The debt hawks are to economics as the creationists are to biology.
Let me tell you about a wonderful book. It’s short, simple and educational. It’s written in an easy, interesting style. It’s sure to be controversial. You can read it in an hour, and you never will forget it.
The title is Seven Deadly Frauds of Economic Policy, by Warren Mosler. Frankly, I’m not too crazy about the title. Sounds a bit dull. But I promise you, the title is the only dull part of this terrific book, that reads more like a novel than a text.
Yes, its an economics book, but not like most economics books. No formulas. No economics jargon. Just straightforward English, rational discussions that clear up some of the biggest, counter-intuitive mysteries about our economy. Learn how to cure the recession, how to save Social Security and Medicare, how to pay for universal health care, how to end federal debt problems — all kinds of good stuff.
You can read it for free, online by going to the above link and clicking: “Seven Deadly Frauds of Economic Policy (June 17, PDF Link).” Go ahead, do it. You absolutely will not regret it.
The debt hawks are to economics as the creationists are to biology.
Here’s an idea to help our economy. The rich have access to more food, more clothing and better shelter than have the poor. So let’s take some food, clothing and shelter from the rich and destroy it.
What? You don’t see how that can help the economy? You think it’s a stupid idea? Well, maybe. But isn’t it identical with what the politicians want to do right now?
You see, money is the food that makes the economy run. Today’s economy is starved for money. Yet, the politicians want to increase federal taxes on the rich, which will destroy some economic “food.” That’s right, federal taxes destroy money. The federal government doesn’t use taxes for spending. There is zero relationship between federal taxes and federal spending. (This is different from state and local governments, which do rely on taxes for spending.)
So, if you understand that taking food, clothing and shelter from the rich, and destroying it is useless and harmful, then you also understand that increasing federal taxes on the rich is equally useless and harmful. And if you understand it, why don’t your federal government representatives understand it?
Only two things keep people in chains: The ignorance of the oppressed and the treachery of their leaders
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”
Perhaps no words more accurately and succinctly illustrate the confusion in economics than “Monetary Sovereignty.”
It is not a theory, hypothesis, or philosophy. It is a description of the way federal financing works.
A Monetarily Sovereign government has the exclusive and unlimited power to create its sovereign currency. Monetary Sovereignty is the foundation of economics.
The United States is Monetarily Sovereign. It has the exclusive, unlimited power to create the U.S. dollar.
China, Canada, Australia, the UK, and Japan are Monetarily Sovereign. They have the exclusive, unlimited power to create their sovereign currencies.
By contrast, America’s states, counties, cities, businesses and people all are monetarily non-sovereign. They are users, not creators of the dollar and not sovereign over its creation.
In the 1780s the U.S. government created the very first dollar from thin air, by first creating from thin air, all the laws and rules that made the dollar exist.
Being sovereign over the dollar, the U.S. can give the dollar any value it wishes. It can make the dollar equal to three euros, an ounce of silver, or a partridge in a pear tree.
The U.S. federal government can never unintentionally run short of dollars. Even if all federal tax collections totaled $0, the federal government could continue spending forever.
It’s our little secret. Don’t tell the people we don’t need or use their tax dollars.
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
Alan Greenspan: “Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. A government cannot become insolvent with respect to obligations in its own currency.”
St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.
Illinois, Cook County, and Chicago are monetarily non-sovereign. The dollar is not their sovereign currency, and they do not have the unlimited power to create dollars.
France, Germany, and Italy are monetarily non-sovereign. They do not have exclusive, unlimited power to create the currency they use, the euro. That power is owned by the European Union.
You, your business, and I also are monetarily non-sovereign. Even Bill Gates and Warren Buffet do not have the unlimited power to create dollars. They are monetarily non-sovereign.
Because our Monetarily Sovereign nation has the unlimited power to create its sovereign currency, it never needs to ask anyone for dollars.
The federal government doesn’t need to tax, and it never borrows dollars. It never can be forced into insolvency.It can pay any dollar-denominated invoice of any size at any time.
The federal government creates money by paying its bills. To pay its bills, the government sends instructions (not dollars) to creditors’ banks, instructing the banks to increase the dollar amounts in creditors’ checking accounts.
These instructions are in the form of checks or wires. The moment the bank obeys those instructions, dollars are created in creditors’ checking accounts, and the M1 money supply measure is increased. This is how the federal government creates dollars — not by “printing,” but by sending instructions.
The U.S. has created many trillions of dollars, simply by pressing computer keys, and it will continue to do so. It does not “owe” anyone for creating these dollars.
The U.S. government cannot live beyond its means; it has no means to live beyond. By contrast, if the debts of France, Germany et al, exceed their ability to obtain euros they, as monetarily non-sovereign nations, could be forced into insolvency.
They did not create the euro, nor do they have the unlimited ability to pay euro-denominated bills.
Everything you believe about your personal finances — debts, deficits, spending, affordability, saving, and budgeting — are inappropriate to U.S. federal finances.
For this reason, your intuition about U.S. financing likely is wrong.
Because the U.S. cannot be forced into insolvency, none of this nation’s agencies can be forced into insolvency. The U.S Supreme Court, the Department of Defense, Congress, Social Security, Medicare, and any of the other 1,300 federal agencies cannot become insolvent unless the federal government wishes it.
(All the talk about Social Security or Medicare running short of dollars is misguided. Even if FICA were eliminated, Social Security and Medicare would not need to default on their obligations, unless Congress wished it. They could continue to pay benefits.)
The unlimited ability to create money is an uncontested fact for Monetarily Sovereign nations although, at any given time, economic growth, inflation, deflation, recession, depression, and social factors may influence a nation’s decision to create money.
A Monetarily Sovereign nation even can choose to declare insolvency, for various reasons, but this would be an arbitrary matter of choice, not a forced necessity.
An example would be Congress’s failure to raise the useless debt ceiling. This could force the U.S. into insolvency.
If you go to those sites you will see federal debt described in the same terms as personal debt – as an unsustainable obligation.
While debt can be unsustainable for you, me, businesses, states, cities, counties, and the monetarily non-sovereign EU nations, no dollar debt is unsustainable for the U.S. government.
The U.S. was not always completely Monetarily Sovereign. Prior to 1971, the U.S was on a gold standard. It had a sovereign currency, but it did not give itself the unlimited ability to create that currency.
The government passed laws saying every dollar must be matched by an arbitrary amount of gold. No gold; no dollars.
The amount of gold needed to back the dollar was arbitrarily determined by Congress and the President, and that requirement could be changed at any time by Congress and the President, a fact often forgotten by gold lovers.
Even while on a gold standard, the dollar actually was backed by federal fiat, not by gold.
The EU nations are on a euro standard. Their ability to create euros is limited by law.
Our states, counties, and cities are on a dollar standard. Their ability to create or obtain money by borrowing or taxing is limited by local law, by voters, and by lenders.
The financial problems of the euro nations are due not to deficits and debt.
These nations’ financial problems are due to them having surrendered the single most valuable asset any nation can own — their Monetary Sovereignty — thus preventing them from servicing their debt by creating money.
Some debt hawks say that a Debt/GDP ratioexceeding 100% puts a nation on the brink of bankruptcy. Yet today, Japan has a Debt/GDP ratio above 200%, and that Monetarily Sovereign nation has absolutely no difficulty servicing its debt.
When the U.S. exceeds that magical 100% ratio, it too will have no trouble servicing its obligations.
The debt hawks, having learned nothing from this, continue to wail about the meaningless Debt/GDP ratio, which because it is a classic apples/oranges comparison, is devoid of significance (the numerator is a 200-year measure of cumulative T-securities outstanding; the denominator is a one-year measure of spending. The two are unrelated).
So-called federal “debt” is nothing more than the total of dollars deposited into T-securities accounts at the Federal Reserve Bank. These accounts are similar to safe deposit boxes. The government never touches the dollars in those accounts. The contents are owned by the depositor, not the government.
To “pay off” the federal debt, the Federal Reserve Bank merely takes dollars from these T-securities accounts and adds them to the holders’ checking accounts, the same way you take dollars from your safe deposit box and add them to your checking account.
No new dollars are needed.
Thus, Congress easily could eliminate all federal debt, tomorrow. That would require pressing a few computer keys. It would be a simple asset exchange, with no new money created and no inflation consequences.
Because a Monetarily Sovereign nation has the unlimited ability to create its sovereign currency, that nation needs neither to tax nor to borrow. Why would it?
Further, that nation does not use tax money or borrowed money to pay for spending. Federal income does not fund federal spending. Taxes and borrowing are unnecessary.
When the states, counties, cities, you and I spend, we transfer dollars from our checking accounts to some other checking accounts. When the federal government spends, it creates new dollars.
If U.S. federal taxes fell to $0, or rose to $100 trillion, neither event would reduce by even one penny, the federal government’s ability to create the money to pay any size bills.
The spending by Monetarily Sovereign nations had been constrained only by fears of inflation. However, since 1971, the end of the gold standard and the beginning of Monetary Sovereignty, there has been no relationship between federal deficit spending and inflation.
Because taxes do not pay for federal spending, FICA does not pay for Social Security benefits. FICA could (and should) be reduced to zero. Benefits even could be tripled or more, and this would not affect by even one penny the federal government’s ability to pay Social Security benefits.
Recently, the federal government made a profit on its purchase and sale of corporate stock (GM et al). All such profits came out of the economy, and therefore the government’s profits were recessive — harmful to the economy and useless for the federal government.
By reducing the money supply, federal profits = losses for the economy.
Federal surpluses = economic losses.
Unlike state and local tax dollars, federal tax dollars are destroyed upon receipt by the Treasury. Taxes come from private checking accounts, the contents of which are part of the M1 money supply measure.
But when the dollars reach the Treasury, they instantly cease to be part of any money supply measure. The reason: The Treasury has infinite dollars, so no measure applies.
Since the federal government neither needs nor uses tax dollars why does it tax?
To control the economy by penalizing what the government wishes to discourage and by using tax cuts and loopholes to encourage what the government wishes to reward
To guarantee demand for the U.S. dollar by requiring dollars to be used for tax payments.
The rich, who run America, like taxes because they pay at much lower percentages (via tax loopholes) than you or me. This widens the income/wealth/power Gap between the rich and he rest, effectively making the rich richer.
On occasion, the federal government has “saved” money by firing, or reducing the pay of, federal employees. Those so-called “savings” are money not sent into the economy, and therefore, damage the economy.
The federal government, having the unlimited ability to create dollars, never needs to “save” dollars.
Politicians and the press do not yet seem to understand Monetary Sovereignty. However, no one intelligently can discuss national deficits and debt without acknowledging the implications of Monetarily Sovereignty.
The concept is the basis for all modern economics. Monetary Sovereignty is to economics as arithmetic is to mathematics.
The next time you go to any economics blog or website, see if the contributors understand Monetarily Sovereignty and use it in their discussions.
If they do, it might be a good site. If they don’t, the site is worthless. All debt hawk objections revolve around just two questions:
How much money can the federal government create? Answer: Infinite
How much money should the federal government create? Answer: As much as necessary to grow the economy and to narrow the gap between the rich and the rest.
Despite an astounding 50,000% increase in the federal debt from 1971 through 2020, we did not go anywhere near the point of uncontrollable inflation (which is controlled by procurement and distribution of scarce goods and services).
Ironically, the best cure for inflation is more federal deficit spending. The reason: Inflations are caused by shortages, usually of food and/or energy. Additional federal spending can cure the shortages that cause inflation.
Though the Federal Reserve is tasked with controlling inflation, only Congress and the President can obtain the goods and services, the scarcity of which causes inflation.
The Fed mistakenly uses interest rate increases to stem inflation, but those increases increase the costs for goods and services. Thus, contrary to popular wisdom, increasing interest rates exacerbates inflation.
Thus, most of our economic problems are caused by the politicians, the media, the economists, and the public not recognizing the implications of Monetary Sovereignty.
By crippling the federal government’s ability to grow the U.S. economy, the politicians have injured more Americans than terrorists.
I suggest you next read the data at Summary, for detailed answers to your questions.
Question of the day: How does a tax increase or spending decrease affect unemployment or economic growth? Answer: When the federal government taxes, dollars are removed from the economy.
When the federal government spends, dollars are added to the economy. A federal deficit is growth income for the economy.
Therefore, both tax increases and spending decreases reduce economic growth and increase unemployment.
Because GDP = Federal Spending + Non-federal Spending + Net Exports, a reduction in federal spending always reduces economic growth.
Money is the lifeblood of an economy. Cutting the federal deficit to cure a recession is like applying leeches to cure anemia. [For more on this subject, see: Free Lunch]
Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps: Ten Steps To Prosperity:
The debt hawks are to economics as the creationists are to biology.
This should be interesting.
Here are some quotes from The Economist:
“The budget, unveiled by George Osborne, the new chancellor of the exchequer, in June: To balance the books, he raised some taxes, notably VAT, but three-quarters of the savings will come from spending cuts. Most government departments will shrink by a quarter, though Mr Osborne excluded the National Health Service from his savagery. In the heated debate between Keynesian economists (who worry that a weak world economy needs more government spending) and fiscal hawks (who believe deficits must be tackled now to stave off Grecian disaster), Britain is the prime exhibit for tough love.”
“Mr Osborne plans to get the job essentially done by 2014-15. If all goes to plan, the deficit will fall from 11% of GDP in 2009-10 to 2.1% in 2014-15. The structural deficit, which strips out the effects of the economic cycle, will drop from 8.7% of GDP to 0.8%. On a similar basis, the government will by then be running a small surplus on the current budget, which excludes net investment (due to be slashed anyway over the next couple of years). This is a much faster retrenchment than the previous Labour government envisaged. It planned to return the cyclically-adjusted current budget to balance in 2016-17. Labour’s fiscal consolidation would have amounted to 4% of GDP by 2014-15; Mr Osborne is aiming at 6.3%.”
Never mind that Britain can’t have a “Grecian disaster.” Britain is monetarily sovereign. Greece is not. Completely different situations. Raise taxes; cut spending. Government runs a surplus. That is the debt hawk mantra. If Britain actually follows through on these steps (doubtful), it will suffer terribly.
All you debt hawks out there; what is your prediction?
#Monetary Sovereignty - Mitchell 