The economics scare-mongers defy facts. Were you fooled?

Since 1981, the CRFB (Committee for a Responsible Federal Budget) has been scaring you about a “soon-to-come economic doomsday.”

The fiscal apocalypse always is imminent — always just around the corner.

Does the fact that it never arrives embarrass the CRFB? Apparently not,

If you made the same wrong predictions every year for the past 40 years wouldn’t you be a bit hesitant about doing it yet again? And if you were one of the CRFB’s readers, wouldn’t you have learned long ago not to trust anything these people say?

It seems that being wrong again and again and again, doesn’t cause them any embarrassment, nor does it cause their followers any second thoughts.

The CRFB keeps peddling the same nonsense every year, using exactly the same words. Only the numbers change.

Today, the Congressional Budget Office (CBO) released its March 2021 Long-Term Budget Outlook, confirming that the federal budget is on an unsustainable long-term trajectory. 

Let us pause to examine the word “unsustainable.” What does it mean? The CRFB never says.

Does “unsustainable” mean the federal government will go bankrupt? No, that cannot happen.

It can happen to monetarily non-sovereign entities like U.S. states, counties, and cities. It can happen to euro nations because they are monetarily non-sovereign. It can happen to businesses, and to you and to me.

But it cannot happen to the U.S. government. It is Monetarily Sovereign. It creates U.S. dollars by the very act of paying creditors.

[To pay a creditor, the federal government sends instructions (in the form of a check or wire) to the creditor’s bank. The instructions say, “Pay to the order of________”

When the bank receives those instructions, it does as it is told. It increases the numbers in the creditor’s checking account. At the moment that happens, a money measure known as “M1” increases.

The bank then clears the instructions through the government’s own Federal Reserve Bank, which always approves government instructions. In short, the government approves its own instructions.

That is the way the federal government creates dollars.]

Because the government never can run short of instructions, it never can run short of dollars.

Does “unsustainable”  mean the federal government will be unable to pay its debts? No. Clearly having unlimited money gives the government unlimited ability to pay its debts.

Does “unsustainable” mean countries or people will begin to reject payment in dollars? No. The U.S. has a massive economy. Long after people begin to reject euros, and the money of smaller economies like those of Japan, Canada, Australia, England, China et al, they still will accept U.S. dollars.

Does “unsustainable” mean that one day, China will demand a return of all the dollars it has lent the U.S.? No. China has not lent the U.S. any dollars. (The U.S. government, having the unlimited ability to create dollars, has no need to borrow dollars.)

What erroneously is termed “borrowing” actually is China making deposits of U.S. dollars into its own T-security accounts held at the Federal Reserve Bank. There the dollars remain until China wants them back. The U.S. government has no need for them.

Whenever China wants those dollars returned, the Bank merely transfers them to China’s own checking account, at any bank in the world. This is a simple money transfer that is no burden on the U.S. or on taxpayers. It happens every day of the week.

Does “unsustainable” mean we will have uncontrolled inflation? No, our Monetarily Sovereign government has unlimited control over the value of the U.S. dollar, a control it has exercised many times over the years.

It formerly was accomplished by arbitrarily changing the dollar’s exchange value with gold or silver. Today, it is accomplished by arbitrarily changing the interest rates paid on Treasury Securities. Raising the rates makes the dollar more valuable (i.e., decreases inflation).

So what does “unsustainable” mean? It means, “We want you to be worried, frightened even, about some unknown thing lying in the shadows.” But folks, the only thing lying is the CRFB, and they do it every day:

Analysis of CBO’s March 2021 Long-Term Budget Outlook | Committee for a Responsible Federal Budget (crfb.org)

 Under current law, CBO projects federal debt held by the public to rise from less than 80 percent of GDP at the end of FY 2019 to 202 percent of GDP by 2051.

Under a more realistic scenario, debt could reach nearly 260 percent of GDP by 2051.

Why is it bad that the total of deposits into T-bill, T-note, and T-bond accounts (wrongly called “debt”) will be more than double Gross Domestic Product?

It isn’t. One has nothing to do with the other. It’s like announcing that the number of blond-haired people will be double the number of fire-plugs in Chicago. The “debt”/GDP ratio is an irrelevant apples/oranges comparison.

So-called “federal debt” is the total of deposits into T-security accounts, similar to bank savings accounts. In today’s federal bookkeeping system, it also is the net total of federal deficits run by the federal government in the 240 years since the U.S. began.

By contrast, GDP is a one-year total of spending by the U.S. public and private sectors. Increases or decreases in deposits do not correlate with increases or decreases in spending. The U.S. government has the power to stop accepting dollars in T-security accounts, while continuing to spend, forever.

Japan, which has a ratio exceeding 250%, long ago proved the meaninglessness of that meant-to-be-scary debt/GDP fraction.

Perhaps, that is why the CRFB never specifically says what problems the ratio supposedly causes — just a vague reference to “unsustainable.”

Deficits Will Explode. Under current law, CBO projects annual budget deficits will grow to 13.3 percent of GDP by 2051.

While this is lower than the COVID-driven deficit of 14.9 percent of GDP in FY 2020, it will be nearly three times higher than the 2019 deficit of 4.6 percent of GDP, roughly four times as high as the 3.3 percent of GDP average seen over the past 50 years, and higher than any point in modern history outside of World War II and the current crisis.

Ooooh, “explode”! How frightening. The CRFB fails to mention that 2020, 2019, the past 50 years, and World War II, all were periods of large deficits and of economic growth.

And what are those terrible “deficits” the CRFB wants to scare you with? Deficits are times when the federal government pumps more stimulus dollars into the private sector than it removes via taxing.

Not only does federal deficit spending stimulate economic growth, but the economy could not grow without federal deficit spending. In fact, when federal deficit spending is reduced, we have recessions and depressions.

When the growth in federal deficit spending is reduced (red line), we eventually have recessions, which are cured by increases in deficit spending. Other than that, there is no relationship between deficit spending and federal “debt” (blue line).

Is a growing economy something that should frighten you??? The idea is laughable.

Spending Will Continuously Outpace Revenue.

CBO projects spending will grow from 21.0 percent of GDP in 2019 to 31.8 percent of GDP by 2051, while revenue will grow from 16.3 to 18.5 percent of GDP.

Over the long term, rising health care, retirement, and interest costs will cause a significant increase in spending. Revenue will also grow under current law, but only modestly.

In the above paragraphs, the CRFB confuses federal finances with personal finances.

You and I, and indeed all monetarily non-sovereign entities, use income (“revenue”) to fund spending. Without some form of income, we can’t spend.

The Monetarily Sovereign government, which creates dollars, ad hoc, from thin air, whenever it spends, needs no income. In fact, the federal government destroys all income upon receipt.

When, for instance, your tax dollars reach the U.S. Treasury, they cease to be a part of any money measure (M0, M1, M2, M3). Your tax dollars effectively no longer exist.

While comparisons between revenue and spending are important for you and me, they are meaningless for the federal government. The CRFB intentionally confuses the two.

Major Trust Funds Are Headed Toward Insolvency.

CBO projects Highway Trust Fund (HTF) insolvency in FY 2022, Medicare Hospital Insurance (HI) trust fund insolvency in FY 2026, Social Security Old Age and Survivors Insurance (OASI) trust fund insolvency in calendar year 2032 and Social Security Disability Insurance (SSDI) trust fund insolvency in calendar year 2035.

On a theoretical combined basis, the Social Security program will be insolvent in calendar year 2032.

The major “trust funds” are not really trust funds (See “The phony ‘trust fund’ controversy”), and whatever one wishes to call them, they are not “headed for insolvency.”

Given that the federal government has the unlimited ability to create dollars, no federal agency can become insolvent unless the government wishes it to be insolvent. The federal government could (and should) end collection of the FICA tax, and still pay Social Security and Medicare benefits, forever.

The Long-Term Outlook is Similar to Last Year.

Ultimately, high debt levels will slow income and wage growth, increase interest payments, place upward pressure on interest rates, reduce the fiscal space available to respond to a recession or other emergency, place an undue burden on future generations, and heighten the risk of a fiscal crisis.

Once the current crisis ends, policymakers must work to get our long-term fiscal house in order.

It’s all a lie.

Increased debt levels (red line) have not slowed personal income growth (blue line).

As for “increased interest payments,” they stimulate economic growth by adding dollars to the private sector

 

There has been no “upward pressure on interest rates” which instead are at historic lows.

And because the federal government has the unlimited ability to create dollars, by definition it always has infinite “fiscal space” to respond to a recession or other emergency. It has demonstrated this infinite fiscal space by repeatedly passing multi-trillion dollar stimulus packages.

There is no burden on future generations. Future taxes will not fund today’s spending. The only burden on future generations would be a poverty burden if the government had not spent trillions to stimulate the economy.

And finally, “fiscal house in order” is a word-salad meaning nothing with regard to our Monetarily Sovereign federal government.

In Summary

The CRFB article is one gigantic lie, designed to scare those who do not understand the workings of a Monetarily Sovereign entity. It makes false claims that are contradicted by easily seen facts.

These are people who insist you are standing in the midst of a thunderstorm while you plainly can see the sun shining.

Michigan mansion once owned by Eminem is back on the market
Maintaining the Gap

Why does the CRFB lie about the economy? Because they are paid by, and controlled by, the very rich, who because of Gap Psychology, want you to accept higher taxes and lower federal benefits.

[“Rich” is a relative term. If you have $1,000, and everyone else has $1, you are rich.; The wider the Gap between you and those who are poorer, the richer you are.

“Gap Psychology” is the desire to become richer by widening the income/wealth/power Gap below, while narrowing the Gap above.

Being funded by the rich, the CRFB spreads lies that will influence you to believe the federal government can’t afford social benefits.

They want you meekly to accept your lower station in life, so that the rich can maintain or increase their control over America.]

This is the same motive behind the repeated, claims that federal deficit spending is the dreaded “socialism.” It isn’t. “Socialism” is government ownership and control. Though all governments are partly socialistic, most federal spending involves neither ownership nor control.

But the rich know that the word “socialism” has pejorative implications, so they apply it to such federal benefits as Medicare, Social Security, SNAP programs, etc.

It is all a lie proxies for the rich continually repeat until the false ideas are implanted so deeply into the public consciousness, that obvious facts are doubted.

Because of liars like the CRFB, the rich own you, and only the truth can set you free.

Rodger Malcolm Mitchell

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

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

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.

MONETARY SOVEREIGNTY

How To Prevent Economic Growth, by Maya MacGuineas of CRFB

No one can do a better job of describing how to thoroughly destroy the American economy than Maya MacGuineas, head of the Committee for a Responsible Federal Budget (CRFB).  She not only writes articles for the CRFB web site, but she often is invited to spew her wisdom before Congress. She is a true celebrity in Washington.

To give you a taste of her acumen, here are excerpts from an Email I just received from her:

Wed, Oct 7 at 8:29 AM, The Cost of the Trump and Biden Campaign Plans

Whoever is inaugurated on January 20, 2021, will face many fiscal challenges over his term.

Under current law, trillion-dollar annual budget deficits will become the new normal, even after the current public health emergency subsides.

Meanwhile, the national debt is projected to exceed the post-World War II record high over the next four-year term and reach twice the size of the economy within 30 years.

For reasons never explained, MacGuineas repeatedly compares the national “debt” (i.e. the federal “debt”), with Gross Domestic Product.

The former is nothing more than the total of deposits into Treasury Security accounts; the latter is total spending in America. The two are not directly related, co-dependent or in any way comparable.

The federal government could stop accepting deposits into T-security accounts tomorrow, at which time the so-called “debt” would begin to shrink to $0 — and this would have no effect on GDP. Or the government could accept twice as much in deposits, and this too would have no effect on GDP.

So her complaint that these deposits will “reach twice the size of the economy” is meaningless, meant more to shock you than to educate you.

Four major trust funds are also headed for insolvency, including the Highway and Medicare Hospital Insurance trust funds, within the next presidential term.

What MacGuineas (and many others) misleadingly term “trust funds” are not trust funds. They are nothing more than bookkeeping accounts that are 100% controlled by the federal government. These accounts cannot become insolvent unless Congress wants them to become insolvent.

The federal government, which has the unlimited power to create U.S. dollars, along with the unlimited power to change its bookkeeping, can put any numbers it wishes into those accounts, any time it wishes.

The federal government arbitrarily could decide to double or triple the balances in these so-called “trust fund” accounts, and as if by magic, the numbers would double, and MacGuineas could stop fretting.

Whenever you see or hear the words, “federal trust funds,” know you are not being told the truth. Though even federal sites refer to “trust funds,” these are like the Bank in the game of Monopoly™: Changeable according to the players’ desires.

Fiscal irresponsibility prior to the pandemic worsened structural deficits that were already growing due to rising health and retirement costs and insufficient revenue.

It is not fiscally irresponsible for the federal government to spend more. On the contrary, not spending more would be fiscally irresponsible. Federal deficit spending grows the economy, and insufficient federal deficit spending shrinks the economy.

The country’s large and growing national debt threatens to slow economic growth, constrain the choices available to future policymakers, and is ultimately unsustainable.

The above sentence is diametrically wrong. False complaints about the national “debt” being a ticking time bomb,” have been voiced since 1940, while the economy has grown massively.

MacGuineas herself has been making the same wrong predictions continually. and for many, many years, but has learned nothing from her predictive failures.

Yet neither presidential candidate has a plan to address the growth in debt. In fact, we find both candidates’ plans are likely to increase the debt.

Under current law, the so-called “debt” results from federal deficit spending, which pumps stimulus dollars into the economy. MacGuineas opts to remove dollars from the economy by running federal surpluses. She ignores the fact that removing dollars from the economy causes recessions and depressions.

A growing economy requires a growing supply of money. Federal deficit spending increases the supply of money, which grows the economy.

The formula for GDP is: GDP = Federal Spending + Non-federal Spending + Net Exports. All these terms are related to the money supply in the United States.

Under our central estimate, we find President Donald Trump’s campaign plan would increase the debt by $4.95 trillion over ten years and former Vice President Biden’s plan would increase the debt by $5.60 trillion.

Debt would rise from 98 percent of Gross Domestic Product (GDP) today to 125 percent by 2030 under President Trump and 128 percent under Vice President Biden, compared to 109 percent under current law.

Despite MacGuenias’s hand-wringing, both plans are insufficient to grow GDP over time. An average of 1/2 trillion dollars in deficit spending in a $20 trillion economy, amounts to only 5% per year, a level that on average, has led to recessions.

 

Vertical gray lines are recessions. Year to year reductions in federal “debt” growth lead to recessions, while increases in federal “debt” cure recessions.

President Donald Trump has issued a 54 bullet point agenda that calls for lowering taxes, strengthening the military, increasing infrastructure spending, expanding spending on veterans and space travel, lowering drug prices, expanding school and health care choice, ending wars abroad, and reducing spending on immigrants. He also has proposed a “Platinum Plan” for black Americans, which increases spending on education and small businesses.

Meanwhile, Vice President Joe Biden has proposed a detailed agenda to increase spending on child care and education, health care, retirement, disability benefits, infrastructure, research, and climate change, while lowering the costs of prescription drugs, ending wars abroad, and increasing taxes on high-income households and corporations.

Which of the above proposals does MacGuineas suggest should be eliminated?

She never says. She decries deficit spending while not saying where the deficit spending should be reduced. Why is she so reticent? Because she probably understands the economic need for federal deficit spending, but she is paid to deny it.

That is why she has been mouthing the same tripe for so many years.

Debt has already grown from 39 percent of the economy in 2008 to 76 percent in 2016, and is estimated to reach 98 percent by the end of FY2020.
Under current law, the Congressional Budget Office (CBO) projects debt will continue to rise to 109 percent of GDP by 2030.

Our central estimate of the Trump plan finds debt would rise to 125 percent of the economy by 2030, excluding the effects of further COVID relief. Under our central estimate of the Biden plan, debt would rise to 128 percent of the economy by 2030, again excluding COVID proposals.

Then next few paragraphs of MacGuineas’s letter comprise an endless recitation of “debt” as a percentage of “the economy” (GDP), all with the tacit — and completely wrong — assumptions that a low ratio is a good ratio, and a high ratio is a bad ratio.

Here is a list showing the Debt/GDP ratio for many nations:

Based solely on the percentages, which nations would you expect to have the healthiest and/or strongest economies”?

Japan 237.54%, Venezuela 214.45%, Sudan 177.87%, Greece 174.15%,
Lebanon 157.81%, Italy 133.43%, Eritrea 127.34%, Cape Verde 125.29%,
Mozambique 124.46%, Portugal 119.46%, Barbados 117.27%, Singapore 109.37%,
United States 106.70%, Bhutan 103.85%, Cyprus 101.04%, Bahrain 100.19%,
Belgium 99.57%, France 99.20%, Spain 95.96%, Jordan 94.83%, Jamaica 94.13%,
Belize 92.64%, Angola 90.46%, Brazil 90.36%, Republic Of The Congo 90.19%,
Antigua And Barbuda 88.35%, Canada 88.01%, Egypt 86.93%, United Kingdom 85.67%,
Aruba 83.57%, Sri Lanka 82.99%, Tunisia 81.55%, Mauritania 80.61%, Zambia 80.50%,
Dominica 79.84%, Gambia 78.67%, San Marino 77.12%, Pakistan 77.00%, Argentina 75.90%,
Sao Tome And Principe 74.10%, Sierra Leone 72.37%, Suriname 72.05%,
Saint Lucia 71.62%, Saint Vincent And The Grenadines 71.38%, Uruguay 71.34%,
Austria 71.17%, Croatia 70.73%, Montenegro 70.58%, Togo 70.39%, India 69.04%,
El Salvador 68.10%, Mauritius 67.50%, Hungary 66.62%, Slovenia 65.44%, Albania 65.13%,
Morocco 65.11%, Laos 64.13%, Burundi 63.54%, Djibouti 62.99%, Ireland 62.42%,
Ukraine 62.03%, Senegal 62.00%, Ghana 61.99%, Maldives 61.43%, Oman 61.29%,
Bahamas 60.49%, Nauru 60.39%, Finland 59.88%, Saint Kitts And Nevis 59.49%,
Malawi 59.01%, Israel 58.96%, Gabon 58.48%, South Africa 57.81%, Puerto Rico 57.70%,
Ethiopia 57.43%, Vietnam 57.36%, Guyana 57.22%, Bolivia 57.11%, Germany 56.93%,
Malaysia 56.32%, Costa Rica 56.15%, Grenada 56.12%, Kyrgyzstan 56.09%, Niger 55.60%,
Kenya 55.50%, China 55.36%, Guinea Bissau 54.92%, Yemen 54.51%, Seychelles 54.49%,
Mexico 54.11%, Benin 54.00%, Qatar 52.74%, Vanuatu 52.18%, Netherlands 52.04%,
Namibia 51.60%, Belarus 51.08%, Serbia 50.95%, Ivory Coast 50.92%, Iraq 50.25%,
Fiji 50.22%, Rwanda 50.00%, Trinidad And Tobago 49.75%, Tajikistan 49.46%,
Samoa 49.44%, Ecuador 49.20%, Colombia 49.16%, Armenia 47.95%, Poland 47.48%,
Algeria 46.92%, Slovakia 46.90%, Liberia 46.66%, Guinea 45.98%, Georgia 45.05%,
Uganda 44.81%, Chad 42.91%, Burkina Faso 42.47%, Malta 42.46%,
Central African Republic 42.25%, Dominican Republic 41.92%, Thailand 41.47%,
Eswatini 41.11%, Australia 41.10%, Madagascar 41.02%, Nicaragua 40.88%,
Honduras 40.80%, South Korea 40.54%, North Macedonia 40.48%, Switzerland 39.49%,
Myanmar 39.19%, Philippines 39.10%, Cameroon 38.11%, Romania 37.99%, Lesotho 37.95%,
South Sudan 37.81%, Panama 37.81%, Papua New Guinea 37.72%, Equatorial Guinea 37.49%,
Sweden 37.23%, Mali 36.93%, Norway 36.75%, Latvia 36.66%, Tanzania 36.57%,
Bosnia And Herzegovina 36.34%, Haiti 36.23%, Comoros 35.08%, Bangladesh 34.81%,
Taiwan 33.91%, Lithuania 33.79%, Denmark 33.61%, Iceland 33.13%, Nepal 33.07%,
Czech Republic 31.57%, Turkmenistan 30.25%, Nigeria 30.05%, Iran 30.04%, Turkey 29.93%,
Cambodia 29.57%, Indonesia 29.29%, Moldova 28.82%, New Zealand 28.07%, Peru 27.18%,
Chile 27.17%, Guatemala 24.76%, Saudi Arabia 23.71%, Kiribati 23.48%,
Marshall Islands 23.37%, Uzbekistan 23.23%, Paraguay 22.37%, Tuvalu 21.81%,
Luxembourg 21.61%, Zimbabwe 20.99%, Kazakhstan 20.90%, Bulgaria 19.33%,
United Arab Emirates 19.20%, Micronesia 18.41%, Kuwait 17.78%, Azerbaijan 17.59%,
Solomon Islands 14.56%, Dr Congo 14.01%, Russia 13.79%, Botswana 12.78%, Estonia 7.61%,
Afghanistan 6.88%, Brunei 2.63%

If you say there seems to be no relationship between “debt” and GDP you would be correct, for several reasons:

  1. Some nations are Monetarily Sovereign, which means they have the unlimited ability to create their own sovereign currency. Any liability denominated in their own currency is serviced simply by creating new currency. They cannot become insolvent if they owe their own currency.
  2. Some nations are monetarily non-sovereign, which like you, me, the euro nations, and all local governments, cannot arbitrarily create money, and so can become insolvent.
  3. The word “debt” means something entirely different, depending on what is owed, and why. If the “debt” consists of optional deposits, as does America’s, Japan’s, Canada’s, Australia’s, and the UK’s, paying it off merely requires returning the money on deposit.
  4. But if the debt is necessary for the purchase of goods and services, like state and local government debt, then taxpayers must fund it, or the government will become insolvent.
  5. If the “debt” adds net money to the economy, as with Monetarily Sovereign governments, it will grow the economy.
  6. But, if the debt must be paid by taxpayers, which subtracts net money, as is the case with monetarily non-sovereign governments. it will shrink the economy.

Conclusion: Even before the onset of the COVID-19 pandemic and subsequent global economic crisis, the federal government was on an unsustainable fiscal path.

Under our central estimate, neither major candidate for President of the United States in 2020 has put forward a plan that would address our unsustainable fiscal path.

The favorite word used by debt critics is “unsustainable.” They never explain what they mean by that word.

Does it mean the U.S. government will run short of dollars? No, that is impossible. The government has the unlimited ability to create dollars at the touch of a computer key.

Does “unsustainable” mean other nations will not lend to the U.S.? No, the U.S. never borrows from other nations. What erroneously is termed “borrowing.” actually is the acceptance of deposits, which has two purposes:

  1. To provide a safe, parking place for unused dollars, which helps stabilize the dollar.
  2. To assist the Fed in controlling interest rates.

Neither purpose has anything to do with the federal government acquiring dollars. The U.S. government does not need to “acquire” dollars. It creates all the dollars it needs. Those dollars on deposit never are touched. They merely are returned when the T-certificates mature.

Does unsustainable mean people will refuse to use the U.S. dollar? No, Despite an 80-year supply increase of more than 50,000%, the U.S. dollar remains a trusted currency. No knowledgeable person fears U.S. insolvency.

So what does the oft-used term unsustainable mean? It is a term that has no specific meaning, but is used to hint at some dark, unspecified, future event, to make you believe the federal debt is too high, without your knowing why.

This high and rising debt could have significant economic, generational, fiscal and distributional consequences.

What are the consequences of a high and rising debt? Answer: Economic growth and prosperity.

Addendum: As I write this, I am watching the so-called debate between Kamala Harris and Mike Pence. It isn’t a debate so much as a performance, but one thing struck me: The both repeat the Big Lie that federal government financing is like state/local government financing.

They both claim that federal taxes fund federal spending, and the “How will you pay for it?” question needs be answered via a complex, convoluted, Byzantine explanation involving increased taxes and money transfers.

The real answer: The federal government will do what it always has done: It will create new dollars, ad hoc, every time it pays a bill. It’s called “Monetary Sovereignty.”

It is the way, the only way, the U.S. economy has grown and will continue to grow.

Rodger Malcolm Mitchell

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

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

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.

MONETARY SOVEREIGNTY

The coming depression: The problem and the solution.

There is no other way to say this. We (in the U.S.) are headed for a depression because we have an incompetent and untruthful government.

Our fundamental problem is the lack of money in the private sector. The solution is for the federal government, which being Monetarily Sovereign has unlimited money, to pump dollars into the economy.

Sorry, but it isn’t any more complex than that.

Problem: Lack of money. Solution: Add money. How much money? What the economy lost due to the virus.

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.

Other nations understand this:

Pandemic Insolvency: Why This Economic Crisis will be Different
Bue Rübner Hansen, Mar 29, 2020This image has an empty alt attribute; its file name is bernanke-quote-1.png

A week ago, Denmark’s Social Democratic government announced it would cover 75% of the wages of workers who would otherwise be laid off. I don’t think anyone expected the UK to announce, just a few days later, a policy that would cover 80% of the wages of workers who were about to be sacked.

Why are right-wing governments considering, and in some cases implementing policies they called impossible and undesirable when the left suggested them?This image has an empty alt attribute; its file name is greenspan-quote-1.png

To put it briefly, the sight of governments bailing out not only banks but also consumers and mortgage holders isn’t a sign they have grown soft, but rather a sign of the kind of crisis we are entering.

This crisis is very different from the last, and so it demands a new range of government actions. This is likely to reshape politics and economics across the Global North for years to come.

Both Denmark and the UK are Monetarily Sovereign. They have the unlimited ability to create their own sovereign currency (the krone and the pound).

They are using this ability to try to save their economies.

America’s politicians, the media, and the economists have become so enamored of the Big Lie they have been telling, they may have come to believe it themselves.

The Big Lie is comprised of several myths:

  1. Federal taxes and federal taxpayers fund federal spending. Wrong.
  2. The federal deficit is unsustainable. Wrong.
  3. The federal debt is unsustainable. Wrong.
  4. Federal deficits cause inflation. Wrong.

While state and local governments can, and often do unintentionally run short of dollars, the U.S. government cannot.  It can create unlimited dollars.

Monopoly Money 3D Model
Official Monopoly™ money

For visualization purposes, the example I often give is the Bank in the game of Monopoly™. In any Monopoly game, there usually are about four players competing for Monopoly dollars.

Additionally, there is a Bank that both gives and receives dollars.

The Monopoly™ Bank is similar to the U.S. government in that, by rule, the Monopoly Bank cannot run short of money.

Here is the rule as printed in each Monopoly Game box:

“The Bank never can ‘go broke.’ If the Bank runs out of Monopoly money, the Banker may issue as much as needed by writing on ordinary paper.”

There are times in the game when players must pay money to the Bank and other times when the Bank must pay money to the players.

If you wish to play, and find that the game box doesn’t contain enough official Monopoly money, you don’t need to “write on paper.” You can create a table like this:

Table I
monopoly 4.png

The above table indicates that each player has started with 5,000 Monopoly dollars. Notice there is no column for the Bank. None is needed. The Bank has unlimited dollars.

The game begins and immediately Alice is instructed to pay the Bank 100 Monopoly dollars for taxes. The table then looks like this:

Table II

Monopoly 3.png

Again, since there is no column for the Bank, Alice’s 100 dollars disappear. They effectively are destroyed.

And that is exactly what happens to your U.S. tax dollars when you send them to the U.S. Treasury. Your federal tax dollars are destroyed.

Now some may object that U.S. tax dollars are not destroyed, because the U.S. government keeps a record of them on its balance sheets.

That is a false objection; we could have kept track of the Monopoly Bank’s dollars, and that would have changed nothing.

Table III

This image has an empty alt attribute; its file name is monopoly-bank.png

Like the U.S. federal government, the Monopoly Bank has an infinite number of dollars. If you add Alice’s 100 to the Bank’s infinite dollars, you still have infinite dollars. That is because ∞ + 100 =  .

In both the Monopoly Bank and Monetarily Sovereign federal government, all tax dollars are destroyed, and because all tax dollars are destroyed, it is nonsensical to talk about federal taxes or taxpayers funding anything.

The U.S. federal government does not spend tax dollars. It creates new dollars, ad hoc, each time it issues a payment. Those who complain about the poor, or any recipient, “receiving ‘my’ tax dollars,” simply are wrong.

Only the U.S. Treasury receives your federal tax dollars, and it is the Treasury that destroys them.

Why, therefore, does our federal government not eliminate the FICA and income taxes, fund Medicare for All, fund Social Security for All, fund College for All, and do what Denmark and the UK are doing: Pay people what they would have earned had they not been laid off?

Four reasons:

1. Public Ignorance about the differences between a Monetarily Sovereign government (federal) and a monetarily non-sovereign government (state/local).

The federal government pretends federal deficits are unaffordable and unsustainable, neither of which is true. The federal government can afford anything and sustain anything.

2. Gap Psychology: The desire of those higher in the socio-economic spectrum to distance themselves from those lower, as a way to become wealthier.

3. Deficit/debt and inflation fear:

A. Negative effects of deficits/debt have been disproved many times on this web site. The federal debt has increased more than 50,000% without negative effects.

On the contrary, it has been insufficient deficits that have led to recessions and depressions, and increased deficits have cured them.

B. Similarly, there has been no historical relationship between federal deficit spending and inflation.

4. The economic and moral concerns about “paying people not to work.”  Society already pays people not to work:

A. The military pays a pension to those with 20 years of service. Of course, as with all things military, there have been many changes and complexities added to the program, but in general, a military person can retire in his/her 40s, with about 40% of their salary.

Many (most) of then go to work after, to supplement their pension, and that probably is the key issue. Most people hope to receive raises, i.e. to make more next year than they do this year, so receiving 80% or 90% of this year’s pay usually is not a deterrent to future working.

B. The moral concerns about giving people money they didn’t earn extend only to the middle and poor classes. The rich, who receive more from the government in terms of tax advantages, are given a moral pass, as though being rich makes one more entitled.

Thus for all these reasons, Congress and the President move slowly and reluctantly to provide the economy with sufficient growth funds, and that reluctance leads to recessions, depressions, and articles like the following:

$349B federal small-business paycheck fund runs dry
By Robert Channick

The federal government’s $349 billion program to help small businesses stay afloat during the coronavirus pandemic has run dry, leaving thousands of small business owners whose applications are pending to wait on Congress to replenish the funds.

The Small Business Administration said Thursday it is unable to accept new applications for the Paycheck Protection Program, passed by Congress as part of the $2.2 trillion CARES Act.

The SBA will not be able to issue new loan approvals if the paycheck program and the Economic Injury Disaster Loan Program, another heavily tapped funding resource for small businesses, experience a “lapse in appropriations,” officials warned.

Launched on April 3 as part of the federal coronavirus relief act, the program offers businesses with fewer than 500 employees loans of up to $10 million to cover eight weeks of payroll. The two-year loans, which are backed by the SBA, have a 1% interest rate.

Businesses do not have to pay back the portion of the loan used to cover payroll costs as long as 75% of the proceeds are used to keep paying employees during those eight weeks.

Small businesses are especially vulnerable to the economic disruption wrought by the coronavirus pandemic.

An April 3 study by MetLife and the U.S. Chamber of Commerce found that nearly one in four small businesses have temporarily shut down, and that more than half expect to be closed within weeks.

Providing payroll support — the largest expense for most small businesses — may be a crucial bridge to the end of the coronavirus shutdown and a return to something resembling business as usual.

For a government having access to infinite funds, to penny-pinch small businesses not only is economically outrageous, but callous and cruel.

Large businesses, with large lobbying staffs (and incidentally making large campaign contributions), receive instant attention, while small businesses, the heart of the American economy and the American public, are left to scramble and beg for funds.

This is the right-wing / Libertarian approach to governing.

We repeatedly have said that at least $7 Trillion in federal deficit spending would be needed this year and more next year. We may have understated the need.

Yet we see repeated hand-wringing about an infinitely wealthy government pumping “too much” free money into a needy economy.This image has an empty alt attribute; its file name is desperate-for-a-job.png

It is beyond disgusting, yet it has a hidden purpose: To keep the populace frightened, powerless and beholden to the very rich who run America — to keep the populace desperate and willing to accept miserable work at low pay.

This is the ongoing plan of the very rich.

Will Congress and the President climb down from their golden, guaranteed federal salaries and benefits to aid their impoverished believers? Only when these believers demand it.

This is the perfect time to begin those demands.

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

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

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

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

Watch Pelosi and McConnell debate the stimulus package

Pelosi McConnell gold bars.png
Nancy and Mitch can’t agree on how much gold to pump into the economy.

Pelosi: “The economy is crashing.”

McConnell: “And The People are suffering.”

P: “And dying.”

M: “And we’re running out of time to prevent a severe recession.”

P: “Or more likely a depression.”

M: “Even worse than the Great Depression of 1929.”

P: “But we can’t agree on how much money we should pump into the economy.”

M: “I want to pump in one gold bar. We can’t afford more than one.”

P: “And I want to pump in two gold bars.”

M: “But I want to give at least 1 gold bar to business.”

P: “And I want to give at least 2 gold bars to the people.”

M: “We don’t know what to do.”

P: “So we’ll just keep arguing.

M: “And arguing.”

The People: “Why not pump in 4 gold bars? Then you Mitch, can give more than 1 gold bar to business, and you Nancy can give more than 2 gold bars to The People, and the economy will recover faster, and everyone will be happy.”

P & M (together): “Not everyone.”

The People: “Who won’t be happy?”

Image result for tons of gold bars
“Infinite but unsustainable”

P & M (together): “The rich. They say we can’t afford to give so much gold to The People. They say giving 4 gold bars would be ‘unsustainable.’ And it would be giving The People too much. They wouldn’t know what to do with all that gold, like we rich folks do.”

P: “And it would be ‘profligate.’ The people probably would just use the gold for food, clothing, housing, and education rather than hiding it in overseas tax shelters, like we do.”

M: “And the Libertarians agree that all government gold is socialism.”

The People: “But, look around you. The government has infinite gold. It never can run short. Why not enrich the economy?”

P:  No, sorry. We’ll have to keep arguing and arguing, to keep The People down.

M: “If ever we do anything, it will be too little and too late.”

P: “And make it look like we really, really are trying.

M & P (together): “And hey, while we argue, you and I still are getting paid. And isn’t that the whole point?”

Image result for pelosi and mcconnell smiling
“I’m OK. Are you OK?” “Yes, I’m OK.”

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

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

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

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