We are in a recession. What caused it? No, not COVID-19. There is but one cause for all recessions and depressions.

A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. Recessions generally occur when there is a widespread drop in Spending.


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

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

Spending is related to the supply of money in the economy. All recessions are caused by reductions in money supply growth, but they may be triggered by many different factors. As you will see, understanding the difference between “caused by” and “triggered by” is important.

Red line =Annual percentage changes in Federal Deficit Spending. Recessions = vertical gray bars. 

The above graph shows that recessions (vertical gray bars) tend to occur following periods of reduced federal deficit spending growth. Recessions are cured by increased federal deficit spending growth.

The graph below is a close-up view of the period following the 2008 recession. It shows a 2009 – 2020 decline in deficit growth, which made the 2020 recession inevitable.

The line shows federal deficit spending growth.

Here is the same graph, with the addition of Gross Domestic Product.

Blue line = Gross Domestic Product

After the federal deficit spending to cure the 2008 recession started to decline, GDP growth had leveled off. We experienced a severe GDP decline in 2019 — well before COVID — when we already were on our way to recession.

In the Alps, snow often becomes so deep that dangerous avalanches are imminent. So, to forestall an unexpected and potentially fatal avalanche, cannons are fired at the snowpack, to trigger a controlled avalanche.

It is not the cannons that cause the avalanche; the cause is the unstable snowpack. The avalanche, which eventually would have occurred with or without the cannons, was triggered by the cannons.

The uptick in the end-of 2019 federal deficit growth was the government’s response to the anticipated and realized GDP reduction. Sadly, it was not sufficient to prevent the recession.


  1. a recession is a fall in GDP in two successive quarters,” and
  2. GDP is based on spending, and
  3. Because of reduced deficit spending growth, GDP began to fall in 2018, and seriously to fall in 2019, so
  4. We were about to have a recession before COVID. The pandemic did not cause the recession. COVID merely was the “cannon fire” that triggered an already imminent recession.

Outside events — pandemics, weather, stock market disruptions, oil shocks, earthquakes, wars, etc. — do not cause recessions. They only trigger recessions that were destined to happen, because the economy lacked money. Ultimately, all recessions are caused by lack of money in the private sector.

The subprime mortgage crisis was a trigger for, not the cause of, the 2008 recession. Federal deficit growth already was declining.


The 9/11 attack and technology speculation were triggers for, not the causes of, the 2001 recession. Federal deficit growth already was declining.


An oil shock was a trigger for, not a cause of, the 1990 recession. Federal deficit growth already was declining.


Inflation and oil shortages were triggers for, not causes of, the “double-dip” recessions of 1980 & 1981. Federal deficit growth already was declining.


Oil price increases were a trigger for, not a cause of, the recession of 1974. Federal deficit growth already was declining.

The real cause of all recessions is Congress’s and the President’s failure to pump enough stimulus money into the economy via deficit spending. Prior to recessions, federal deficit growth declines.

All of the above recessions were cured by increases in federal deficit spending.

Even in those cases where recessions were triggered by oil shortages, the U.S. government could have deficit-spent to purchase oil, then sold it at a loss in America, to prevent the inflationary results. Because all inflations are caused by shortages of key goods, purchasing and redistributing scarce items is how a Monetarily Sovereign government always can prevent/cure inflation.

Back in April of this year, we wrote:

“The economy needs at least $7 Trillion net added from the federal government. But, our Congress is spending far too little and spending way too late. Unless Congress and the President deign to see the light, we have no way to prevent a depression.”

“The $3 trillion rescue package helped avoid the catastrophe that is certain unless at least $7 trillion is pumped into the private sector.”

That was then; this is now, and Congress still is reluctant to do the deficit spending necessary to prevent a depression.

The Democrats proposed an additional $3.4 trillion package, and when the Republicans objected, the Democrats attempted a compromise by lowered their proposal to $2.2 trillion (The HEROES Act).

Neither proposal would have been sufficient to cure the recession, but they would have moderated the suffering.

However, the Republicans still objected, and instead resorted to the old political ploy of claiming the fault was the Democrats’ for not compromising.

Now, families are starving, and Congress is at a standstill, which will continue through the January inauguration. Even then, unless the Democrats win Georgia’s two Senate seats, Republicans may prevent any further stimulus, and the nation will fall into a depression.

The reasons given for the Republican obstruction is that the deficit is “unsustainable,” “unaffordable,” “imprudent” and/or are “socialism.” All those reasons are false.

The federal government, being Monetarily Sovereign , has the unlimited ability to spend. It prudently can “sustain” or “afford” any size deficit, as it has proved for the past 80 years.

Further, socialism is not just federal deficit spending. Socialism is ownership and control over resources. When the government merely spends, that is not ownership and control. Medicare, food stamps, unemployment compensation,  and all federal purchases from the private sector do not constitute socialism.

Even further, socialism in itself neither is bad nor good. When socialism devolves to a dictatorship, as happens with communism, it is bad. But we have a great deal of socialism in America that is good.

The military, federal agencies like NASA, the FBI, the CIA, the White House, Congress, our court system, roads and highways, most dams, public beaches, public libraries, public parks, West Point military academy, and many others are examples of “good” socialism.

The word “socialism” is used as a pejorative to confuse the public.

Bottom line: Today’s recession is wholly unnecessary. While the politicians blame it on COVID, they merely are finger-pointing. The blame for today’s recession, and indeed for all recessions and depressions, lies squarely with Congress and the President.

It is they who determine the private sector’s money supply, which is the true driver of recessions and depressions.

If Congress and the President can agree on spending an additional $5 trillion – $7 trillion in stimulus money, depending on where the money is spent, the recession would end. The economy would grow, businesses would survive, and the populace would thrive.

Congress and the President have all the power they need if they are willing to use that power to save America rather than using it to put the other party at a political disadvantage.

I fear, however, that if the Republicans maintain control over the Senate, Mitch McConnell has demonstrated he has no interest in helping the American economy and people, but rather seems solely concerned with preventing whatever the Democrats wish to do.

That attitude will lead to a depression in which only the rich will survive unscathed.

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. Social Security for all or a reverse income tax
  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.


Recession? Depression? The federal government has absolute control over what happens next.

You may believe that the U.S. government is doing everything in its power to prevent recessions and depressions.

If you believe it, you would be wrong.

While COVID-19 can cause businesses to fail, massive unemployment, poverty, and a recession or a depression, the U.S. government has the unlimited power to prevent businesses from failing, unemployment, poverty, and a recession or depression.

Consider that you own a small restaurant employing 20 people. Along comes the virus. No one can eat in your restaurant because you don’t have enough room for social distancing, and you don’t have an outdoor space.

So you have to close your doors, and let your employees go. In your little world, that means instant depression.

Now multiply your little business by millions, and you have millions of businesses in America suffering, and that would be a national depression.

Uncle Sam wants to give you $8000!
There is no reason for you to be poor.

But wait.

Your rich Uncle Sam comes to you and says, “I will give you all the money you need to keep paying your employees (including tips) and yourself the same amount you would have received had you been able to stay open.”

Now suddenly, your little world has no depression at all.

And if your rich Uncle Sam does the same for every business and person in America, suddenly the economy is thriving.

Recessions and depressions are caused by the lack of money; they are cured by infusions of money.

Companies do not close because they lack sales. Companies close because they lack income.

People do not stop spending because they lack jobs. People stop spending because they lack income.

The U.S. federal government has the absolute and unlimited power to provide income to every business and every person in America.

So why doesn’t the government do that, especially now, when so many businesses and people are suffering?

The government already has allocated (though not yet spent all) 3 trillion dollars to stimulate the economy, but that $3 trillion is much too little and far too late.

Since the government has not indicated it will raise taxes, clearly Congress and the President understand the basic truth of federal (Monetarily Sovereign) financing:

The U.S. government never can run short of dollars. It can spend endlessly, even without taxing.

So why do we see Democrats begging for money and Republicans resisting, especially when the coming election will greatly be affected by the health of the economy?

One would think President Trump, especially, would want to stimulate the economy before November, and it would be the Democrats resisting.

So, why do we repeatedly see articles like these:

Democrats seek to increase supplemental funding bill to $450 billion
By Alexander Bolton – 03/22/20
Senate Democrats are calling for a $450 billion emergency spending package to be added to the stimulus bill, nearly twice the amount Republicans have appropriated and nearly ten times what the White House has requested.

Senate Democrats propose $2,000 monthly coronavirus stimulus payments
Three Senate Democrats behind the proposal say the one-time, $1,200 stimulus checks were not nearly enough to help Americans through the COVID-19 crisis.
Author: TEGNA, Published: May 8, 2020

House passes Democrats’ $3T coronavirus ‘HEROES’ aid: Stimulus checks, money for states, rent assistance
President Donald Trump called it “DOA,” and Sen. Mitch McConnell said the bill was little more than an unrealistic wish list.
WASHINGTON — The House on Friday narrowly passed a $3 trillion coronavirus relief package crafted by Democrats that would include another round of stimulus payments of up to $1,200 per person.
President Donald Trump this week declared the Democrats’ proposal “DOA.” May 15, 2020, By Rebecca Shabad

Republicans And Democrats Are Trillions Apart On The Next Stimulus Bill
July 10, 2020
House Speaker Nancy Pelosi said the next bill ― which would be Congress’ fifth coronavirus response measure ― needed $1 trillion for state and local funding, $1 trillion for expanded unemployment benefits and direct payments, and “something like that, probably not as much” for COVID-19 testing, contact tracing, and treatment.
A senior GOP aide said Senate Republicans are pushing for $1 trillion overall.

The Republicans, who would benefit in November from any economic stimulus, amazingly reject stimulus bills. What is going on, here?

We easily could write this off as abject stupidity by Trump and his clownish group of sycophants. But it’s even more than that.

The GOP as a party, and Trump as President, are so anti-poor and pro-rich they have a knee-jerk, negative reaction to anything that helps the poor and middle classes. They incorrectly call aid to the non-rich, “socialism.” (Aid to the rich is fine, however.)

The Democrats want funding for state and local governments, and for expanded unemployment, nearly all of which aid the poor and middle classes.

McConnell’s “unrealistic wish list” comment was a reflection of the GOP’s anti-poor/middle proclivities.

Despite GOP foot-dragging, the $3 trillion stimulus, though much too little, has had some beneficial effect.

The uptick in retail sales demonstrates that a continued recovery is in Congress’s hands.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland, Friday, Jul 17
Retail sales are all the way back.


Sales in June jumped 7.5% over the prior month and 1.1% over the prior year, topping expectations for a 5% rise.

And as the chart from Bespoke Investment Group shows, excluding gas retail sales have come all the way back to pre-pandemic trendline growth.

And this report serves as more evidence that stimulus through the CARES Act sent to consumers has been enough to keep spending afloat and keep the gears economic growth turning.

More importantly, it serves as evidence that:

  1. Deficit spending by our Monetarily Sovereign government is not constrained by tax receipts or by any other form of receipts. The federal government needs no income.
  2. The spending by our Monetarily Sovereign is not constrained by inflation. Inflation is caused by scarcities, usually scarcities of food and/or energy, not by federal spending.
  3. Recessions and depressions and depressions can be prevented and cured by federal deficit spending.
  4. There are zero financial reasons to limit federal deficit spending.

The economic implications are enormous.

Since there are zero reasons to limit federal deficit spending, all the financial excuses for not eliminating payroll taxes (Step #1 of the Ten Steps to Prosperity, below), not providing health care for all (Step#2), not providing Social Security for All (Step #3), and not providing the rest of the Ten Steps — all those financial excuses disappear.

We are left with two false excuses:

False excuse #1: Federal spending is socialism, and socialism doesn’t work.

The reason “socialism” doesn’t work is because it involves public ownership and control of all means of production.

Despite what you repeatedly are told, mere government spending is not socialism.

False excuse #2: The poor and middle-income groups are fundamentally lazy, and if everything is given to them they won’t work.

First, the poor and middle-income groups are not fundamentally lazy. In fact, on average they work harder than do the rich

Second, the Ten Steps do not propose that “everything” be given to the poor and middle-income people. There are many levels of benefit and luxury above what the Ten Steps provide.

Third, the total of human desires is infinite. Pay for a person’s education, healthcare, housing, and food, and that person still will work to improve his life, further.

This is the lesson of Gap Psychology, the human desire to distance oneself from those below on any socioeconomic measure and to join those above. 

For example, people already owning a home and a car, will work to have an even better home and two cars. It is in the nature of people.

The GOP’s, and to a much lesser extent, the Democrat’s reluctance to spend enough to prevent and cure the coming recessions, not only is unnecessary, but cruel and insulting to those who are less wealthy.

‌”Several indicators suggest that May and June were the easy months, and that the resurgence of COVID-19 cases is leading to slower activity gains in July.” JPMorgan estimates that real consumer spending was 7.2% below January’s level in June.

‌As we’ve written in recent weeks, the pending expiration of these benefits is a looming fiscal cliff that could short circuit the still-fragile economic recovery.

Benefits for businesses and consumers should not end nor should they be inhibited. They should be increased, massively, to prevent the human suffering recessions cause.

The sole purpose of a government is to improve and protect the lives of the people, not to force them to dance on the edge of a precipice.

It is imperative that lawmakers continue offering support to consumers facing a historically weak labor market while small businesses continue to buckle under the pressure of the recessionary environment.

‌Including pandemic unemployment assistance claims, 2.4 million workers filed for unemployment last week.

‌Nancy Vanden Houten, lead economist at Oxford Economics, said Thursday that this data “[underscores] that layoffs remain widespread. And the risk may be for additional layoffs going forward as some states reimpose more restrictive measures to combat surging Covid-19 cases.”

‌In a separate note on Thursday, Oxford’s chief U.S. economist Greg Daco noted that the firm’s real-time activity tracker has flattened out in recent weeks, calling this a sign that we’re witnessing a “premature plateauing of the recovery.”

“Policymakers across the country have an active role to play in containing the virus and ensuring the nation avoids looming fiscal cliffs from the expiry of unemployment benefits, PPP funds running low, and state and local budgets being cut to the bone.”

Stock Video Footage - 4K and HD Video Clips | Shutterstock
This is how the federal government creates dollars.

The money exists. It is available at the touch of a computer key. It is free to the government. It costs no one, anything.

When people are drowning, you don’t throw them a ping-pong ball and yell, “Use that as your floatation device,” especially when you are standing next to a huge pile of life preservers.

There is no penalty for spending “too much,” but a huge penalty for spending too little.

‌And so while it may be an inelegant and imperfect short-term solution for the economy, there is more than enough evidence to support a continuation of enhanced unemployment benefits and another round of stimulus checks for households making less than $100,000.

Deficit spending neither is an “inelegant” nor an “imperfect” solution. It is the solution, the elegant and perfect solution to, and prevention of, recessions.

It is the elegant and perfect solution to homelessness, hunger, business failure, and the terror of impending poverty.

Don’t tell the drowning man to swim harder. And don’t limit federal aid to any household income level. That $100,000 is a trap, for it requires making such questionable determinations as:

–Should a household consisting of one person receive the same support as a household of ten people?
–Should a household averaging 80 years old receive the same as a household averaging 15 years old?
–Should a household earning $99,000 be supported, while a household earning $101,000 receives nothing?
–Should people living in an expensive big city receive the same as people living in an inexpensive rural area?

Money going to people should be on a per-capita basis, with the same amount going to rich old men and to poor infants.

Money going to states also should be on a per-capita basis, with the states distributing some of the receipts to counties and cities, also on a per-capita basis.

Money going to businesses should be based on the previous year’s gross sales, with special rules for new businesses.

‌Consumer spending accounts for just about 70% of GDP growth.

And with such a clear path forward for Congress to help support an economy likely to suffer its largest drop in growth since World War II, there is little to no justification for letting these benefits lapse.

There is no justification, financial or moral, for not implementing the Ten Steps, and for not dramatically increasing federal deficit spending to prevent a recession, grow the economy, and narrow the Gaps between the richer and the poorer.

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. Social Security for all or a reverse income tax

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.


Is it possible to use Monetary Sovereignty (MS), succeed with MS, and still not understand it? (The U.S. and Japan.)

If you are unfamiliar with Monetary Sovereignty (MS) and Modern Monetary Theory (MMT), you should know they fundamentally are alike.

Where they differ most is:

  1. In certain applications (for example, a Jobs Guarantee) which MMT recommends and MS does not, and
  2. The primary purpose of federal taxes. MMT says they are to give value to money; MS says they are to control the economy and to deceive the public and:
  3. Inflation: MMT says curing inflation requires tax increases. MS says curing inflation requires deficit spending to eliminate shortages, usually of food or energy.

But they agree on the key fundamentals, for instance:

Image result for pouring money
Money moves between the economy and the government.
  1. The federal government invented the U.S. dollar, creates dollars at will, and so cannot run short of dollars.
  2. The federal government does not borrow to fund spending, but rather creates new dollars every time it pays a bill.
  3. So-called “federal debt” is nothing more than the total of deposits into T-security accounts, which easily are repaid by returning the dollars deposited, are not paid by taxpayers.
  4. No level of federal debt is unsustainable.
  5. Federal tax dollars are destroyed upon receipt.

In short, deficit spending by the government goes into the economy, and taxes paid by the economy go into the government. The difference: Monetarily sovereign governments have infinite access to money; economies do not.

The following are excerpts from an article that appeared in the June 5, 2019, New York Times, and written by Ben Dooley

Modern Monetary Theory’s Reluctant Poster Child: Japan
Despite its huge debt, the country remains an economic powerhouse. Some say it provides a model for the United States, but its leaders disavow the idea.

Immediately, the article is misleading. Rather than saying “Despite its huge debt . . .” it should read, “Because of its huge debt . . . ” or even more accurately, “Because of its massive deficit spending, which led to a huge amount of deposits into government bond accounts.”

TOKYO — Spend big and never mind the deficit. That’s what proponents of modern monetary theory, the unorthodox set of economic ideas that has inspired politicians like Bernie Sanders and Alexandria Ocasio-Cortez, see as the winning formula for American prosperity.

It may have “inspired” them, but even they cling to the false notion that federal taxes are necessary to fund federal spending.

For proof, its admirers point to Japan. Despite the highest debt in the developed world, Japan remains an economic powerhouse with high living standards.

Because the Japanese government, like the governments of Canada, the UK, Australia, China, and others, is Monetarily Sovereign (it creates its own sovereign currency), Japan remains an economic powerhouse with high living standards. ”

Japanese leaders wish they would point somewhere else.

Shinzo Abe, the Japanese prime minister, has dismissed the theory as “simplistic.” Finance Minister Taro Aso described it as “very dangerous.” And Haruhiko Kuroda, the head of Japan’s central bank, called it “extreme.”

Monetary Sovereignty saved Japan’s economy.

Had Japan been monetarily non-sovereign, like the euro nations or like cities, counties, and states, the Japanese economy would be shattered, and the Japanese people would be destitute.

Perhaps, Mr. Abe would respect something more complex than: “Adding yen to the economy helps prevent recessions” and “Monetarily Sovereign governments never can run short of their own sovereign currency.

Rather than embrace an idea that could explain or even justify the country’s situation, Japan is furiously debating it.

Lawmakers to Mr. Abe’s left are citing the theory — known as M.M.T. — to denounce his plan to raise taxes on the country’s consumers.

On the right, members of his own party have tried to link his policies to the theory, accusing him of running up gargantuan debts the country can never repay.

Japan could repay all of its debt tomorrow, if it chose. Like all Monetarily Sovereign nations, it has the unlimited ability to create its own sovereign currency.

Imagine you owned a legal, dollar-printing press. How many dollars of debt could you repay? The answer, of course, is: Infinite.

According to economics textbooks, when deficits grow, inflation and interest rates should grow along with them.

That is not what has happened in countries like the United States that racked up huge government debt after the global financial crisis in 2008.

Instead, prices and borrowing costs have remained low.

The textbooks are wrong, as both Japan and the United States have proved. There is no relationship between today’s deficits (high) and inflation (low).

In the United States, politicians from both parties have begun to question decades of consensus that government debt is bad. President Trump’s tax cuts have widened the deficit.

Proposals floated by Democrats for universal health care and investments in renewable energy could make it even bigger.

“Have begun.” I’ve been questioning it for 20 years. Other economists have questioned it even longer.

Trump’s tax cuts have widened the deficit, yet inflation remains low and growth continues. Those are facts, not economic hypotheses.

Sadly, those proposals have been floated by politicians who do not have the courage of their convictions. They still try to answer the question, “How will you pay for it?” by advancing a complex, convoluted “solution,” in which federal deficits do not increase.

The numbers make budget hawks nervous. But proponents of modern monetary theory say they should take a deep breath.

Deficits are a good thing, they say, as long as the government doesn’t create inflation by pushing the economy too far, too fast.

“Pushing the economy” is not the way inflations are created. Price increases are caused by shortages, usually shortages of food and energy, not by increased government spending.

In fact, increased government spending can cure inflations if the spending is devoted to curing the shortages.

If there is a food shortage, there will be inflation. If the government responds to the food shortage by using deficit spending to purchase food from abroad and distributing it to the people, the inflation will end.

The idea has provoked criticism from established economists like Paul Krugman, the Nobel laureate and columnist for The New York Times, as well as Lawrence Summers, the former Treasury secretary.

Government spending may be necessary when times are tough or to meet national priorities, they argue. But the bill will eventually come due.

In the meantime, all of that spending could crowd out the private sector and make it harder for governments to borrow money in the form of bonds. Besides, they say, M.M.T. remains largely untested.

Krugman and Summers simply do not know what they are talking about. “The bill will eventually come due” makes no sense. There is no “bill” for deficit spending.

The federal government can deficit spend forever.

And the federal government, which has the unlimited ability to create dollars, it has no need to borrow, and indeed, the U.S. government does not borrow.

What erroneously is termed “borrowing,” really is the issuance of Treasury securities (T-notes, T-bills, T-bonds) which do not provide spending money to the government.

When you buy a T-bill, you deposit dollars into your T-bill account. There you dollars remain, accumulating interest, until maturity. The U.S. government does not use the dollars in your T-bill account.

Proponents of the theory disagree (with Krugman and Summers). It has been tested, they say. In Japan.

The country is their equivalent of Charles Darwin’s Galápagos Islands: a natural experiment that reveals a fundamental truth about the way the world really works.

Since the country’s boom ended in the early 1990s, Japan has borrowed deeply. Currently, its debt level is approaching 250 percent of its annual economic output (GDP). Critics say it is an economic basket case.

Despite all that, Japanese inflation and lending rates remain low. In fact, some bond rates are negative, meaning Japan can profit when it borrows money.

Its standard of living remains competitive with those of the United States and other developed countries.

Negative bond rates result from the mistaken idea that low rates are stimulative of negative rates really are stimulative. Utter nonsense. High rates force the government to pump more interest money into the economy, and that is stimulative.

Low rates are unprofitable for lenders, and because lending creates money, negative discourage lending, so negative rates are recessionary.

And because Japan is Monetarily Sovereign, it has no need to make a profit. It can create all the yen it needs, at the touch of a computer key.

Modern monetary theory explains it all, according to Bill Mitchell, a professor of economics at the University of Newcastle in Australia and one of the theory’s founders. He has been studying Japan since the 1990s.

“It is my laboratory,” he said, calling the country “a really good demonstration of why mainstream macroeconomics is wrong.”

Briefly stated, the theory holds that a country controlling its own currency like the United States and Japan cannot go broke no matter how much it borrows.

Government spending puts money in the hands of people and businesses. In other words, a government deficit is effectively a private sector surplus.

It’s not just a belief; it’s an absolute fact. A federal deficit adds money to the economy, which grows the economy. It is simple arithmetic.

To spur growth, the theory says, governments should run up deficits to give consumers and companies more to spend. If leaders need more money, they can print it.

That is basically what Japan has done on and off for the last 20 years. Its economy boomed after World War II. Then the go-go 1980s ended with a bust. The economy stagnated. Deflation drove down prices and corporate profits.

The debt “Henny Pennys” are so spooked by non-existent inflation that they forget about the real curse: Deflation.

Japan borrowed and spent to get growth going again.

When that didn’t work, it pioneered techniques, like quantitative easing, to inject money into its financial system. The idea — basically printing lots of money and spending it on large-scale asset purchases — went on to be used by central banks around the world to deal with the effects of the global financial crisis.

The measures were necessary, but Japan’s conservative policymakers were not happy about them, according to Gene Park, an expert on the Japanese economy at Loyola Marymount University in Los Angeles, and they were soon dropped.

Translation of the above: Adding yen to the economy cured the deflation and grew the economy. It worked.

But it violated the beliefs of the mainstream economists, so they stopped doing what worked.

Similarly, deficit spending cured America’s 2008 “Great Recession” (as well as the 1929 “Great Depression), so again, the economists railed against what works, and try to install what doesn’t work: Austerity.

That has led to 80 years of complaints that the growing federal debt is a “ticking time bomb,” — while the American economy has grown — a complaint that continues to this day.

Economics may be the only science in which the mainstream denies what always works and insists on implementing what never works.

“The ideas came from outside of Japan, and they only tried them when they were backed into a corner,” he said.

Still, inflation did not budge. Interest rates stayed low.

Of course.

Inflation is not caused by deficit spending. Inflation is caused by shortages. Period.

While Mr. Abe’s policies may resemble those put forward by supporters of the theory, they differ in one major way: Since his election, he has pledged to find a way to pay down the debts run up under his administration.

Mr. Abe is following the usual mainstream economists’ dictum: If it works, stop doing it, and if it never works, keep doing it.

To fulfill that promise, Mr. Abe has said, he will raise Japan’s consumption tax to 10 percent from 8 percent by October.

The pledge is controversial with lawmakers on both the left and right.

A similar tax increase in 2014 may have pushed Japan’s already sluggish economy into recession. This time, the economy has already been weakened by China’s slowing demand for its goods.

Does it get any dumber than that? The economy is sluggish, so let’s take money away from consumers.

Many in Mr. Abe’s party also oppose the tax increase, arguing that the government should address the deficits once Japan’s economic condition has improved and the country is better able to withstand the shock.

In the meantime, they fear that if Japan continues piling up debt, it will be even harder for the country to climb back out.

“A crash is going to come at some point,” said Kohei Otsuka, an opposition member of the Upper House finance committee who has warned about the country’s debt for over two decades, “and then we’ll see that M.M.T. didn’t have any merit after all.”

Get it? We know that cutting deficits will create a shock, so let’s do it. And we have been warning about debt for over two decades, and nothing bad happened, so that is evidence we have been right.

Only in economics could that be considered logical.

Pavlina Tcherneva, an associate professor of economics at Bard College in New York and part of a core group of M.M.T. theorists, said the debate demonstrated an important point: While the Japanese case may validate the ideas, there is a difference between the theory of M.M.T. and its practice.

“Japan has been the clearest case of some of the things that M.M.T. has been saying,” she said, but “that doesn’t guarantee you good policy.”

Yes, stunningly in the weird world of economics, where intuition rules over proven fact, you even can get statements of belief in deficit spending, but then the leaders cannot believe what their eyes tell them, and they regress into the nightmare world of austerity.

In the past, economists wrote textbooks that claimed: “Excessive government spending causes inflations.” This became dogma, when Weimar Republic, Zimbabwe et al had hyperinflations that corresponded to currency printing.

So when the likes of Krugman and Summers went to college and learned that deficits cause inflation, they not only were indoctrinated, but continued the flow of false information to young people, who themselves indoctrinated even younger people.

And so it went, with successive generations of economists ignoring the facts on the ground, and disseminating the false beliefs.

The facts are:

  1. The currency printing does not cause the inflations; the inflations caused the currency printing, because the leaders did not understand that shortages caused their inflations. So out of ignorance, they printed currency to keep up with inflation.
  2. Economic growth requires money growth. Deficit spending causes money growth. Therefore, economic growth requires deficit spending. Lack of money growth causes recessions and depressions.
  3. Monetarily Sovereign governments cannot run short of money with which to pay any size obligations.Oh, and one last point that has become an issue, lately’
  4. Deficit spending is not “socialism.” Socialism is government ownership and control, not mere spending.

For example, the U.S. Veterans Administration is socialism. Medicare is not.

Economics may be the only “science” in which the lay public believes it knows everything, and the university-trained scientists rely more on intuition than on facts.

What next, economists? Do you recommend we apply leeches to cure anemia?

The great “socialism” fakeout

Either by ignorance or intent, those opposed to anything progressive, paint every government spending initiative as “socialism.”

So let’s begin by erasing that bit of misdirection:

Merriam Webster, Definition of socialism
1 : any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods
2 a : a system of society or group living in which there is no private property
b : a system or condition of society in which the means of production are owned and controlled by the state
3 : a stage of society in Marxist theory transitional between capitalism and communism and distinguished by unequal distribution of goods and pay according to work done

In short, socialism means government ownership and administration, not merely government spending and aid.

One would think (hope) that the media would understand that before writing negative articles about America’s so-called “socialism,” but the desire to misinform the public on behalf of the rich 1% seems eternal.

Here are excerpts and comments from a typically wrongheaded article from the 7/27/18 issue of the Chicago Tribune:

Spoiled children of America drawn to socialism
Cal Thomas

For the current generation, it appears one thing is more seductive than sex — and that’s socialism.

Sen. Bernie Sanders, I-Vt., and 28-year-old Alexandria Ocasio-Cortez, winner of a New York Democratic primary, are the old and new faces of socialist America.

Their platforms, it appears, hinge on the concept of shared wealth — in other words, handing out free stuff to just about everyone.

Not only does Mr. Thomas express his disdain for fact by claiming “the current generation” is “socialist,” but he also exhibits disdain for narrowing the Gap between the rich and the rest.

He and the rich, dislike “shared wealth.” In his dystopian world, the poor should stay poor, or perhaps become even poorer. How dare they wish for more?

And seemingly, only the rich deserve “free stuff” in the form of massive tax breaks and business subsidies, unavailable to us of the riffraff.

Note to Mr. Thomas: “Free stuff” is not “socialism.” Free stuff is what the federal government provides to the populace, every time it deficit spends.

1. The “free stuff” includes military protection, roads, dams, and bridges, research and development, along with Social Security, Medicare, Medicaid, aids to education, poverty aids, and thousands of other benefits that provide the reasons for the government to exist.

2. The “free” part comes from the fact that our federal government is Monetarily SovereignIt has the unlimited ability to create its sovereign currency, the U.S. dollar. The federal government never can run short of dollars.

(If you doubt this, try to learn how many dollars the federal government has.)

Thus, it does not need to ask anyone for the dollars it creates at will. It doesn’t need to ask you for tax dollars and it doesn’t need to ask China for dollars. And when the government receives those dollars, it doesn’t use them.

U.S. dollars sent to the U.S. government simply disappear from any definition of the world’s dollar supply. Effectively, dollars received by the U.S. government are destroyed.

3. And merely handing out or spending dollars is not “socialism.” It is what the federal government is designed to do. It is the way government functions.

Mr. Thomas’s primary concern seems to be that the not-rich 99% might receive a decent share of federal spending. But rather than honestly stating that concern, he hangs the “socialism” pejorative on it.

Continuing with excerpts from his article.

How far we’ve come from JFK’s admonition not to ask what your country can do for you, but what you can do for your country.

Today, for many, it’s all about what you should expect from your country with little or no reciprocity.

JFK’s admonition was silly on its face. Government is a collection of laws — a tool invented by people.

The entire purpose of government is to benefit people.

Kennedy’s overly poetic line is akin to saying, “Ask not what your hammer can do for you; ask what you can do for your hammer.” Or perhaps more accurately, “Ask not what the law can do for you; ask what you can do for the law.

In a word, senseless.

And yes, the tool should not expect or be given “reciprocity.”

It is undeniable that capitalism has raised more boats than socialism has sunk. Yet, socialism’s appeal continues, despite historical and contemporary evidence that it delivers a bad deal for those who embrace it.

Every government has some elements of socialism, i.e government ownership and control. The federal government owns and controls the military, the FBI, CIA, federal highways, NASA, and a good deal of acreage, particularly in the West.

But those comprise only a small part of the giant U.S. economy, and are a long, long way from a “socialist” government.

In an article for Reason magazine in May, Steve Chapman, a columnist and editorial writer for the Chicago Tribune, referenced a University of Chicago GenForward Survey of Americans, ages 18 to 34.

The survey found that “62 percent believe we need a strong government to handle today’s complex economic problems.” Only 35 percent said “the free market can handle these problems without government being involved.”

Anyone who thinks “the free market can handle complex economic problems without the government being involved,” is a fool.

Is there any time in human history when the anarchy, Mr. Thomas seemingly favors, has benefitted the people?

The survey, noted Chapman, found that “Overall, 49 percent hold a favorable view of capitalism — and 45 percent have a positive view of socialism,” with socialism scoring higher approval among African-Americans, Hispanics and Asian-Americans.

Note the typical, right-wing dig at those “lazy” African-Americans, Hispanics and Asian-Americans.

Sixty-one percent of Democrats have a positive view of socialism, which is not surprising, while 25 percent of Republicans favor it, which is a surprise.

Nothing is surprising when people are asked questions about something of which they know nothing. The respondents were random people, 18 to 34. What percent of those young people know what “socialism” and “capitalism” are?

It is a ridiculous survey, comparable to asking 18-34-year-olds whether they would prefer a “noocracy” or a “kritarchy.” The sole effect is to demonstrate the ignorance of economics lingo by an age group’s (if one can call 18-34 a “group”) .

Continuing with the article:

I have at least three takeaways from this.

Related image
Mr. Thomas’s “spoiled rotten” poor who, seduced by socialism, have not sacrificed blood, sweat and tears.

The first is that it’s likely most of those who favor socialism have never lived in a country where it is practiced.

A few months in Venezuela might be the perfect cure.

Second, people who claim to prefer socialism to capitalism are probably reaping capitalism’s benefits.

This group of misinformed comrades includes parents who gave their pampered millennials a lifestyle they likely would never have enjoyed under a socialist regime.

The third takeaway is that those who favor socialism over capitalism and socialist countries over America are spoiled rotten.

They are part of a generation that has never had to serve in the military and, I would venture to guess, do not know anyone who is serving or has served, other than maybe a grandparent, whose values many seem to have rejected.

People seduced by socialism have likely not had to sacrifice much for their country.

They seem to take it for granted that the freedoms they enjoy, even the freedom to believe in a political and economic system that is anti-freedom, dropped from the sky and were not achieved by the hard work, blood, sweat and tears (which they think is the name of an old rock group) of others.

I have three takeaways from Mr. Thomas’s rant;

First he, like the respondents, not only has no idea what socialism is, so to claim that Americans actually want socialism is disingenuous. No Americans want a government similar to the dysfunctional, Venezuelan government — and Thomas surely knows it.

Second, Mr. Thomas strangely equates economics knowledge with serving in the military and with not being “spoiled rotten.”

I do not know what percent of U.S. soldiers understand the true meaning of socialism, though if they did, they would understand that they receive their pay and instructions from the most socialist organization in America — completely owned, funded, and administered by the federal government.

I also do not know why Mr. Thomas considers soldiers less “anti-freedom,” and less “spoiled rotten” than the rest of America’s workers.

Soldiers do exactly as they are directed and live exactly where they are told, and in return are given room, board, and education. How “free” and “unspoiled” is that?

Third, Mr. Thomas seems to think that people receiving benefits from the government do not have the moral right to those benefits, because they have not worked hard nor sacrificed blood, sweat, and tears.

Really? Yes, that is the right-wing mantra: The poor don’t work as hard as the rich. Does it get any more foolish than that?

And finally, we come to the typical right-wing, pseudo-moralistic rant about the poor receiving federal benefits:

Socialism stifles incentive and makes people dependent on government, not themselves, which appears to be the liberal ideal.

Some would rather get a check than earn one. Look at the TV ads advertising toll-free numbers, free shipping and other free incentives, which are not free at all. Their cost is simply added to the product you purchase.

It’s enlightening to learn that self-reliant Mr. Thomas does not depend on government. Apparently, he will refuse protection from our military and from his local police and fire departments, and from the CIA, FBI, NSA et al.

He will refuse Social Security benefits and Medicare benefits. He will refuse to ride on the highways, streets, and roads built by governments. He will not take medicines or eat foods judged safe by government agencies.

He will not fly in airplanes, because they all are supervised by a federal agency.  His children will not attend school grades 1 – 12, most of which are government owned and directed. Nor will any attend federal military colleges.

He will refuse FDIC protection for his money, and indeed, he will not use U.S. dollars, for they are created by the federal government.

And of course, he never, never will use a toll-free number or accept that free shipping he loathes.

The list goes on and on about all the things Mr. Thomas will forego to maintain his unique, manly, and moral self-reliance.

And just when you believe his nonsense has reached its apex, Mr. Thomas ends his article with a bit more:

Socialism is little more than mutually shared poverty, a version of “spreading the wealth around” with government taking from the productive and giving to the nonproductive.

Progressivism is not socialism, and absolutely is none of the above. Rather than mutually shared poverty, it is mutually shared prosperity. (See The Ten Steps to Prosperity.) It does not involve the government taking from the productive (presumably the 1%) and giving to the nonproductive (we folks of the 99%.)

But Mr. Thomas acts clueless about that, though at the very end of his article, he makes one good point:

Do Democrats really want to embrace socialism heading into the next two elections? If so, they can expect the same defeats they have suffered in the past — think George McGovern and Walter Mondale.

Each thought the American people were taxed too little and that big government was the answer.

It isn’t, and it never will be.
Tribune Content Agency

Messrs. McGovern and Mondale were not socialists, nor did they think the American people were taxed too little, two common, right-wing lies.

They believed the gap between the rich and the rest is too wide, and that the federal government should obey its mandate of benefitting the people by narrowing that gap.

This does not require increasing federal taxes for the simple reason that federal taxes do not fund federal spending.

Because the federal government cannot run short of U.S. dollars, it does not need taxes. Even if all federal taxes were $0, the federal government could continue spending forever.

But Mr. Thomas is right about one thing: The public has been misled, and does not understand the meaning of “socialism,” “capitalism,” and “Monetary Sovereignty.”

So progressives wrongly are tarred with the “socialist” label, which costs them votes.

Lying that federal benefits are socialism is the way the wealthy keep the 99% down, and Mr. Thomas is just a pawn in their chess game.

The GINI ratio measures income inequality. Higher ratio = more inequality.  US inequality is the highest in 50 years, and perhaps ever.

In summary, equating progressivism with socialism is a Big Lie, the sole purpose of which is to widen the Gap between the rich and the rest.

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:

(Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.

(H.R. 676, Medicare for All )

This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”

(The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Guaranteed Income)) Or institute a reverse income tax.

This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.

Five reasons why we should eliminate school loans

Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.

Salary for attending school. Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.

Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.

7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.

There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.

(Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.

10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

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