EMERGENCY! THE FEDERAL GOVERNMENT IS RUNNING OUT OF DOLLARS! (Nah)

EMERGENCY! THE FEDERAL GOVERNMENT IS RUNNING SHORT OF DOLLARS!

Who wants you to believe that nonsense? The rich, of course. They want to widen the income/wealth/power Gap between them and you — and REASON is happy to oblige.

Let’s begin with the headlines:

REASON: ECONOMICS
Inflation Means Interest Rates Could Rise. Higher Interest Rates Will Make the National Debt More Expensive.
The Fed may soon get serious about hitting the monetary brakes to slow the economy.
BRUCE YANDLE | FROM THE FEBRUARY 2022 ISSUE of REASON

They say the so-called “national debt” will be “more expensive.”

The definition of “more expensive” is: An entity having infinite dollars (the U.S. governement) will pump more stimulus dollars into the private sector (aka “the economy’), thus not only helping the private sector grow, but also accomplishing many important economic tasks.

That’s what REASON means by “more expensive.”

10-Year US Treasury Note - Guide, Examples, Importance of 10-Yr Notes
The U.S. government can’t run short of these, 
One1 REAL ONE Dollar UNCIRCULATED United States Gem Mint image 1
or these,
United States Treasury Check For Either A Federal Tax Refund Or Social Security Payment Isolated On White Stock Photo, Picture And Royalty Free Image. Image 137893207.
or these.

The Treasury bond, the dollar bill and the Treasury check all are titles to dollars. Just as a car title is not a car, and a house title is not a house, the above three titles are not dollars. They merely represent dollars, which have no physical existence.

The so-called “national debt” refers to the total of dollars deposited from non-federal sources into T-security (T-bills, T-notes, T-bonds) accounts.

They are not debts of the federal government, which neither needs, uses, nor even touches the dollar in those accounts, except to return them upon maturity. Unlike real debts, the “national debt” is not a financial burden on the federal government or on taxpayers.

The sole purposes of the “national debt” are to provide a safe parking place for unused dollars (thus helping to stabilize the dollar), and to help the Federal Reserve control interest rates (by setting a base rate).

Recent comments from Federal Reserve Chair Jerome Powell hinted that the Fed may soon get serious about hitting the monetary brakes to slow the economy.

Until recently, inflation was described as transitory. But at some point, that story has to change.

For REASON, economic growth is bad, so the economy must be “slowed.” Actually, for REASON, government and all government spending are bad, and there is no acceptable level of either.

Price levels likely will rise into 2022. The all-item consumer price index (CPI) was up more than 5 percent on a year-over-year basis for July, August, and September. The increase for October was 6.2 percent—the largest jump since 1990.

The Fed considers 2 percent inflation to be its goal. Obviously, there is a large gap between that and what we are seeing.

The inflation rate is reflected in interest rates that borrowers must pay, especially for longer-term debt. Lenders hope to be paid back with at least as much purchasing power.

If they believe inflation will tick away at 4 percent, interest rates will tend to rise. Higher interest rates mean higher interest costs on all forms of public and private debt.

As a result, mortgage rates will rise, all forms of construction will suffer, and businesses will postpone making large investments in plants and equipment.

REASON, which wants the economy to “hit the brakes,” suddenly becomes conserned about construction, and businesses investing in plants and equipment, thus criticizing both sides of the same stimulus question.

Now consider the public debt—especially the federal debt, which ballooned as a result of large budget deficits in recent years. (In 2020, the federal government raised $3.4 trillion in revenue and spent $6.6 trillion.)

Translation: The federal government pumped $3.2 trillion net growth dollars into the economy, and you should be shocked.

The interest cost of the national debt was $253 billion in 2008, equivalent to $325 billion in 2021 dollars; it remained around that level through 2015.

Even though the debt doubled in those years, sharply falling interest rates and low inflation helped contain costs.

But that was yesterday. With today’s higher inflation and rising interest rates (perhaps with more to come), the Congressional Budget Office (CBO) estimates that the interest cost of public debt is $413 billion in 2021, stated in current dollars.

Obviously, any dollar spent on interest cannot be spent on government benefits or services.

REASON, demonstrates its ignorance about federal financing, by implying that if the government spends dollars on interest it doesn’t have enough dollars to spend on benefits or services (which REASON hates, anyway).

Of course, if REASON had evan an ounce of knowledge about federal financing, they would admit that the federal government has infinite dollars to spend, so interest payments do not in any way preclude other spending.

Looking ahead, the CBO expects more of the same. For 2026, it projects that the interest rate on 10-year Treasury bonds, currently 1.5 percent, will be 2.6 percent, and that the interest cost of the federal debt will rise to $524 billion.

For 2030, the projections are 2.8 percent and $829 billion, respectively, all stated in current dollars for the noted years.

In other words, the federal government will pump $524 billionand $829 billion interest into the economy in 2030.

Now we are talking about real money. To put $829 billion into perspective, in 2020 the United States spent $714 billion on the military, $769 billion on Medicare, and $914 billion on all nondefense discretionary spending, all stated in 2020 dollars.

Back-of-the-envelope calculations strongly suggest that some spending categories will have to give.

The above-mentioned “back-of-the-envelope calculations neglect to mention that the federal deficit spending is not constrained by lack of dollars. It is infinite.

Finally, we come to the heart of the issue.

The United States is experiencing an inflationary surge caused fundamentally by the injection into the economy of trillions of dollars—stimulus and other spending—without an accompanying rise in production of goods and services that might be purchased with the new dollars. It’s rising demand plus troubled supply.

All inflations are scarcity-based. None are spending-based. Increased deficit spending to cure shortages would end the inflation.

The government has been spending massively for many years, without the long-feared inflat

These forces will be with us until the stimulus dollars work their way through the economy and the federal government stops printing more money.

When the federal government stops “printing” (technically the wrong term) money we will have a recession, just as we always do when money creation stops.

Reductions in federal debt growth lead to inflation
Reductions in federal “debt” growth (blue line) cause receissions (gray vertical bars) which are cured by increases in federal “debt” growth.

As the process continues, our government—the source of inflation in the first place—will face hard choices when paying for past and future deficits and rising debt. 

The federal government pays for all its spending, promptly. Yet, the so-called federal debt is composed of T-securities that are as much as 30 years old. They pay for nothing.

All federal obligations are paid for immediately. The government faces no “hard choices” when paying its debts. It has the infinite ability to create dollars.

The federal government cannot unintentionally run short of dollars.

The so-called “debt is about $25 trillion. The U.S. government does not owe anyone or any thing $25 trillion.

The government could pay off the $25 trillion of T-securities today simply by returning the $25 trillion dollars already deposited into T-security accounts. No burden on the government. No tax dollars involved. No taxpayers burdened.

BRUCE YANDLE is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.

This does not speak kindly of the Mercatus Center and GME or of the FTC, who seem to be devoid of information about federal financing.

–The G7’s backwards thinking about the Japanese yen. Save Japan from its friends.

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Once again, the mainstream economists have things backwards. I recently came across this article:

Is G7 yen intervention a good idea? by MICHAEL SCHUMAN, 3/18/2011
In a highly unusual step, the G7 agreed on Friday morning to coordinate their efforts to control the sharp rise in the Japanese yen. The decision today was prompted by a sudden surge of strength by the yen that by Thursday morning (in Tokyo) had pushed the Japanese currency to a record high against the U.S. dollar. Though the yen had subsequently pulled back a bit, it was still at a level worrying to Japanese policymakers. Japan freaks out when the yen strengthens, because it makes Japanese exports more expensive in international markets and thus can dampen economic growth.

Last week, I posted about why charitable contributions to Japan were meaningless. Now, the economists want to facilitate Japanese exports. Before you read any further, stop and think about this question: What is the purpose of Japanese exporting? The answer is not what you may have been told.

The purpose of Japanese exporting is to import yen. Japan doesn’t want to expend massive amounts of time, energy, labor an raw materials just so they can supply us with cars, computers and television sets. The Japanese are a nice people, but they’re not that generous. No, the sole purpose of expending time, energy, labor and raw materials is to acquire yen.

But, Japan is Monetarily Sovereign. It has the unlimited ability to create its sovereign currency, the yen. Even were Japan’s exports to fall to zero, the Japanese government could create sufficient yen to support its economic growth. Japan has no need to import yen (i.e. export goods and services).

The G7 (soon to be overtaken by the E7, but that’s another story) is using an obsolete gold-standard philosophy in a post-gold-standard world. Today, Monetarily Sovereign nations do not need to import their sovereign currencies. Stimulating Japan’s yen imports is like stimulating rain over the ocean.

And in any event, Japan soon will create and spend trillions of yen to rebuild its nation. That massive influx of yen will weaken the yen, and the G7 can breathe a sigh of relief. It also will engage in an orgy of back patting, for accomplishing something not only unnecessary, but something that would have happened naturally.

But what can you expect from a group that still has no concept of Monetary Sovereignty, perhaps partly because three of the “7” (France, Germany, Italy) were foolish enough to surrender their own Monetary Sovereignty.

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

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

MONETARY SOVEREIGNTY

–Interview with Abby Romaine on WNZF. Is she the smartest lady on the air?

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Today, Abby Romaine again interviewed me on her WNZF show, Center: Uncensored. From what I can tell, Abby is the only radio broadcaster in existence who understands Monetary Sovereignty. This is particularly frightening, as Monetary Sovereignty is the basis for all modern economics.

The two things I puzzle about: How did she come to understand, and why is she the only one? Yes, there are MMT economists who get it, but if anyone out there knows of another media person, whether radio, TV or newspaper, who understands Monetary Sovereignty I sure would like to know his/her name. The editors of the WSJ and the Chicago Tribune don’t get it. No newsperson gets it. No columnist gets it. But Abby does.

Those interested in writing to this brilliant lady can reach her at: abby.romaine@gmail.com

Anyway, today she and I discussed Ron Paul, perhaps the nation’s leading architect of economic ignorance, and the Tea Party (formerly known and the Republican Party) and John (“America is broke”) Boehner, and the deficit and the debt.

I enjoy talking with Abby, because I like talking with smart people, but I probably mouthed off too much (Old people do that). My only concern is that Abby gets it. She understands that a growing economy requires a growing money supply, and federal deficits are the federal government’s method for growing the economy. She understands that federal debt could be eliminated tomorrow, simply by crediting the bank accounts of T-security holders. She understands that federal debt is not the accumulation of federal deficits, but rather that debt could exist without deficits and vice versa. And she understand that a nation with the unlimited power to create money never can be “broke.”

Why am I concerned? Because not being a radio guy, I don’t know if listeners would rather hear two people argue, and she and I don’t argue. She does play excerpts from Tea Party speeches, and perhaps that provides enough counterpoint. But Ron Paul? This guy is so ridiculous, even staunch conservatives find him an embarrassment. Maybe she should play some excerpts from an Obama speech. He at least sounds more rational, though he too is ignorant about our economy.

By the way, I thought Obama, coming from the rough ‘n’ tumble of Chicago politics would be endowed with major testosterone. But, he seems to be wimping out. The Tea (Republican) Party has a plan: Cut federal spending, which will slow the economy. Obama and the Democrats will be blamed for the poor economic performance, and in 2012, the Teas will be able to foist their own guy or gal on the American public, which by the way is exactly how the Teas won the House last year.

Never mind that executing this plan will hurt America. That isn’t a Tea concern. Cynically, they are interested solely in power. Paraphrasing my question of Abby: “What do you call American citizens who knowingly hurt America?” Then I answered my own question: “I’d call them traitors.” The irony is, the Teas love to wrap themselves in the America flag.

Second thought: That’s not irony; it’s marketing. Address the negative head-on, and turn it into a positive. Remember when cigarette advertising featured doctors telling us how healthful smoking is? Or Volkswagon bragging about how ugly the Beetle was? The Teas make a virtue out of cutting the benefits Americans enjoy.

Anyway, Obama has allowed the Teas to define the discussion. He doesn’t argue, as he should, that cutting federal spending is the dopiest idea since taxing Social Security benefits. Instead, he forlornly whines that yes, the deficit is too big, and we should cut it — only please cut it less. Just when we need leadership, we get groveling. As a Chicagoan, I’m embarrassed. Mayor Daley never groveled. He lied (They all do), but he never groveled.

If Daley were president, I suspect he’d look the reporters in the eye and say, “To cut federal spending is just, plain stupid.” And he’d be right.

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

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

MONETARY SOVEREIGNTY

–Ohmigosh. So THAT’s what less government means!!

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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Reality comes as a shock to the Tea Party:

Tea Party voters, by almost 2-1, oppose Social Security cuts
1:00 pm March 3, 2011, by Jay Bookman

From the Wall Street Journal:

WASHINGTON— Less than a quarter of Americans support making significant cuts to Social Security or Medicare to tackle the country’s mounting deficit, according to a new Wall Street Journal/NBC News poll, illustrating the challenge facing lawmakers who want voter buy-in to alter entitlement programs.

In the poll, Americans across all age groups and ideologies said by large margins that it was “unacceptable” to make significant cuts in entitlement programs in order to reduce the federal deficit. Even tea party supporters, by a nearly 2-to-1 margin, declared significant cuts to Social Security “unacceptable.”

Isn’t it fun to march around, shouting you want less government — until you realize what you’ve been shouting? The Tea Party (and the rest of the right wing) remind me of rebellious teenagers, who don’t want any help or suggestions from their parents. But when they need money for the dance, or for some clothes or to go to college, then it’s “Mommy, Daddy, help me. Ple-e-e-ase!”

One can only hope the politicians and the public come to their senses, soon.

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

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