Federal Budget: Doing right by doing “wrong.” Sunday, Oct 27 2019 

His adversaries in Congress accuse him of defying the law, acting like a king, and speaking and acting in a way that was unbecoming of the presidency.

He is an outspoken, temperamental populist given to fiery speeches laden with insults, blatant racism, and suggestions that his political enemies be hanged.

He rose to political power by aligning himself with a loyal base of poor mountaineers and small farmers seeking a political champion.

He is hated for his adamant opposition to racial equality and the rule of law. Rather than root out institutional white supremacy that had fueled the American Civil War, he thwarts attempts to bring blacks equal protection under the law.

“Everyone would and must admit that the white race is superior to the black,” he said.

He suggests deporting millions of black men. He accuses [his political opponents] of plotting a coup.

He casts himself as the only thing standing between whites and “negro domination.”

As you may have guessed, the above excerpt is from an article titled, The impeachment of Andrew Johnson,” though it sounds uncannily familiar, doesn’t it?

Donald Trump is the least intelligent, most immoral, least capable, most psychopathic President I’ve seen in my 84 years, and his administration’s record collection of temporary and acting incompetents (like substitute teachers) does nothing to improve his decision-making.

Yet despite himself, Trump sometimes accidentally does something right, though he probably doesn’t realize it — nor does Eric Boehm and the editors of Reason.com, as excerpts from the following article demonstrate:

BUDGET DEFICIT
Federal Deficit Hit $984 Billion Last Year—a Nearly 50 Percent Increase Since Trump Took Office
In three years in office, Trump has added more to the national debt than President George W. Bush did in his entire two terms.
Eric Boehm | 10.25.2019

During the 2016 campaign, President Donald Trump said he’d be able to wipe out the national debt in eight years. Instead, after three years in office, he’s overseen a nearly 50 percent increase in the gap between how much the government takes in and how much it spends.

Chart by Eric Boehm. Source: U.S. Treasury data

The Treasury Department announced Friday that the official federal deficit for fiscal year 2019, which ended in September, was $984 billion—in line with what the Congressional Budget Office (CBO) estimated last month.

The announcement serves as official confirmation that the federal government’s mountain of red ink has grown dramatically during Trump’s first three years in the White House.

It is now approaching levels not seen since the early Obama years.

In order to “wipe out the national debt in 8 years,” (a 100% reduction in the debt) the Trump administration would have to run an 8-year surplus totaling about $20 trillion, i.e take $20 trillion out of the economy.

History has taught us that removing $20 trillion from the private sector — would cause, not just a recession, but a depression — and not just any old depression, but a depression the likes of which America never has experienced.

Every depression in U.S. history has been introduced with federal debt reduction, which takes dollars out of the private sector.

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

The economy usually is measured by Gross Domestic Product (GDP), and the formula for GDP is:

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

To reduce federal debt one must reduce federal spending, and/or increase tax collections, both of which reduce GDP.

Federal deficit decreases cause recessions (vertical gray bars), which are cured by federal deficit increases.

By formula, federal debt reductions cut GDP.

The deficit is growing despite growth in tax revenues. The Treasury Department reported that while overall tax receipts rose by about 4 percent, federal spending grew by 8 percent.

In a statement, Treasury Secretary Steve Mnuchin said the data showed “President Trump’s economic agenda is working”; he also touted the low unemployment rate and ongoing economic growth.

One would think that deficit growth and economic growth happening simultaneously, and the fact that deficits pump growth dollars into the economy, would be sufficient to convince Trump, Mnuchin, and Eric Boehm that deficts grow the economy.

Sadly, such irrefutable evidence + mathematical logic don’t seem to be sufficient.

What’s really irresponsible is spending growth that’s outpacing revenue growth by a rate of 2-to-1.

Trump’s defenders will point out that he’s not solely responsible for setting the government’s budget.

That’s true, but he has the final say on all spending bills and he has been refusing to force the spending cuts Mnuchin says are necessary.

Why is “spending that’s outpacing revenue growth” (i.e. adding dollars to the economy) “irresponsible”?

Mnuchin never says, probably because it isn’t irresponsible; it’s necessary for economic growth.

When Congress passed a bipartisan budget plan in March 2017 that annihilated Obama-era spending caps, Trump begrudgingly signed the bill while promising that he’d never agree to another spending hike like that.

Earlier this year, when Congress passed another budget-busting spending bill, Trump signed it without so much as expressing a second thought.

Could it be that Trump intuitively understands that federal deficits spending adds growth dollars to the economy?

Perhaps nothing demonstrates Republicans’ complete abdication of fiscal conservatism as much as this: In three years in office, Trump has added more to the national debt than President George W. Bush did in his entire two terms. (Though Bush did have the advantage of starting out with a budget surplus in his first year.)

Fiscal conservatism, aka “austerity,” aka taking money from the private sector which needs the money, and giving it to the federal government, which doesn’t need the money, is the worst possible financial plan — unless one prefers recessions and depressions.

Recessions are caused by money shortages and cured by money supplements. The private sector is limited in its ability to create growth dollars; the federal government, being Monetarily Sovereign, is not limited.

Now we come to two of the most amazing sentences in Mr. Boehm’s article:

In the early Obama era, it was not uncommon to hear Republicans admit that Bush’s spendthrift ways had paved the way for worse.

Now, on an annual basis, Trump’s deficit spending is nearly as bad a Obama’s was over two terms.

During Bush’s 2nd term, the deficit averaged only about $250 Billion, at which point began the “Great Recession.”

During Obama’s 2 terms, the deficit averaged over $1 trillion, and the economy grew massively, and it continues to grow.

And yet, Mr. Boehm wants deficit reduction! It boggles.

Give Trump a few more years and I’m sure he’ll surpass Obama. That’s because the nature of the current budget deficit is fundamentally different from the peaks of the early 2010s.

Those deficits eventually tapered off for a variety of reasons. Recovery from the Great Recession boosted tax revenue.

The spending binge approved in response to the recession faded away.

And fiscally prudent Republicans imposed some modest caps on future spending growth.

But, Mr. Boehm, the deficit still averaged over $700 Billion — far more than the Bush later years — and the economy still grows, also far faster than during the Bush later years.

Coincidence, Mr. Boehm?

Now? The country is running a massive (and growing) deficit despite a decade of economic growth and a low unemployment rate.

“Higher outlays for Medicare, Social Security, Defense, and interest on the public debt” drove the deficit increase in fiscal year 2019, the Treasury Department says.

See how Boehm still doesn’t get it?

The “massive (and growing) deficit” has caused “a decade of economic growth and a low unemployment rate.”

Then Boehm goes on to exacerbate the ignorance:

The current deficit isn’t the result of temporary circumstances like World War II or a major recession.

It’s a systemic deficit, a result of poor budgeting and bad decision-making by members of Congress and the current administration.

It’s not going to resolve itself, and it’s on pace to get much worse.

We only can pray that he is correct and that the deficit will get much “worse,” i.e. pump much more growth money into the economy.

The Government Accountability Office (GAO) has called the federal government’s current fiscal situation “unsustainable,” and the CBO expects the national debt to hit “unprecedented levels” in the coming decades, well above the record highs set during World War II.

Ah, yes: “Unsustainable.” The favorite word of the economic ignorant. You probably have seen dozens of articles decrying the debt or deficit by using this word, and in not one of those articles did you ever see an explanation of why it supposedly is “unsustainable.”

The economic blowhards have been condemning the debt for longer than you have been alive, and still they have learned nothing. (See: “It is 2019, and the phony federal debt “time bomb” still is ticking.”)

“A deficit of this size following the longest span of economic growth in history shows just how reckless our leaders have become.

This is exactly the time when deficits should be contracting, not expanding,” Leon Panetta, co-chairman of the Committee for a Responsible Federal Budget, said in a statement.

No, Mr. Panetta. “The longest span of economic growth in history” was caused by deficits. Without deficits, there could have been no growth.

There is no time when deficits should be contracting unless one prefers a contracting economy.

And please don’t get me started on that Committee for a Responsible Federal Budget, which has been wrong forever about federal finances.

“But instead of getting our fiscal house in order and preparing for the next downturn, our leaders continue to binge on debt-fueled tax cuts and spending hikes rather than showing the leadership necessary to set our fiscal path.”

Clearly, Panetta believes (or more likely, is trying to make you believe) that our Monetarily Sovereign federal government can run short of its own sovereign currency, the U.S. dollar.

He also wants you to believe that federal financing is like personal financing.

You’ll notice (and this is important) that nowhere in Boehm’s diatribe is there any data showing how federal deficits have an adverse effect on the economy.

He simply spouts generalized reprimands like, “unsustainable,” “mountain of red ink,” “irresponsible,” “abdication of fiscal conservatism,” “spendthrift ways,” “spending binge,” “poor budgeting and bad decision-making,” and on and on.

But where, Mr. Boehm, are the data showing cause and effect — the data showing that large deficits cause some negative effect? They are nowhere to be found.

You will not find anywhere, a graph like the one above, showing that Federal deficit decreases cause recessions, which are cured by federal deficit increases.

The reason for the absence of such data: They do not exist.

A growing economy requires a growing supply of money, and federal deficit spending increases the money supply.

Even the ordinarily distasteful words “deficit,” and “debt,” are misleading, because they really represent surpluses for the economy.

Everything — language and the absence of data — has been gathered together to make you fear the one thing necessary to grow our economy: Federal deficit spending.

Why?

The very rich, who run America, do not want you to ask for more benefits from the federal government. This is their way making you agree to unnecessary limitations on what you receive from the government.

It’s a function of Gap Psychology, the desire of the rich to distance themselves from the rest of us. It is their way of becoming richer, for the larger the Gap the richer they are.

Democrats have abandoned all pretense of caring about the national debt, or even attempting to explain how they might pay for new federal programs.

And Republicans seem capable of offering nothing more than obviously false promises and empty rhetoric.

Mr. Boehm is right about the Democrats and Republicans duplicity, but not in the way he claims. These are the parties that have agreed on the useless — no, harmful — federal debt ceiling.

Both parties have capitulated the demands of the rich that you be misled.

Aside from that, Mr. Boehm’s article is one giant, misleading mess of false economics.

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

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

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

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

Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

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

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

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

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

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

9. Federal ownership of all banks

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

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

MONETARY SOVEREIGNTY

How Forbes Magazine misleads the public Friday, Jul 12 2019 

Forbes is a highly respected financial magazine. Like too many other highly respected financial magazines, it often publishes articles espousing utter nonsense.

Here are excerpts from one such article.

Trump’s Big “Win”: The Largest Budget Deficit With A Strong Economy
Chuck Jones, Senior Contributor

Federal deficits are one way to measure how well a President manages the economy.

However, for a number of reasons a President can’t control the deficit; Congress is the governing body that decides the budgets (but the President does have to approve them), entitlement programs will grow unless they are changed and the economy goes through expansions and contractions (sometimes violently).

A President can propose and get policies implemented that impact the budget and therefore deficits, but to a large degree, economic forces can overwhelm the best policies and intentions.

It is true that “federal deficits are one way to measure how well a President manages the economy” but, as you will see, not in the one way author Chuck Jones claims.

While most people tend to look at the amount of the deficit in billions (or even $1 trillion plus) of dollars, a better way to gauge it is to look at the deficit as a percentage of the nation’s GDP.

This removes the impact of inflation on the government’s revenue and spending and makes for a better comparison.

Here is an example of Jones’s graph showing the deficit as a percentage of the nation’s GDP:

Deficit/GDP. Vertical lines are recessions

Please note that recessions almost always begin when the Deficit/GDP ratio goes down, and recessions almost always are cured when the Deficit/GDP ratio goes up.

The above graph diametrically contradicts the point Jones tries to make: The deficits are negative for the economy.

As seen in President Trump’s tax bill, there has been a fairly sizable reduction in corporate tax receipts, which negatively impacted the deficit in fiscal 2018 and the first three months of fiscal 2019.

Correct Translation: ” . . .there has been a fairly sizable {reduction in the amount of money corporations are forced to send to the federal government], which [increased the amount of money left in the economy] in fiscal 2018 and the first three months of fiscal 2019.”

Image result for giving dollars A simple picture of what happens to the economy (left) when the federal government (right) runs a deficit.

I never have spoken to anyone — professional economist or layperson — who doesn’t understand that putting dollars into the economy helps the economy grow, and taking dollars out shrinks the economy.

Yet that is exactly what Jones implies.

Federal deficits add dollars to the economy, helping the economy grow, yet Jones wants smaller deficits. It makes no sense at all.

President Trump’s budget deficits as a percentage of GDP will exceed any other President’s during a time of economic expansion.

From the Committee for a Responsible Federal Budget or CFRB, at the projected 4.6% for fiscal 2019 it will the be largest in a non-recession year and is expected to stay above this level in the future.

It will only be worse if the 2017 tax cuts that are scheduled to expire for individuals and the increased 2018 discretionary spending caps are extended.

This is a good thing for the economy. Unfortunately, Trump doesn’t know it’s a good thing, otherwise he would boast about it.

We have written about the CFRB many times. It is a group supported by the very rich, whose sole mission seems to be to make you believe that the more federal taxes you pay, and the fewer federal benefits you receive, the better off you will be. 

Multiple organizations ranging from the Congressional Budget Office to the Committee for a Responsible Federal Budget are projecting that the Federal deficit will increase even as the economy grows.

Their projections are for it to increase less in 2019 than 2018, but still have many years of growth even though the current economic expansion is about to hit a decade.

Correct Translation: ” . . . the Federal deficit will increase [which will help the economy grow].” Their projections are for it to increase less in 2019 than 2018, but still [cause] many years of growth even though the current economic expansion is about to hit a decade.

The scary thing is if the economy stumbles and growth slows more than expected or enters a recession, the deficit will increase even more than what the chart shows.

Yes, if the economy stumbles, the deficit must increase to add dollars to the economy and to resume economic growth. Otherwise we will have a recession or a depression.

Tariffs will have a positive impact on the government’s receipts but these are really a hidden tax on consumers and corporations.

Here Jones seemed to tangle in his own beliefs. He says tariffs have a “positive impact.”

Then he says, they really are taxes, which have a negative impact on the economy (unless Jones thinks taxes have a positive impact on the economy.)

So, why does he describe tariffs as “positive”? They are not “positive” in any way.

Trump seems to believe (or at least that is what he says and his advisors have told him) that reducing taxes and cutting regulations will grow the economy enough to solve the debt problem.

The above paragraph is so mixed up, it almost is impossible to disentangle.

“Reducing taxes” does grow the economy by leaving more dollars in the private sector (the “economy.”)

“Cutting regulations,” especially regulations that protect the middle-classes and the poor, most likely will hurt the economy over the long haul, but greatly widen the Gap between the rich and the rest.

And then, Jones switches from “deficits” (which are the annual difference between federal income and federal spending), to “debt,” which is the historical total of deposits into T-security accounts at the Federal Reserve Bank).

The two are unrelated except for regulations requiring them to be equal. Other than that, we could have federal deficits without federal debt, and we could have federal debt without federal deficits.

Federal debt, being nothing more than interest-paying savings accounts, easily are paid off by returning the dollars in these accounts.

Unfortunately, in the first year of the tax cuts, the deficit increased from $666 billion in fiscal 2017 to $779 billion in fiscal 2018, an increase of $113 billion or 17%.

It looks like they are on a path to $1 trillion or more as far as the eye can see.

Translation to the facts: [Fortunately,] in the first year of the tax cuts, the deficit increased from $666 billion in fiscal 2017 to $779 billion in fiscal 2018, an increase of $113 billion or 17%.

It looks like they are on a path to $1 trillion or more as far as the eye can see.

While it will take a few years to play out it appears that the tax cuts gave the economy an initial boost in the June quarter but that it may have fallen off in the September and December quarters.

In the end, Jones admits that “the tax cuts gave the economy an initial boost.”  Why did that happen?

Because tax cuts allow more growth dollars to remain in the private sector (aka “the economy”).

Similarly, spending increase put more dollars into the private sector.

Since federal deficits result from federal tax cuts and spending increases, federal deficits grow the U.S. economy.

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

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

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

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

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

Ten Steps To Prosperity:

1. Eliminate FICA

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

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

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

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

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

9. Federal ownership of all banks

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

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

MONETARY SOVEREIGNTY

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