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, 2020
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?
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:
- Federal taxes and federal taxpayers fund federal spending. Wrong.
- The federal deficit is unsustainable. Wrong.
- The federal debt is unsustainable. Wrong.
- 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.
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:
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:
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.
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?
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.
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
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:
- Monetary Sovereignty describes money creation and destruction.
- 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:
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.