If you owned a legal, money-printing press, would you borrow money? Think about it.
The U.S. government has the infinite ability to create (aka “print”) U.S. dollars. So why would it ever borrowdollars?
It doesn’t.
The same “bark”?
Despite what “learned” pundits tell you, the U.S. government never, never, ever borrows U.S. dollars.
The government issues U.S. Treasury bonds, which are totally unlike the private sector bonds that corporations issue.
The fact that the same words — “bills,” “notes,” and “bonds” — are used to describe completely different things, has confused people who should know better — politicians, economists, and the media — for decades.
It’s as though a professional botanist told you dogs are like trees because they both have “bark.”
In the same vein, the so-called federal “debt” is not debt. It’s not even federal.
Here are Warren Buffett’s comments. He gets it about 95% right.
The U.S. Treasury is borrowing $3 trillion in three months to pay for the pandemic response, a record sum that dwarfs the $1.8 trillion borrowed in 2009 during the financial crisis.
The debt will be sold in bonds to a variety of foreign and domestic investors.
Sorry, Mr. Wolff-Mann, but because the federal government is Monetarily Sovereign, the U.S. Treasury has the infinite ability to create dollars (at the behest of Congress).
If Congress voted for the Treasury to create $3 trillion, or $300 trillion, or $3,000 trillion, the Treasury could do it at the touch of a computer key.
Clearly, it has no reason to borrow dollars.
So it doesn’t.
The so-called, misnamed “debt” is two separate things that have been merged for obsolete reasons:
1. The “debt” is the net total of all deficitsthrough history. Deficits are the difference between taxes received and financial obligations (aka “bills”) paid.
The government doesn’t owe deficits. They already have been paid for. That is what makes them “deficits.”
2. The “debt” also is the total of deposits into Treasury Security accounts, those T-bills, T-notes, and T-bonds that are nothing whatsoever like private sector bills, notes, and bonds.
The government accepts deposits into Treasury Security accounts to provide a safe storage place for unused dollars. This stabilizes the dollar and is partly responsible for the U.S. dollar being the most popular currency in the world.
Rather than putting unused dollars into risky private bank accounts, foreign governments and private investors prefer the safety of U.S. Treasury accounts.
The accounts resemble safe deposit boxesin that the money in these accounts is wholly owned by the depositors, not by the U.S. government, which never touches those dollars.
To pay off these accounts, the government simply returns the contents of the accounts to the owners, i.e. the depositors.
At the 2020 Berkshire Hathaway Annual Shareholders Meeting on Saturday, billionaire investor Warren Buffett carefully explained in simple terms why the U.S. will never default on its debt.
When a concerned shareholder asked him whether there was a risk, he didn’t prevaricate, but started with a “no.”
“If you print bonds in your own currency, what happens to the currency will be the question,” said Buffett. “But you don’t default. The U.S. has been smart to issue its debt in its own currency.”
A U.S. dollar bill actually is a zero-interest, Treasury bond. It is evidence that the bearer owns a U.S. dollar.
Other countries don’t do this, Buffett pointed out.
“Argentina is now having a problem because the debt isn’t in their own currency, and lots of countries have had that problem,” he said.
“And lots of competent countries will have that problem in the future.”
Similarly, U.S. state and local government and euro nation debt isn’t in their own currency. State and local governments use the dollar. Euro nations use the euro, which is the currency of the European Union (EU).
France, Germany, Italy et al have problems with their debt (which is real debt) because they do not issue the euro. The EU does.
Over the years, many have worried about the growing national debt as tax cuts and spending have created an ever-widening gap between revenue and outflows.
But in his explanation, Buffett highlighted the distinctions that make the U.S. Treasury much different than your personal checkbook.
Mainly, the government owns the printing press to pay the money to the holders of its debt.
Close, but that’s not precisely what happens. The money already exists in the accounts. The depositors put it there.
Paying off the “debt” merely involves returning the depositors’ dollars. The only function of the metaphorical “printing press” is to add interest dollars to the accounts.
“It is very painful to owe money in somebody else’s currency,” said Buffett. “If I could issue a currency Buffett bucks, and I had a printing press and I could borrow money, I would never default.”
If he could print Buffet bucks, that would be widely accepted, he never would borrow money, just as the U.S. federal government never borrows dollars.
This is a common refrain of Modern Monetary Theory as well as longtime Fed Chair Alan Greenspan, who once said something similar: “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”
The chief worry about just printing money to pay obligations is inflation.
That is another widespread, false belief. Creating (aka “printing”) dollars doesn’t cause inflation. Shortages of critical goods and services — mostly oil and food — cause inflation. (See: Inflation: Why the Fed is confused)
“What you end up getting in terms of purchasing power can be in doubt,” Buffett said.
But whether the U.S. can pay the dollars that it owes is not in doubt. The Oracle of Omaha noted back to when Standard & Poor’s downgraded the U.S.’s credit rating in 2011.
The U.S. government does not “owe” any dollars. It already has paid for what it has purchased. That is the “deficit.”
And the dollars in Treasury Security accounts — the T-bills, notes, and bonds — are owned by the depositors. The government doesn’t owe them just as your bank doesn’t owe you the contents of your safe deposit box.
“To me that did not make sense,” he said. “How you can regard any corporation as stronger than a person who can print the money to pay you, I just don’t understand. So don’t worry about the government defaulting.”
Buffett then addressed the frequent government shut-downs that happen over partisan arguments about raising the debt ceiling.
“I think it’s kind of crazy incidentally…to have these limits on the debt,” he said. “And then [the] stopped government, arguing about whether it’s going to increase the limits. We’re going to increase the limits on the debt.”
Buffett pointed out that the debt “isn’t going to be paid, it’s going to be refunded,” and referenced the period in the 1990s when the debt came down and the country simply created more.
“When the debts come down a little bit, the country’s going to print more debt. The country is going to grow in terms of its debt-paying capacity,” he said. “But the trick is to keep borrowing in your own currency.”
Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.
Paul Krugman
That was Warren Buffett. Now, here is Paul Krugman, winner of the economics version of the Nobel Prize. He too gets it about 95% right.
The US doesn’t actually have to pay off its $31 trillion mountain of debt, according to top economist Paul Krugman, hitting back at the idea that government finances can be compared to household balance sheets.
Though individual borrowers are expected to pay off debts, the same isn’t true for governments, Krugman argued in a column for the New York Times on Friday.
That’s because unlike people, governments don’t die, and they gain more revenue with each passing generation.
Not quite right. State and local governments are expected to pay off debts. Euro governments are expected to pay off debts.
But the Monetarily Sovereign U.S. federal government always pays what it owes to vendors, on time. It does not accumulate debt.
The reason is notthat “governments don’t die and gain more revenue.” Monetarily nonsovereign governments do borrow and must pay off loans, and may not gain enough revenue to pay off those loans.
Our Monetarily Sovereign government is a different animal, altogether. It does not borrow, it does not have loans to pay off, and its tax revenue does not pay for anything.
Its tax revenue is destroyed upon receipt. (See: “Does the U.S. Treasury Really Destroy Your Tax Dollars?”)
“Governments, then, must service their debts – pay interest and repay principal when bonds come due – but they don’t necessarily have to pay them off; they can issue new bonds to pay principal on old bonds and even borrow to pay interest as long as overall debt doesn’t rise too much faster than revenue,” he added.
Treasury bonds don’t supply the federal government with spending money. The government never touches those dollars. The government doesn’t use bond deposits to pay anything.
Treasury securities provide two main functions:
They help the Federal Reserve control interest rates by providing a “base” rate.
They help stabilize the dollar by providing a safe haven for unused dollars.
They do not help the federal government fund any thing.
The debt-to-GDP ratio is oft-quoted, but completely meaningless. The federal government can pay all its financial obligations whether the ratio was 10%, 100%, or 1,000%. (See: Enough Already, With The Debt/GDP ratio)
Federal purchases are part of GDP, but are not paid for with GDP. All federal financial obligations are funded by newly created ad hoc dollars.
Historically, it’s also unusual for governments to pay off large debts, Krugman said. Such was the case for Great Britain, which has largely held onto the debt it incurred as far back as the Napoleonic wars.
It’s more irrelevance from the Nobel winner. Deadbeat governments may not pay creditors, but the Great Britain “debt” is not owed to creditors. It’s an accounting myth for describing the total of deficit spending, which is funded by money creation.
Krugman’s argument comes amid growing contention over the US debt level, with policymakers still sparring over the conditions they want to raise the country’s borrowing limit.
House Speaker Kevin McCarthy has said he would reject a short-term debt ceiling increase unless spending cuts are negotiated, having proposed a bill that would slash around $4.5 trillion on spending.
This is purely a political ploy, having absolutely nothing to do with the realities of federal funding. The formula for GDP is:
GDP = Federal Spending + Nonfederal Spending + Net Exports
Slashing $4.5 trillion for federal spending would, by formula, slash at least $4.5 trillion from GDP (Probably more, because federal spending begets private sector, nonfederal spending.)
In short, Republican McCarthy wanted to trash the economy, because a Democrat was President.
Congress now has less than two weeks to raise the borrowing limit before the government could potentially run out of cash, US Treasury Secretary Janet Yellen warned.
Sadly, Yellen is too cowardly (or ignorant?) to tell the truth. The so-called “borrowing limit” is the ultimate fraud. It’s not a borrowing limit, because the U.S. doesn’t borrow.
It’s a limit on deposits into T-security accounts, which do nothing to change the federal government’s ability to fund its spending.
A default on the country’s obligations could result in catastrophe for financial markets, experts have warned.
Krugman is correct. The debt ceiling is a fraud being committed on naive American voters. It’s a bit of meaningless, though harmful, political chicanery, designed to pretend financial frugality.
All those who think the debt ceiling is a good idea either are liars or ignorant.There is no alternative.
Period.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
Because the populace has been pumped with wrong information about Monetary Sovereignty (MS), what should be easily understood is widely misunderstood. Does even the great Warren Buffett not get it?
He understands federal finance and strongly favors Social Security, yet does even he not know how that program is financed?
We have tried to make the simple even simpler with such posts as:
Airlines are sovereign over their mileage points. They cannot run short of points and can give them any value they choose. They are in “points debt” because they issue more points than they receive back from customers.
At its core, Monetary Sovereignty is dead simple. It merely says:
The U.S. federal government created an arbitrary number of dollars and gave them an arbitrary value by passing laws.
The government retains the power to pass infinite laws, create infinite dollars, and give dollars any values it chooses.
Because of these powers, the government cannot run short of dollars. It pays all its obligations with newly created dollars and does not need tax dollars.
Even if the federal government didn’t collect a penny in taxes, it could continue spending forever. No payment, however large, is a burden on the federal government or on federal taxpayers.
The posts gave examples of Monetary Sovereignty with airline mileage points, Monopoly dollars, and store coupons.
In each case, the issuer cannot run short of the points/dollars/coupons because all are numbers on computers typed at the creator’s whim.
Warren Buffett
Yet, despite that simplicity, even great financial brains seem confused:
Social Security has long been a subject of intense discussion in America, but investing legend Warren Buffett’s position on the issue is unmistakably clear.
During Buffett’s company, Berkshire Hathaway’s annual shareholders meeting in 2005, an audience member posed a blunt question: “I’m asking for your opinion on Social Security. Shall we call it the government-sponsored Ponzi scheme for retirees?”
Buffett’s answer was wrong.
He explained that, while it was proposed as insurance because that was “the only way [President Franklin] Roosevelt could get it passed,” Social Security is essentially a “transfer payment by the people who are in their productive years to the people who are past their productive years.”
And Buffett liked that mechanism.
“I think that the obligation for the people who do well in this society is to provide a reasonable level of sustenance for those beyond their productive years,” he said.
No, no, no. Social Security is nothing like “a transfer payment from people in their productive years to people past their productive years.”
And while he may imply there is a moral obligation for the productive people to aid those past productive years, that is not how Social Security operates.
Target is sovereign over its coupons. It cannot run short of coupons; it makes all the rules re. its coupons, and it runs “coupon deficits” (receives fewer coupons than it issues) and is in “coupon debt” (the total coupons issued is more than the coupons received.)
If it did, two things would be necessary:
1. Social Security would have to be supported by more affluent people, which it is not. Even the FICA tax, which ostensibly supports SS, is collected mostly from medium-to-lower salariedpeople — and only from the first $160K of salary.
I wonder whether Mr. Buffett collects any salary at all. If he obtains all his income via stock gains, dividends, interest, and other non-salary sources, he doesn’t pay FICA. No “transfer” there.
2. More importantly, and contrary to popular belief, FICA does not fund Social Security (or Medicare.) All federal spending is funded by newly created dollars.
Tax dollars, which begin, in the M2 money supply measure, suddenly disappear from anymoney supply measure when they hit the U.S. Treasury. They effectively are destroyed.
Ask yourself , “How much money can the federal government spend in any given year? Given that the government has the infinite ability to create dollars, how many dollars can it spend?
Right, it can spend infinite dollars. It never can run short.
What is any number added to infinity? Infinity. Those FICA dollars disappear into an infinite dollar hole, never heard from again.
The fake Social Security and Medicare Trust Funds, which supposedly receive FICA dollars and spend those dollars on benefits, do no such thing. In fact, they aren’t even trust funds.
They are bookkeeping mechanisms that only record inflows and outflows. They aren’t “trust funds” if the federal government can add to them, take from them, or revise them in any way and at any time it chooses?
If you go to any federal finance website, you will see how the government implies or even states outright that federal taxes fund federal spending. Yet, clearly, this isn’t true. Even if the federal government collected zero taxes, it could continue spending forever.
That is the reality of all large Monetarily Sovereign entities.
Consider the European Union, which is sovereign over the euro:
The federal government is sovereign over its “coupons,” aka dollars. It cannot run short of dollars; it makes all the rules re. its dollars, and it runs “dollar deficits” (receives fewer dollars than it issues) and is in ” debt” (the total dollars issued is more than the dollars received.)
No large Monetarily Sovereign nation can run short of its own sovereign currency — unless it wants to.
Why would it want to? To foster the false belief that benefits to the middle- and lower-income groups are unaffordable and unsustainable without benefit cuts or tax increases.
That is the basis for the Big Lie: “Social Security and Medicare can’t continue unless we cut your benefits or increase your taxes.”
Who benefits from the Big Lie: The rich who run America. They are rich because of a wide financial Gapbetween them and the rest of us. The wider the Gap, the richer they are.
There are two ways the rich widen the Gap:
They increase their net income with tax dodges for which they bribe politicians.
They reduce your net income by falsely claiming that benefits are unaffordable and unsustainable. They bribe the media and politicians to tell that lie.
Although Mr. Buffett seems to try to claim the high ground by “complaining” that his secretary pays a higher tax rate than he does, it’s hard to believe he doesn’t understand the realities of Monetary Sovereignty.
Therefore, I believe he intentionally lies about Social Security being a “transfer payment by the people who are in their productive years to the people who are past their productive years.”
Sadly, you receive the Big Lie from three groups the rich bribe: Politicians, news media, and educators. And there are the lies coming from the rich, themselves.
That Niagara Falls of false information drowns out the truth, which is why the simplicity of Monetary Sovereignty is so difficult for many people to understand.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
There are important reasons why you should contact Steve Chapman. Let me explain.
Monetary Sovereignty is not a difficult concept. It simply says that the federal government, having created the first U.S. dollars from thin air, continues to have the power to keep creating U.S. dollars from thin air.
You are not Monetarily Sovereign, nor am I. Nor is your city, your county, your state, or your business.
We all can run short of dollars. Even Jeff Bezos and Bill Gates can run short of dollars. The U.S. government cannot run short. Unless it wants to.
Even if the U.S. government didn’t collect a single dollar in taxes, it could continue spending forever.
Some countries are not Monetarily Sovereign. The euro nations are not. They did not create the euro; they merely use it. But the European Union, which did create the euro, is Monetarily Sovereign.
You might think that anyone writing about or discussing economics would at the very least, understand that simple “1 + 1 + 2” concept. And yet . . .
I’ve spent more than 20 years trying to teach Monetary Sovereignty to anyone who will listen, and even now I am amazed at the brutal, stone-headed resistance.
But some of it is just . . . how can I say this kindly? . . . just plain mental blindness.
During my 20+ years mission, I’ve come across some truly wrong, misleading, and downright misguided articles, but today I found one that must be in the top 3.
It was written by a man who is not stupid; I’ve read other of his articles and found them to be enlightening. But this one is, as the kids like to say, awesome — in how wrong it is!
Steve Chapman is a columnist and editorial writer for the Chicago Tribune. His twice-weekly column on national and international affairs, distributed by Creators Syndicate, appears in some 50 papers across the country. Chapman has been a member of the Tribune editorial board since 1981. A native Texan, he has a bachelor’s degree from Harvard. ……………………………………………………………………………………………………………………………………………. Fiscal discipline was once a durable American practice. But in the 1940s, it went out the window. The federal government embarked on a sudden, unprecedented binge of borrowing that put the nation in hock up to its ears.
WRONG: The U.S. federal government does not borrow. Having the unlimited ability to create dollars, why would it?
What erroneously is termed “borrowing” actually is the acceptance of deposits into Treasury Security accounts (T-bill, T-note, T-bond). When you invest in a T-security, you deposit U.S. dollars into your T-security account.
There your dollars remain, gathering interest, until the account matures, at which time the government returns the dollars in your account. The government never uses those dollars or removes them from your account.
The purposes of issuing T-securities are:
To provide a safe place for unused cash, which stabilizes the U.S. dollar
To assist the Fed in controlling interest rates, which helps control inflation.
The government does not issue T-securities to obtain dollars.
From 1940 to 1945, federal spending rose tenfold. The national debt increased sixfold. The public would have to shoulder the burden of paying down that debt for decades to come.
WRONG: The public has not shouldered, and will not shoulder any burden from the so-called, misnamed “debt.”
First, it’s not “debt” in the usual sense. It’s deposits, and the deposits are NOT paid back with taxes. The “debt” (deposits) are paid off merely by returning the dollars that exist in the T-security accounts.
Second, federal taxes do not fund any federal spending. In fact, all federal taxes (unlike state and local government taxes) are destroyed upon receipt.
When the federal government pays a creditor, it creates new dollars, ad hoc. The process is this:
Upon approving an invoice for payment, the government sends instructions (checks or wires) to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account.
At the instant the creditor’s bank does as instructed, new dollars are created and added to the nation’s money supply (M1). This is the federal government’s method for creating dollars. No taxes involved. No burden on anyone.
There was, however, a good excuse for this gross budgetary excess: World War II. For a government, as with a person, there is usually no difference between being frugal and being wise.
But when the nation’s survival is at stake, the risks of underspending are far greater than the risks of overspending.
With the phrase “as with a person,” Chapman reveals abject ignorance of economics, for he equates federal (Monetarily Sovereign) finances with personal (monetarily non-sovereign) finances.
Further, he alludes to “gross budgetary excess,” which may be appropriate to individuals, states, and businesses, but is completely irrelevant to the federal government, which has the unlimited ability to create its own sovereign currency.
Finally, Chapman refers to WWII as needing “overspending” but does not mention any adverse effect from the so-called “budget excess.”
The vertical gray bars show total GDP (right scale). The other lines show % of GDP (left scale). The black dotted line is government spending. The blue dotted line is personal consumption.
In fact, increased federal spending created a dramatic increase in GDP.
’39-’49
A similar imperative exists today, as the new coronavirus endangers lives and causes economic disruption on a scale not seen since — well, since World War II.
Last year, the federal budget deficit soared to nearly $1 trillion , at a time of sustained economic growth and prosperity. It was an atrocious figure, representing the latest fiscal failure by our political leaders.
Chapman does not understand that the “sustained economic growth and prosperity” was a direct result of the federal budget deficit growth.
Deficits pump dollars into the economy, and GDP (the usual measure of economic growth) is a dollar measure.
GDP = Federal Spending + Non-federal Spending + Net Exports
Thus, it makes absolutely no mathematical sense to decry federal deficits while also treasuring GDP growth.
And, in fact, the “economic disruption” demands deficit spending far in excess of the $2 trillion measure recently passed. A spending measure of at least $7 trillion would have prevented the coming recession.
But the spending package forged by Congress and the president to address the fallout of the pandemic will add up to more than double that amount, pushing overall spending to levels never imagined just weeks ago.
The rescue plan is probably only the first of a series of huge spending bills meant to reduce the devastation from a locked-down economy.
Here, Chapman really doesn’t get it. He correctly indicates that “huge spending bills” “reduce the devastation from a locked-down economy.”
Amazingly, he doesn’t understand why that is true.
Of course, the reason is that money grows the economy and federal spending pumps money into the economy. Chapman wants the economy to grow from a “locked-down” position, but he doesn’t seem to want it to grow from a “non-locked-down” situation.
Puzzling.
For more years than I care to remember, under presidents of both parties, I have been a consistent voice — OK, an insufferable scold — on the need for the government to be thrifty and responsible in its budget policy.
I have stressed the importance of living within our means,paying the full cost of what we demand of our government and not piling needless obligations on future generations.
There are many good moments for fiscal restraint. This is not one of them.
He has been insufferable because his scolding has been based on economic ignorance.
The Monetarily Sovereign government has no “means” to live within. It has the infinite ability to pay any billsof any size, instantly.
And with regard to “paying the full cost of what we demand,” Chapman is referring to a balanced budget, or as it alternatively is known, “austerity.”
Vertical gray bars are recessions which begin when federal deficit spending (red line) declines, and are cured by increases in federal deficit spending.
And, if Mr. Chapman prefers federal surpluses (economic deficits), he should look at this:
Every U.S. depression has come on the heels of federal surpluses
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.
Today, we face enormous dangers. One is that millions of Americans thrown out of work or otherwise deprived of income will be unable to pay their bills, put food on the table or keep their homes.
Refusing to help them through this crisis, which came about for reasons beyond their control, would exact a horrific human toll.
It would also create general chaos that would stymie economicrecovery for months, if not years.
Likewise with businesses. In the absence of prompt federal aid, a wave of bankruptcies could wipe out companies that were healthy and profitable before — and have every prospect of being healthy and profitable afterward.
The businesses would be gone, and so would the jobs they provided. People and companies desperately need a bridge across this troubled water.
In Mr. Chapman’s world, apparently the government should wait until “millions of Americans are thrown out of work or otherwise deprived of income, will be unable to pay their bills, put food on the table or keep their homes” before adding dollars to the economy.
He opposes deficit spending to, for instance, institute the Ten Steps to Prosperity (below), grow the economy and/or narrow the Gap between the rich and the rest
Yes, the necessary measures will be shockingly expensive. Yes, they will have to be paid for with borrowed funds. Yes, they will enlarge a national debt that was already in the neighborhood of $24 trillion.
WRONG. They will not be paid for with borrowed funds. But yes, the so-called national debt — which since 1940 has increased 60,000% (from $40 billion to $24 trillion) while the economy has grown massively — will continue to grow.
And further growth in the “debt” will mathematically be necessary for future economic growth.
How could we afford all this new debt?
Through the robust revenue-generating economic activity that will resume if we successfully navigate the crisis. The larger debt burden will be easier to bear in the long run than a smaller debt would be if we let a brief, severe downturn become a prolonged depression.
Mr. Chapman continues to demonstrate ignorance of the differences between federal financing and personal financing.
The federal government can “afford” any debt, simply by creating dollars. That is the way it pays all its debts.
It neither needs, nor uses “revenue-generating economic activity.” Federal taxes do not fund federal spending.
Debts have to repaid with dollars, and dollars are something the Federal Reserve can create in any quantity needed.
The worst case is that we will have to endure an eventual spell of inflation, which would be far preferable to an immediate and total economic collapse.
And there it is, the inevitable, but wrong, “The government always can print money, BUT this would cause inflation.” Again and again, we hear this from the economically ignorant, but NEVER do we see the evidence to back it up.
It contains graphs showing that inflation is caused by shortages, especially shortages of food and/or energy:
Graph I Changes in the money supply M3 are NOT predictive of changes in prices (red).
Graph II Changes in the price of oil (which closely reflect supply changes) ARE predictive of inflation.
Graph III Food and energy inflation IS predictive of overall inflation.
After you look at those graphs, look at this one:
While federal deficit spending has risen dramatically (blue line) inflation (red line) has risen moderately, within the Fed’s target range.
Historically, the scarcity of food and/or oil has been the driver of inflation and hyperinflation. See: The Hyperinflation Myth Explained.
In most cases, our politicians deserve condemnation for spending money with wild abandon. In this moment, it’s the best thing they can do.
Steve Chapman, a member of the Tribune Editorial Board, blogs at http://www.chicagotribune.com/chapman . schapman@chicagotribune.com Twitter @SteveChapman13
Steve Chapman is widely read and influential. I urge you to contact him with the facts. Perhaps if he receives enough pokes, he may pay attention.
We desperately need more people of influence to spread the word, or we will have more recessions and wider Gaps between the rich and the rest.
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:
The following cartoon appeared in an August 30, 2019 Email from Reason Foundation.
It is a perfect representation of The Big Lie, the lie that the U.S. government can run short of U.S. dollars.
The Big Lie illustrated
The cartoon, by Toles, not only shows the U.S. Treasury empty, but just in case you didn’t get the point, it also shows America asking the “deaf, dumb and blind” Republicans why they emptied it.
Take it from me: It is absolutely, positively 100% impossible for the U.S. Treasury to run short of U.S. dollars.
If you won’t take it from me, take it from past Chairman of the Federal Reserve Board, Alan Greenspan who said, “A government cannot become insolvent with respect to obligations in its own currency.”
(All federal obligations can be satisfied with U.S. dollars.)
Oh, you don’t believe Greenspan or me? Then how about past Chairman of the Federal Reserve Board, Ben Bernanke, who said, “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.”
“In the case of United States, default is absolutely impossible. All U.S. government debt is denominated in U.S. dollar assets.” Peter Zeihan, Vice President of Analysis for STRATFOR
“In the case of governments boasting monetary sovereignty and debt denominated in its own currency, like the United States (but also Japan and the UK), it is technically impossible to fall into debt default.” Erwan Mahe, European asset allocation and options strategies adviser
“There is never a risk of default for a sovereign nation that issues its own free-floating currency and where its debts are denominated in that currency.” Mike Norman, Chief Economist for John Thomas Financial
“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.” Federal Reserve Bank of St. Louis
“There is no inherent limit on federal expenses and therefore on federal spending…When the U.S. government decides to spend fiat money, it adds to its banking reserve system and when it taxes or borrows (issues Treasury securities) it drains reserves from its banking system. These reserve operations are done solely to maintain the target Federal Funds rate.” Monty Agarwal , managing partner and chief investment officer of MA Managed Futures Fund
And then there’s:
We’ve got the right to print our own money that’s the key.
Greece lost their power to print their money. If they could print drachmas they would not have this problem.
They’d have other problems, but they would not have a debt problem. Seventeen countries in Europe gave up their right to print their own money, that’s enormously important.
We’ve got the right to print our own money so our credit is good (Warren Buffet, 2011)
Get it? Despite cartoonists like Toles, who after all is just a guy who can draw stuff, not an economist, the federal government cannot run short of dollars.
And despite cartoons like the Committee for a Responsible Federal Debt(CRFB), that has been highly paid to claim falsely, year after year after year, since 1975, that the federal debt is “unsustainable,” the federal government can “sustain” any size debt.
That’s 45 years of bogus, “sky-is-falling,” Big Lies from the CRFB. They are economists, yet still they lie and presumably feel no shame.
Cartoons are supposed to be funny, and indeed to knowledgeable people, Toles’s cartoon and the CRFB’s articles are hilarious in how wrong they are.
Except for one thing: Most Americans have been led to believe The Big Lie, by the constant, unrelenting drumbeat of disinformation. And this is sad, because the endless disinformation has cost middle-income and poor Americans billions.
Try to pay no attention to the lies. Just remember one main idea:
You can run short of dollars. Your city, county, and state can run short of dollars. Your company can run short of dollars. All are monetarily non-sovereign.
But the U.S. government is different. It is Monetarily Sovereign. It cannot run short of dollars.
Period.
And as for that so-called federal “deficit,” it is necessary to grow the economy.
A federal deficit occurs when the government pumps more dollars into the economy, via spending, than it takes out, via taxing.
A federal deficit is a surplus for the economy. That is how the economy grows.
And as for that so-called federal “debt,” it nothing like your debt. Federal “debt” is the total of deposits into Treasury Security accounts. It’s paid back, not with tax dollars, but simply by returning the dollars in those accounts to the account owners.
The federal “debt” (deposits) is no burden on the government, on taxpayers or on the economy, nor does the federal “debt” (deposits) cause inflation, recession, difficulty in borrowing, or any other myths and fables being foisted on the innocent American public.
In fact, since the federal debt evolves from the federal “deficit” (economic surplus), increases in the federal debt are necessary for long-term economic growth.
But the very rich (who run America) don’t want you to know this, because they fear your demanding increases in Social Security, Medicare, and other social spending. So, they tell you its unaffordable, and the mythical Social Security and Medicare “trust funds” are running out of money.
Neither the federal government, nor any agency of the federal government, can run short of dollars unless Congress and the President want that to happen.
The rich are rich because they have much more than you do, and because of Gap Psychology, they want to keep it that way by cutting your income.
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:
#Monetary Sovereignty - Mitchell 