge to not make the debt situation worse(unless there is a smart reason to borrow such as a recession).

Squeezed productive investments” is yet another synonym for “hinders our ability,”  “crowding out,” and “reducing fiscal space.” It’s completely phony when referring to a Monetarily Sovereign government.

And notice she acknowledges that deficit spending is good during a recession (because deficit spending grows the economy), but she doesn’t want to grow the economy unless we have a recession. That’s totally illogical.

Lawmakers should focus on making changes to two of the largest drivers of our long-term debt problem: health care spending and Social Security. Reforms in these areas have the most potential for significant savings, and it would be between difficult and impossible to control our debt problem without making changes to these programs.

The largest driver of future costs is health care. The other major area needing attention is Social Security. The program’s trust fund is on track to exhaust its reserves by 2034, at which point benefits will be cut by 20% to 25% without legislative action to stop it.

Starting this year, the Social Security trust fund is being drawn down to pay benefits, meaning that the government must borrow from elsewhere so that Social Security can redeem its trust fund reserves.

In other words, Social Security is increasing the current deficit and will continue to do so dramatically in the future if the program is not reformed.

We can fix this program by adjusting benefits, raising revenues, or both.

First, there is no Social Security Trust Fund. It’s an accounting fiction. See: “The End of Social Security.” Being Monetarily Sovereign, the federal government has no need for Trust Funds. See: “Fake federal trust funds and fake concerns.”

In fact, get this:

The Supplemental Medical Insurance fund, which pays for Medicare Part B and Part D benefits, is funded by Congress. It doesn’t rely on a “trust fund.” Congress directly authorizes what funds are needed.

So, while Medicare and Social Security supposedly are paid through trust funds, in reality, half of Medicare doesn’t even pretend to go through a “trust fund.”

Second, “raising revenues: means increasing FICA, which is deducted from salaries. The rich, who do not receive most of their income via salaries, don’t care about FICA, and in any event, the salary from which FICA is deducted is a comparatively piddling $100K.

This all demonstrates that the federal government has the unlimited ability to fund Social Security and Medicare forever, with no trust funds and not even a FICA tax.

In Summary:

The rich, who run America, want to widen the Gap between them and the rest of the populace.

It is the Gap that makes them rich. Without the Gap, we all would be the same, and the wider the Gap, the richer they are.

The rich don’t want you to understand that:
1. A growing economy requires a growing supply of money
2. Deficits increase the supply of money
3. Therefore, deficits grow the economy
4. The federal government, being Monetarily Sovereign, never can run short of dollars with which to pay its creditors

They just don’t want you to know it.
They want you to believe the government can’t afford to pay for benefits like Medicare for All, free college for all, and anti-poverty initiatives.

They certainly don’t want you to ask for the Ten Steps to Prosperity (below).

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

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

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

MONETARY SOVEREIGNTY

Next Page »

%d bloggers like this: