Debt fear monger speaks takes opposite sides of the same issue

In the previous post (“They feed you garbage to improve your health), we addressed some of the usual false claims about the so-called “federal debt.” We showed why “federal debt”:

1. Isn’t “federal,” and it isn’t “debt.” (It’s non-federal deposits.)
2. Isn’t “unsustainable.” (It’s infinitely sustainable.)
3. Isn’t a burden on the federal government or on taxpayers. (Neither are liable.)
4. Doesn’t indicate financial irresponsibility. (It’s financially necessary for economic health.)
5. Doesn’t put financial markets or federal credit ratings at risk. (There is zero market risk involved in “federal debt.”)
6. Doesn’t indicate the federal government is borrowing or spending beyond its “means.” (The federal government never borrows and has infinite “means.”
7. Doesn’t slow economic growth. (The lack of federal spending slows growth.)
8. Doesn’t cause inflation, recession, or depression (the lack of federal deficit spending causes those events. Federal deficit spending cures them.)
9. Doesn’t cause high interest rates.

Also, we showed that high interest rates:

1. Are not a burden on the government.
2. Are a burden on the public because they add to inflationary pricing, but.
3. Add to GDP growth.

Finally, we showed that the Debt/Gross Domestic Product ratio:

1. Doesn’t indicate a Monetarily Sovereign government’s solvency.
2. Doesn’t consider the differences between a Monetarily Sovereign government vs. a monetarily non-sovereign government.

The much-feared Debt/GDP ratio shows a repeated pattern: It declines because debt fear mongers (like J.D. Tuccille) complain about it until it reaches a low point. Then, we have a recession, which is cured by an increase in the ratio, after which the fear-mongers again begin their complaints.

If you are unfamiliar with the above facts, you may wish to read the previous post and rid yourself of the nonsense that J.D. Tuccille spouts in the opening paragraphs of the following article.

J.D. Tuccille

First, his rehash of the old, familiar, wrongheaded, fact-free stuff:

With Rising Debt, the U.S. Federal Government Is in Bad Company. Governments worldwide have been on a borrowing spree, and prosperity has suffered. J.D. TUCCILLE | 4.3.2024 7:00 AM

Misery loves company, as they say. But does financial irresponsibility also enjoy spending a little quality time with friends? If so, it’s quite a party.

While the U.S. government is famously running up debt to stratospheric levels, governments worldwide have been spending beyond their means and borrowing to make ends meet.

The likely result: financial markets put at risk by over-extended governments and slow economic growth for pretty much everybody.

“Public debt as a fraction of gross domestic product has increased significantly in recent decades, across advanced, emerging, and middle-income economies,” write Tobias Adrian, Vitor Gaspar, and Pierre-Olivier Gourinchas for the International Monetary Fund (IMF).

“It is expected to reach 120 percent and 80 percent of output respectively by 2028.”

Public debt—money borrowed by governments—has steadily risen, they add, because years of very low interest rates “reduced the pressure for fiscal consolidation and allowed public deficits and public debt to drift upwards.” Then, COVID-19 disrupted the global economy, and governments responded by funding “large emergency support packages” on credit.

Now, with interest rates rising, the cost of servicing debt is going up, too. But governments continue to borrow as if nothing has changed. Of course, riskier governments have to pay higher interest rates.

“On average, African countries pay four times more for borrowing than the United States and eight times more than the wealthiest European economies,” United Nations Secretary-General António Guterres cautioned last summer with the release of A World of Debt: A Growing Burden to Global Prosperity. “A total of 52 countries – almost 40 percent of the developing world – are in serious debt trouble.”

As of 2022, that report revealed, global public debt stood at $92 trillion and rising. Interest payments displaced other expenditures in a growing number of nations, especially developing countries. High public debt crowds out financial room for everything else, including the ability of private parties to borrow to start or expand businesses that create jobs and build wealth.

Then we come to a criticism we didn’t remember to address in the previous post:

Public Debt Crowds Out Private Investment “Households who buy government debt reduce their savings in productive private investments,” Kent Smetters and Marcos Dinerstein wrote in 2021 for the Penn Wharton Budget Model. As the spending is unproductive, the economy is poorer, and total savings are lower due to capital crowding out.”

At first blush, that sounds reasonable. Putting your dollars into a T-security account seems to remove them (temporarily) from the economy.

If you had bought stock or private sector bonds, the dollars would have remained in the economy — except for three facts:

1. You still own those dollars. They are part of your wealth. You can sell them or use them as collateral for loans. Your ownership allows you to borrow more at lower rates than if you didn’t own them. This ability is economically stimulative.

2. They earn net additional dollars in interest. While stock dividends and private-sector bond interest increase your wealth, those dollars come from the private sector.

They do not earn net dollars. They are mere dollar transfers within the private sector. By contrast, federal interest comprises new dollars that add to the private sector’s money supply.

3. That so-called “reduction in savings” is offset by the federal government’s spending into the economy. The dollars you deposit into a T-bill, T-note, or T-bond were derived from the federal government’s deficit spending.

Federal total net deficit spending = Total T-security deposits.

Thus, Tuccille doesn’t realize he is taking both sides of the issue. He dislikes federal deficits, which add dollars to the economy, but criticizes deposits into T-security accounts for taking dollars from the economy.

“Government spending redirects real resources in the economy and can crowd out private capital formation,” they add. “An additional $1 trillion debt this year could decrease GDP by as much as 0.28 percent in 2050.”

How does federal spending crowd out capital formation? Does the government paying your Medical bills crowd out anything? No.

Does paying your Social Security crowd out anything? No.

Does paying private contractors to build a road, bridge, or dam crowd out anything? No.

Does even paying federal employees crowd out anything? No.

Every dollar the federal government spends is a newly created dollar that winds up in the U.S. economy or other nations’ economies. Nothing is crowded out. Capital formation is a result of federal deficit spending.

If you take that insight and apply it to a world of governments on a collective borrowing spree, you end up with a hobbled global economy where prosperity becomes increasingly elusive.

Except for a tiny reality. Prosperity has not become increasingly elusive for the Monetarily Sovereign nations and even for most of the monetarily non-sovereign nations.

The reason: U.S. deficit spending pumps new inflation-adjusted dollars into the world’s economies. We are net importers, meaning we export more dollars than we import. We help the world (and ourselves) become richer.

“Medium-term growth rates are projected to continue declining on the back of mediocre productivity growth, weaker demographics, feeble investment and continued scarring from the pandemic,” note IMF’s Adrian, Gaspar, and Gourinchas.

“Projections for growth five years ahead have fallen to the lowest level in decades.”

First, these are IMF projections, which notoriously are suspect. These folks don’t even say how or whether they include Monetary Sovereignty in their analyses. 

Second, it is not reasonable to make a general statement about “medium-term growth rates” without specifying the term and the difference between Monetarily Sovereign nations and monetarily non-sovereign nations.

It is like predicting the growth rate of the world’s children, without specifying their diet and living conditions.

Heavy government borrowing also creates risk for the financial sector by putting banks at the mercy of massive debtors of uncertain creditworthiness.

“The more banks hold of their countries’ sovereign debt, the more exposed their balance sheet is to the sovereign’s fiscal fragility,” note the IMF analysts.

The article supposedly is about U.S. federal debt being too high. But Tuccille drifts off into non-sequiturs.

The U.S. government does not borrow. It creates every dollar it needs ad hoc.  This is the process:

1. To pay a bill, the federal government creates instructions (checks, bank wires, currency), not dollars.

2. It sends those instructions (“Pay to the order of . . . ) to each creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account.

3. At the instant the creditor’s bank does as instructed, dollars are created and added to the M2 money supply measure.

4. The bank then clears its action through the Federal Reserve, a federal agency. One branch of the federal government approves another branch’s instructions.

Thus, in a literal sense, banks create dollars. The notion that banks are “at the mercy of governments” is absolutely true because governments make all the rules by which banks must live.

And yes, banks are at the mercy of a government’s fiscal fragility. 

But that begs the question, “Is the U.S. federal government fiscally fragile? The answer is a resounding “No”! (unless Congress, in a moment of MAGA insanity, insists on not paying bills.

Heavily indebted governments also reduce their ability to act as backstops in a financial crisis as they become the likeliest causes of future crises.

As they continue to borrow, they reduce the likelihood that productive private economic activity will grow them out of their financial problems.

Here, Tuccille demonstrates abject ignorance about the difference between Monetary Sovereignty and monetary non-sovereignty. The U.S. federal government is not “heavily indebted” because it could if it chose to, pay all its current and even future bills today.

It simply could send instructions to every creditor’s bank, instructing all those banks to increase the balances in the creditors’ checking accounts. Instantly, all debt, current and future, would disappear. 

“Higher government debt implies more state interference in the economy and higher taxes in the future,” The Economist points out in its interactive overview of global government debt.

One would think that a publication titled “The Economist” would understand that while state/local taxes fund state/local spending, federal taxes do not fund federal spending. Even if the federal government didn’t collect a penny in taxes, it could continue spending forever.

The purpose of federal taxes is to:

1. Control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to reward, and
2. Assure demand for the U.S. dollar by requiring the dollar to be used for tax payments.
3. To make the populace wrongly believe that federal benefits are unaffordable without tax increases, thus reducing the clamor for more benefits.

Also, add the editors, rising debt “creates a recurring popularity test for individual governments,” which often goes poorly regarding fiscal responsibility because paying outstanding bills isn’t popular with voters.

Paying outstand bills isn’t unpopular. It’s collecting taxes that ostensibly are necessary; that’s the unpopular part.

Higher Debt Leads to Lost Prosperity

Well, isn’t that cheerful? It’s also extraordinarily unfortunate. After thousands of years of grindingly slow progress, recent decades saw the human race escaping poverty.

According to the World Bank, even as populations increased, the number of people living below the poverty line, adjusted for inflation, plummeted from 2.01 billion in 1990 to 689 million in 2019.

In 2016, the economist Deirdre N. McCloskey attributed improving prospects for many of the world’s people to “liberalism, in the free-market European sense.”

But that progress reversed in recent years, with poverty blipping back up (712 million people in 2022) amidst slower economic growth and after drastic government interventions during the pandemic.

A future of stumbling economies hobbled by debt-ridden governments that crowd out private investment is one in which more people are poorer than they would have been if the world had stuck with free markets and implemented a modicum of financial responsibility.

Again, Tuccille was supposedly talking about the U.S. government, except he is mixing some monetarily nonsovereign governments into his comments.

The U.S. “federal debt” has grown from $40 billion in 1940 to $30 trillion in 2024. Where is the crowding out and the poverty he is wringing his hands about? Certainly, not in the U.S., the supposed subject of his article.

I can’t say whether Tuccille is incompetent or dishonest. You decide. Either way, he is wrong, wrong, wrong.

As concerned as the U.N. is about rising public debt, its proposed “solutions” are pretty much what you would expect from that organization. A lot of verbiage about a “more inclusive” system providing “increased liquidity” and “affordable long-term financing” boils down to letting the riskiest governments have a greater say in offering themselves cheap financing. What could possibly go wrong?

The IMF analysts, on the other hand, propose “durable fiscal consolidation” while “financial conditions remain relatively accommodative and labor markets robust.”

I take that as a gentle suggestion that governments need to start paying down their debt to sustainable levels before interest rates and economic conditions deprive them of any options in the matter.

There is only one way for the U.S. government to “pay down its debt.” It has to run surpluses, i.e., to take dollars out of the economy.

That is the worst idea since investing money with Bernie Madoff. Here is what happens every time the federal government pays down its “debt.”

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.

Recessions (vertical gray bars) are preceded by declines in federal deficits and cured by increases in federal deficits.

It’s not just deficits, but deficit increases that are necessary for economic growth.

Would someone please tell Mr. Tuccille that taking money out of the economy causes recessions if we are lucky and depressions if we aren’t. Remind him that GDP = Federal Spending + Non-federal Spending + Net Exports. 

Gentle suggestion or not, governments need to get their fiscal affairs in order before they take us all down with them.

Heavily indebted governments result in burdened economies, leading to a poorer world for everybody.

With its irresponsible borrow-and-spend ways, the U.S. government is, unfortunately, not alone. Most, if not all, world governments are hanging out in very bad company.

Wrong in every regard. Not just wrong but diametrically wrong, pitifully wrong, harmfully wrong.

 

Rodger Malcolm Mitchell
Monetary Sovereignty

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

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY

Why state-funded Social Security or guaranteed income is a colossal mistake. It should be federal.

I long have favored a federal plan in which every man, woman, and child in America would receive a monthly stipend from the federal government. (Some call it UBI—Universal Basic Income. Others call it GI—Guaranteed Income, or Social Security for All.)

A federally funded Social Security for All program was described in a post published seven years ago.

Today, that post was brought to mind by the following article:

a $1,000 monthly ‘guaranteed income statewideThe proposal would have taxpayers fund statewide, $1,000 monthly ‘guaranteed income.’
A measure creating a task force to look into monthly guaranteed taxpayer-funded “unrestricted cash” subsidies to specific individuals in Illinois is being discussed in the state legislature.

An Illinois Senate appropriations committee would review “the landscape of cash supports available to low-income residents” and identify “populations without significant access to cash supports.”

The bill, as filed, says after the board is dissolved at the end of 2027, DHS would administer the program with monthly cash payments of $1,000 to Illinois residents, regardless of immigration status, who provide care for a child or specified dependent, recently gave birth or adopted a child or is enrolled in an educational or vocational program.

By law, the Monetarily Sovereign U.S. government is an infinite horn of plenty, capable of creating an unending stream of dollars at the touch of a computer key without collecting a penny in taxes.

Mike Buehler, an opponent of the measure, said it’s irresponsible to discuss such a program without knowing how much it will cost taxpayers.

You may be surprised that I oppose this and other similar plans.

Here is why:

1. Local governments are monetarily non-sovereign (unlike the federal government, which being Monetarily Sovereign, has the infinite ability to create dollars).

With few exceptions, local governments get their spending money from taxpayers.

The federal government gets its spending money by creating it ad hoc. The federal government does not spend tax dollars.

That is why it can run trillion-dollar deficits with no funding problem at all.

State, county, or city taxpayers pay for local government-funded UBI programs.

Most local tax dollars come from sales taxes and/or local income taxes, most of which are paid by middle—and lower-income residents. Extracting dollars from middle—and lower-income taxpayers is exactly the opposite of the UBI plan’s basic purpose.

2. While the federal government has unlimited access to dollars, local governments have limited abilities to pay for things. So, the benefits must be limited to local governments’ affordability estimates.

This, in turn, requires limiting benefits to specific groups and denying benefits to other groups, which creates two problems:

A. The government must set up a complex and expensive apparatus for monitoring recipients so that people do not cheat.

B. People just outside the limit of qualifications are unjustly deprived of aid, and/or try to find unanticipated ways to qualify.

“I understand that you would have to be a person with a child, or caring for someone in your home or school to be eligible for the benefits.

A local government would have to hire dozens (or thousands?) of people to monitor these qualifications. (Do you have a child? How old? Are you really “caring for” that boarder? Are you still in school, and exactly what is a “school.” How many days or hours do you attend?

Additionally, there would be extensive and expensive paperwork filed, read, and authenticated.

That could be millions of people and the cost could be in the tens of billions of dollars,” Buehler told The Center Square. “And where’s the state going to come up with these funds and the only place to come up with that is to get it from the taxpayers.”

Guaranteed income programs in Chicago and the Metro East St. Louis areas are ongoing, costing taxpayers millions. In 2022, the city of Chicago was in line to spend $31.5 million for $500 a month to go to 5,000 low-income residents.

That same year, Illinois legislators approved a pilot program using state taxpayer funds worth $3.6 million for the Metro East St. Louis area.

Inevitably, a state-run, money-restricted program would evolve to a “nanny-state,” where the money only could be used for approved purposes. And that would have to be monitored.

Ameya Pawar with the Economic Security Project said there are 150 different programs across the country. He gave examples of people using the money to buy sports goods for their children or even to take a vacation.

There is widespread belief that the poor who receive money from taxpayers, should be told what to do with the money (the poor supposedly being too ignorant to know what is best for them). Buying sports goods and taking vacations is not “good” for the poor.

The nanny preference is only to feed starving children, not just make them happy with toys and entertainment. Note the hinted outrage Ameya Pewar expresses for recipients buying baseballs to entertain their kids.

“And all of this money that goes into the pockets to stabilize households flows through local businesses,” Pawar told the committee. “So you see some of this money back in sales taxes, and other taxes.”

No buying from Amazon allowed??

Buehler said there could be unintended consequences, like reducing work productivity and more.

“For regardless of immigration status, I think an unintended consequence could be a flood of migrants coming to Illinois looking for benefits and not having to work for it,” he said.

3. If one state, county, city, or village offers better benefits than another, people will tend to go where the money is and the taxpayers will pay. This is true for citizens as well as migrants.

And note the common but false belief  that the poor are so lazy and unmotivated, if you give them money, they won’t get jobs.

Pawar said the proposed statewide guaranteed program of “unrestricted cash” should be in addition to other taxpayer-funded safety net programs.

Programs like Supplemental Nutrition Assistance Program funds go to buy food. The Low Income Housing Energy Assistance Program is for heating bills. The Temporary Assistance for Needy Families program provides monthly cash assistance to low-income families with children.

“And to get this income, they may not necessarily spend that in their own best interest or the interest of the citizens at large,” he said.

Again, the taxpayer requirement exacerbated the nanny-state belief that the poor are too stupid to spend in their own best interests. “Why am I, as a taxpayer helping these people to take vacations, if I can’t afford one myself.”

All the above-mentioned problems would be addressed by a federally-funded, Social Security program covering every man, woman, and child in America, regardless of income or wealth.

The rich, poor, citizens, non-citizens, young, old, married, single, renter, homeowner, in or out of school, etc., all would receive the stated benefits — and unlike with state and local government programs, no one would pay a penny.

Federal Social Security payments made to every man, woman, and child, require much less monitoring. Most importantly, affordability would cease to be an issue. The federal government can afford anything, and without collecting taxes.

All of the money spent by the federal government would be added to the local economy, increasing everyone’s income.

8 Million Have Slipped Into Poverty Since May as Federal Aid Has Dried Up, October 15, 2020. (By Leigh Lynes: New studies show the effect of the emergency $2 trillion package known as the Cares Act and what happened when the money ran out.)

Here are excerpts from another article on the subject.

33 basic and guaranteed income programs where cities and states give direct payments to residents, no strings attached
The concept of a “universal basic income” has inspired widespread interest in recent years.

Actually, there are “strings,” in the form of qualifications.

More than interest — when former US presidential candidate Andrew Yang announced that a UBI program of $1,000 direct payments to citizens every month would be the keystone policy of his platform, he drew an unexpected amount of grassroots support in a crowded primary year.

Guaranteed income programs have been gaining even more traction during the pandemic, which took a particular toll on low-wage workers and threw many Americans into poverty.

At least 11 direct-cash experiments went into effect this year, Bloomberg estimated in January.

Former Stockton, California mayor Michael Tubbs, took the idea to the next level by launching the Mayors for a Guaranteed Income network. As of this year, there are 60 mayors in the program, advocating — and launching pilot programs for — guaranteed income for their residents.

California recently launched the first statewide guaranteed income program in the US, providing up to $1000 per month to qualifying pregnant people and young adults leaving the foster care system.

“Young adults leaving foster care” and “pregnant people” comprise two, very narrow classes, and $1000 a month is a meager amount. The task of verifying qualifications would be costly. (Imagine trying to verify pregnancy for thousands of people, and who monitors when pregnancies end before birth?)

The basic income program that Tubbs launched in Stockton in 2019, the Stockton Economic Empowerment Demonstration, has been considered the model for other cities that have followed in its footsteps, offering low-income residents hundreds of dollars a month and measuring their job prospects, financial stability, and overall well-being afterward.

It seems like a massive and expensive project for just hundreds of dollars’ worth of benefits.

According to SEED, participants improved in all those metrics.

“Guaranteed income makes a case for investing in our undocumented neighbors and formerly incarcerated residents. In doing so, it addresses the reality of the nation’s fragmented, punitive welfare structure.”

Will taxpayers consider this a reward for being undocumented or incarcerated? (Want to make an easy few hundred dollars a month? Go to jail for some minor charge.)

This kind of program isn’t a new idea, however. The Eastern Band of Cherokee Indians Casino Dividend in North Carolina has been giving tribal members annual funds since 1997, for instance. Alaska has been paying residents out of its oil dividends since 1982.

The Eastern Band of Cherokee Indians Casino Dividend in North Carolina gets its money from casino revenue. Alaska gets its dividend money from oil. Neither collects taxes to pay recipients. That is a major consideration.

Here are a few of the 33 examples mentioned in the above article.

Compton, California. Duration: December 2020 to December 2022. Income amount: $1,800 every three months for 2 years. Number of participants: 800

Tacoma, Washington,Duration: December 2021 to December 2o22, Income amount: $500 every month for 1 year, Number of participants: 110

Stockton, California, Duration: February 2019 to February 2021, Income amount: $500 every month for 2 years, Number of participants: 1ount: Based on the annual dividend from state-owned oil companies, ranged from roughly $2,000 per person in 2015 to $800 in years with lower gas prices.

 Oakland Resilient Families, Duration: Summer 2020 to present, Income amount: $500 per month for 18 months, Number of participants: 600

Alaska Permanent Fund , Duration: Annual, Income amount: Based on the annual dividend from state-owned oil companies, ranged from roughly $2,000 per person in 2015 to $800 in years with lower gas prices , Number of participants: Alaska residents

North Carolina, Cherokee Tribe, The Eastern Band of Cherokee Indians Casino Dividend pays every tribe member annually, Duration: Annual, Income amount: $4,000 – $6,000 per year, Number of participants: Every tribal member.

The Alaska and Cherokee programs succeed long term because they are not funded by taxpayers. A federally funded program would succeed for the same reason. Federal spending is not taxpayer funded.

When state and local taxpayers fund a spending program, the result is that a large group of middle- and low-income people transfers some of their money to a smaller group of middle- and low-income people.

The large group includes all those who pay sales and income taxes. The small group is all those who receive those tax dollars. It’s just dollars rotating within the municipality, enriching some residents at the expense of others. The municipality’s economy receives nothing.

By contrast, when the federal government funds a guaranteed income program the government creates new dollars and sends them to the nation’s recipients. The result is that there is no expense to anyone, but the nation’s economy is enriched with net dollars. (GDP = Federal Spending + Nonfederal Spending + Net Exports).

Guaranteed income programs help narrow the income/wealth/power Gap between the rich and the poorer. While reducing poverty, in of itself, is a worthwhile goal, narrowing the Gap also helps address related, social problems:

Wide Gaps affect not only poverty itself, but health and longevity, education, housing, law and crime, war, ownership, bigotry, taxation, GDP, scientific advancement, the environment, human motivation and well-being, and virtually every other issue related to economics. 

The most successful guaranteed income programs share several features:

1. Funded by a Monetarily Sovereign government or by state owned and controlled businesses. This takes taxpayer costs out of the equation.
2. Minimal requirements for participants achieve voter support by making the plan fairer.
3. Significant benefits. Trivial payments, i.e. $100 a month, etc. will not generate positive voter sentiment.
4. Easy entry and supervision. Difficult entry results in negative feelings by voters. Easy supervision lowers costs.
5. Easily understood goal.

Many good reasons for, and no good reasons why not.

A national Social Security for All plan, with a minimum benefit if $5,000 per year for each adult (18 and over) and $2,500 a year for a child would begin to address the abovementioned social problems.

The Cost:

The U.S. has about 260 million adults (18+) and about 70 million children.

At the $5,000/2,500 level, the benefit cost of the Social Security for All would be $1.3 trillion for adults and $175 billion for children, totaling somewhat south of only $1.5 trillion.

Why do I say “only”? By comparison:

1. 1. In 2023, the federal government spent about $6.2 trillion.
   2. The Gross Domestic Product (GDP) for the year 2023 had a current-dollar value of $27.36 trillion.
   3. In 2023, the U.S. federal government collected a total of approximately $4.71 trillion in tax revenue.
   4. In fiscal year 2023, the federal government’s spending exceeded its revenues, resulting in a deficit of $1.70 trillion
   5. By the end of 2023, the cumulative federal deficit was $26.236 trillion.
   6. The U.S. M2 money supply is about $20 trillion.

Given that:

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”

and

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

A Monetarily Sovereign government spending $1.7 trillion to send an additional $5,000 to every adult and $2,500 to every child — and at no cost to anyone — would seem to be a bargain price and a great investment for America.

Further, because of the multiplier effect*, that additional $1.7 trillion in federal spending, would increase Gross Domestic Product far more than $1.7 trillion.

*Per Investopedia:
A government increases spending or decreases taxes in part to inject more money into the system.

Such fiscal policy has a multiplier effect. That is, every dollar spent can be expected to cause an increase in the gross domestic product (GDP) by more than a dollar.

This is due to the sheer momentum created by the policy. Consumers spend more so businesses produce more goods.

Businesses have to hire more to produce more goods, so more people have more money to spend on goods.

The same phenomenon occurs for both government spending increases and tax cuts. Either tends to increase GDP disproportionately.

A cut in government spending can reduce GDP by a greater degree than the amount saved by the cut.

The expanded Child Tax Credit had a multiplier effect of 1.25 on GDP in the first quarter of 2021, according to an analysis by Moody’s Analytics. The increase in the Supplemental Nutrition Assistance Program boosted GDP by a 1.61 multiplier effect in the same period. Increased defense spending had a 1.24 multiplier effect.

Infinite benefits at no cost to anyone: Can any knowledgeable person object to Social Security for All?

Rodger Malcolm Mitchell
Monetary Sovereignty

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

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY

MMT’s divorce from reality: Jobs Guarantee and inflation fear

Modern Monetary Theory (MMT) is a cousin to Monetary Sovereignty (MS), in that both concepts acknowledge the indisputable fact that the U.S. federal government’s ability to spend is not constrained by the availability of funds.

Neither the federal government nor any federal agency can run out of money unless Congress wants it to. Federal “Trust Funds” are a lie to prevent you from receiving federal benefits.

In short, the Monetarily Sovereign federal government cannot run short of dollars. It cannot “go broke.” It neither needs nor uses tax dollars.

Similarly, no agency of the federal government (Medicare, Medicaid, Social Security, et al) can run short of dollars unless Congress wants it to.

Even if all federal tax collections were $0, the government could continue spending, forever.

This is true of all sovereign issuers of a sovereign currency.

Federal taxes do not pay for federal spending.

The federal government pays for all spending by creating new dollars. Federal tax dollars are destroyed upon receipt.

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Quote from Ben Bernanke when, as Fed chief, he was on 60 Minutes:
Scott Pelley: Is that tax money that the Fed is spending?
Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.

Statement from the St. Louis Fed:
“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.”

Press Conference: Mario Draghi, President of the ECB, 9 January 2014
Question: I am wondering: can the ECB ever run out of money?
Mario Draghi: Technically, no. We cannot run out of money.

Sadly, MMT believers go astray with two false beliefs: MMT’s Jobs Guarantee and the belief that federal deficit spending can cause inflation.

I. JOBS GUARANTEE
Briefly, JG is just what it sounds like: The government guarantees it will find or provide (it’s not clear which) a job for anyone who wants a job.

We have published many articles describing the foolishness of that proposal. Rather than repeat the many, many reasons why the JG is naive, wrongheaded, and damaging, we’ll just provide you with these references:

How the MMT “Jobs Guarantee” ignores humanity.

MMT’s “Jobs Guarantee”: The final nail in the coffin of this naive, foolish program

One more reason why the MMT Jobs Guarantee is a con job

The MMT Jobs Guarantee con job

More proof the MMT’s “Jobs Guarantee” can’t work

The Jobs Guarantee (JG) mouse

Another word on MMT’s Jobs Guarantee and “The Rise Of Bullshit Jobs”

Life in a Jobs Guarantee (JG) World

The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)

Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem.

Will people still work if the government gives them money?

Now, circumstances have arrived to demonstrate reality in the face of MMT’s academic ignorance.

All those people quitting jobs, where are they going?
Kristin Schwab, Oct 28, 2021

You may have heard the news that last week’s initial unemployment claims fell to a new pandemic low. But even though layoffs are decreasing, it’s also true that lots of workers are leaving their jobs and lots of employers are still having trouble filling them.

So, where are the workers who are leaving jobs going?

Right now, it is statistically more difficult to become a receptionist than to get into Harvard. That’s according to data from ZipRecruiter, where Julia Pollak is chief economist.

“I have a lot of bad news for job seekers in certain occupations. Some are much more competitive even,” Pollak said.

Some of these jobs are specialized or senior roles, but a lot of them are what Pollak calls pleasant jobs with predictable schedules, such as in customer service or communications — and fields like airport security.

Guess what, MMT? People aren’t simply mindless pegs to be fitted into crap-job holes as JG would do. Human beings have desires. They want — no, demand — good jobs: Good pay, good conditions, good futures.

MMT’s JG program, designed by academics who have not experienced reality, relies on people being so desperate they will take any job offered.

When people are selective about their lives, JG falls apart.

“So, jobs where you have some degree of prestige, perhaps a uniform and a union looking out for your interests,” Pollak said.

The growing interest in jobs that are more stable and offer better pay and benefits makes sense when you compare them to jobs that require similar skills and are begging people to come back — think less predictable or less protected industries like trucking and restaurants.

Imagine that, MMT, people want stability, better pay, and better benefits, not what a federal JG bureaucracy offers them.

“If you’re a worker at a restaurant and suddenly the restaurant is short-staffed, it’s going to be that much harder for you to actually manage your shift,” said Daniel Zhao, an economist at Glassdoor.

People are tired, burned out and fed up. And a lot of them are looking for a new work-from-home lifestyle. Glassdoor said searches for remote roles is up more than 350% in the last year. Whether everyone can get one is a different story.

The paternalistic Jobs Guarantee was a depression-era solution, that is as appropriate as a hand-crank calculator in today’s computer age. Sadly, MMT still doesn’t get it.

Instead of JG nonsense, we finally are leaning toward Step #3 of the Ten Steps to Prosperity: Social Security for All.

II SOCIAL SECURITY FOR ALL
The following article calls it, “Guaranteed Basic Income” (GBI). Different name, same fundamental concept: Instead of finding crap jobs for the poor, simply give people money.

Guaranteed basic income is coming
By Alice Yin and John Byrne Chicago Tribune, The Tribune’s Gregory Pratt contributed

Thousands of struggling Chicago residents will receive monthly cash payments from the city of Chicago as it becomes home to one of the largest guaranteed income programs in the U.S.

Mayor Lori Lightfoot’s $31.5 million basic income program is just a sliver of the total $16.7 billion budget, which will be buoyed by federal COVID-19 relief funds and won City Council approval Wednesday.

Few details of the pilot have been hammered out yet, except that 5,000 households will receive $500 per month for a year — with no strings attached. The lowest-income residents who suffered financial blows from the COVID-19 pandemic will be the focus.

When the funds go out, Chicago will join a contingent of American cities that have warmed up to the concept of guaranteed income.

Once deemed a pipe dream in mainstream politics, the idea of handing unconditional cash directly to those in need has particularly gained steam during the coronavirus-fueled recession, when most Americans saw multiple rounds of stimulus checks and other temporary social safety net expansions.

However, guaranteed income pilots have launched before the pandemic too, such as in Stockton, California, under former Mayor Michael Tubbs.

The program doled out $500 monthly payments to a small subset of low-income families. In June 2020, Tubbs started the coalition Mayors for a Guaranteed Income, which now has more than 50 mayors on board, more than two dozen of whom are piloting the concept in some form.

Though Lightfoot has touted her proposal as the largest in U.S. history, Los Angeles is in the process of implementing its own guaranteed income pilot targeting 3,000 households with $1,000 a month for a year.

Andrew Yang, a Democratic presidential candidate in 2020, has also championed a more far-reaching version of cash assistance known as universal basic income, which would go out to all adults regardless of means.

Rather than insisting on the Puritanical demand that people must labor in order to survive (i.e JG), more enlightened city governments recognize that at least at some basic level, poverty is harmful to the whole nation, and Americans have a right to live.

The irony is that monetarily non-sovereign cities (which are financially limited) are doing it rather than the Monetarily Sovereign federal government, which is financially unlimited.

But that is why the efforts are so small, with just a few thousand households receiving benefits.

Not all Chicago aldermen were on board with Lightfoot’s plan. Her overall budget passed 35-15, with some of the opposition pointing to the basic income program.

Southwest Side Ald. Matt O’Shea said after the vote that the pilot won’t work because “in two years, we won’t be able to afford it.” He’d rather see resources spent on boosting child care and “getting people back to work,” he said.

“Just giving money out to people when there’s tens of thousands of jobs in our city right now, that’s not something I can support,” O’Shea said.

But that is the whole point. There are “tens of thousands of jobs” people don’t want. Arrogant academic snobs claim the “underclass” should be grateful to work crap jobs for crap wages.

Those are Gap Psychology words. They serve only to widen the Gap between the rich and those below. JG is cruel and ignorant. It dooms people to failure. It is bad economics.

Giving people money turns them into consumers whose spending helps the entire economy.

Apparently, people are tired of the “work ’til you drop” routine. They have the strange desire to lead pleasant lives, no matter what the rich tell them. If people won’t work, it’s not because of laziness, as the rich love to claim. It’s because the jobs are unattractive.

Back in March, when aldermen held a hearing on a proposal over direct monthly checks, caucus chairman Jason Ervin said it would be a “slap in the face” to proceed with guaranteed income before setting up a reparations programs for descendants of slaves.

That’s a perfect example of the old, “We can’t do this before we do that” stalling routine.

It’s like this: “We can’t feed them until we clothe them, and we can’t clothe them until we house them, and we can’t house them until we educate them, and we can’t educate them until we give them free healthcare, and we can’t afford to give them free healthcare until we raise taxes — and we can’t raise taxes because no one wants that.

“So we can’t do anything. Sorry.”

One of City Council’s loudest voices for direct cash assistance has been Northwest Side Ald. Gilbert Villegas, who said his mother received a monthly $800 stipend through the Social Security survivors death benefits program after his father died.

Villegas introduced a proposal ordinance this spring that largely resembled Lightfoot’s plan of $500 monthly payments to 5,000 households, but it did not pass.

Villegas’s mother received benefits from a federal agency, that is funded from an unlimited source. City governments are not unlimited sources.

Still, Villegas said he’s prepared to go all-in on helping work out the details of Lightfoot’s program. He wants an eligibility threshold of households earning 300% or less of the federal poverty level, and Chicago Public Schools families should be prioritized, he said.

The problem with income eligibility programs is they are expensive to administer, unfair to those who barely miss out, and subject to cheating.

Though most guaranteed income programs are still nascent, researchers have examined the effects — with limitations. The current pilots in place are narrow in size and duration, said Carmelo Barbaro, executive director of the University of Chicago Inclusive Economy Lab.

Still, there is promise in further investigating the results because unlike other safety-net programs, direct cash assistance is simpler to implement, he said.

“Broadly accessible and unconditional cash transfers like Chicago’s guaranteed income pilot are intended to address those limitations of existing programs,” Barbaro wrote in an email. “The cost of such programs is higher, but the benefits could also be higher.”

No deductible, comprehensive Social Security for All is affordable for the federal government (as are all federal expenses). It would be simple to administer, and massively beneficial to the economy.

University of Pennsylvania professor Ioana Marinescu, an economist who has also studied such programs, said the early signs show that some of the outcomes feared by critics may not have materialized.

A 2014 research review on the effect of cash transfers on alcohol and tobacco purchases, for example, found virtually no change in or even a decrease in spending on these so-called temptation goods.

“There’s advantages to cash in terms of flexibility,” Marinescu said. “There could be drawbacks if you’re worried that people misuse the cash. But that doesn’t seem to be the case based on the empirical evidence.”

The rich like to portray the poor as ignorant sloths who will use any extra money for drinking, gambling, smoking, and drugs. That gives the rich a fake excuse to widen the Gap and thereby make themselves richer. Republicans, the party of the rich, invariably vote against money for the poor.

(The Gap is what makes the rich rich. Without the Gap, no one would be rich. We all would be the same. The wider the Gap, the richer the rich are.)

The lack of money is the biggest problem in any economy. The best way to cure that problem is to give people money.

The rich hate it, and invent excuses for not doing it, because they don’t want the Gap between the rich and the rest to be narrowed.

III Inflation
Contrary to popular myth, inflation never is caused by “too much” federal deficit spending. Inflation always is caused by shortages of key goods and services.

There is no correlation between federal deficit spending (blue line) and inflation (red line).

Today’s inflation is related to shortages of energy, labor, food, and computer chips.

Inflation actually can be cured by additional federal spending to pay for scarce goods and services.

In Summary

1. The Monetarily Sovereign federal government has infinite access to dollars. Neither the government nor any agency of the government can run short of dollars unless Congress wants that to happen.
2. Federal taxes do not “pay for” federal spending. Federal spending is paid for by the creation of new dollars, which the government has the infinite ability to do.
3. Federal spending does not cause inflation. Inflation is caused by the scarcity of key goods and services. Federal spending can cure inflation by paying for scarce goods and services.
4. America is not short of jobs. America is short of good jobs. Modern Monetary Theory’s Jobs Guarantee will solve zero problems, and in fact exacerbate a “crap jobs” economy.
5. Poverty, the lack of money, is bad for the American economy. Poverty is not cured by bad jobs, but rather by putting money in the hands of the impoverished. This creates new consumers, whose purchases grow the economy,  which grows businesses that are able to provide attractive jobs.

It all begins putting with money into the hands of the people, which the U.S. federal government has the infinite ability to provide.

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

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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
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

Why is there no federal “debt” or “deficit,” and 7 other interesting questions.

[According to the MonopolyⒸ game rules, money is unlimited; if the Bank runs out of money it may issue as much as needed “by merely writing on any ordinary paper”.]

BACKGROUND
We previously have discussed the parallels between the MonopolyⒸ game’s Bank and the U.S. federal government.  Both are Monetarily Sovereign, which means:

Create a column for each player.

1. They cannot run short of money.
2. They have no need to borrow money.
3. They do not need to collect taxes.
4. And the taxes they collect are destroyed upon receipt.

Let’s say you wish to play the MonopolyⒸ game with three friends, but when you open the box you find it has no money.

What do you do?

The paper “money” in a MonopolyⒸ game merely is a convenience, not a necessity. The game can be played in exactly the same way, without paper MonopolyⒸ dollars.

You simply can draw four columns on a sheet of paper — one column for each player. Then you write 5,000 (or any amount) at the top of each column. The total of the columns (say, 20,000) is the total amount of money in the game.

When any player spends money, you deduct that amount from the last number in the column, and when any player receives money, you add that amount.

But what happens when a player is required to pay money to the Bank? There is no column for the Bank. So, you simply deduct that amount from the player’s column.

Since the bank has no column, the money is destroyed. No record is kept of Bank “deficits.” The total in the game is now less than 20,000 MonopolyⒸ dollars.

This is similar to what happens when you pay taxes to the federal government. Although the federal government keeps a record of that payment, it doesn’t use those dollars for anything. Effectively, the U.S. dollars are destroyed.

And, like the MonopolyⒸ bank, the U.S. federal government creates brand new dollars, every time it spends.

And what happens when the MonopolyⒸ Bank spends money (for instance by paying 200 dollars when a player passes “GO”)? You add that 200 dollars to the appropriate player’s column. The total money in the game now increases by 200 Monopoly dollars.

The MonopolyⒸ Bank doesn’t have debt, because it simply creates new MonopolyⒸ dollars by the very act of spending. Similarly, the federal government creates new U.S. dollars by the very act of spending.

QUESTIONS
1. What is the federal “deficit”?
The so-called “deficit is the misleading name given to the difference between the amount of money the federal government collects vs. the amount it spends.

The deficit is just an arithmetic difference; it does not imply a real financial relationship between collections and spending.

Reductions in federal debt growth introduce recessions (vertical gray bars). Recessions are cured by increases in federal debt growth.

The federal government has the unlimited ability to create U.S. dollars, so the deficit merely shows how many dollars the government sends into the economy compared to the number of dollars the government takes from the economy.

Thus the so-called “deficit” more properly should be viewed as an “economic surplus.”

Because deficits add dollars to the private sector, they are necessary to cure recessions and depressions.

2. What is the federal debt?
The government accepts deposits into U.S. Treasury Security accounts. The purpose of these accounts is not to supply the government with dollars (it creates dollars at will), but rather:

1. To help the government control interest rates.
2. To provide the world with a safe “parking” place for unused U.S. dollars, which helps stabilize the dollar.

The total of deposits into the U.S. Treasury Security accounts is misleadingly known as the federal “debt,” though the accurate term would be “deposits.”

3. Do federal taxpayers pay for the federal debt?
These T-security accounts pose no burden on the federal government or on taxpayers. The government pays interest into these accounts by creating brand new dollars.

The accounts are paid off by sending the dollars that reside in the accounts, back to the account holders. No tax dollars are used.

4. Does the federal government borrow?
Unlike state and local governments, the U.S. federal government does not borrow. Why would it? Being Monetarily Sovereign, it has the unlimited ability to create dollars.

Though accepting deposits into Treasury Security accounts sometimes wrongly is called “borrowing,” those dollars are not used by the government. They stay in the accounts, earning interest, until maturity, at which time they return to the account owners.

The term “borrow,” implies that the borrower has some need of, or use for, the thing being borrowed. The federal government has neither need of, nor use for, the dollars deposited in T-security accounts.

The purposes of federal T-securities are:

1. To help the Federal Reserve control interest rates
2. To provide a safe parking place for unused dollars, which stabilizes the dollar.
3. To convince the public that the federal government does not have the unlimited ability to create dollars.

(#3 helps the very rich prevent the public from demanding more social spending.)

5. Does federal deficit spending cause inflation?
Federal deficit spending adds growth dollars to the economy.

There is a popular myth that “excessive” government spending causes inflation. The common belief is that increasing the supply of dollars, without increasing the demand for dollars, would make each dollar less valuable, which is the definition of “inflation.”

While the total of deficits (blue line) has increased massively, inflation (red line) has been comparatively modest.

In reality, however, adding dollars to the economy puts spending-dollars into consumers’ pockets, which grows the economy and increases the demand for dollars. (See #6.)

Since 1947, the U.S. federal deficit increases have totaled more than 80,000%, while prices have increased significantly less.

The illusion of deficit spending causing inflation comes partly from the images of wheelbarrows filled with money during hyperinflations.

But those were examples of hyperinflations causing currency printing, and not the other way around.

Example: Zimbabwe. Farmland was taken from white farmers and given to blacks who did not know how to farm. Food shortage and then hyperinflation predictable results.

Inflations are caused by shortages, usually shortages of food or oil.

6. How is inflation prevented and cured?
The standard, recommended cure for inflations and hyperinflations is to reduce government spending, aka “austerity.” Unfortunately, this actually can worsen the problem by exacerbating the shortages.

The best prevention/cure for modest inflation: First raise interest rates to increase the value of the currency. This can be done quickly and incrementally, without the need for time-consuming, politically-tilted debates in Congress.

Meanwhile, to prevent/cure more serious inflations, increase government financial support for farming and oil exploration. Because this requires a counter-intuitive increase in government spending, it can take longer for a government to implement, but it is the only path to ending an inflation.

In extraordinary circumstances, it may be necessary to introduce a new currency, while focusing financial efforts on food and oil supplies. Until food and oil shortages are cured, inflations and hyperinflations cannot be cured.

7. How does Modern Monetary Theory (MMT) differ from Monetary Sovereignty (MS)?
These two economic philosophies agree that the federal government cannot run short of its own sovereign currency, the U.S. dollar, federal taxing does not fund federal spending, and that federal deficit spending adds growth dollars to the economy.

They further agree that the federal “debt” is not a burden on the federal government or on federal taxpayers.

MMT’s primary goals are full employment (effected by a Jobs Guarantee) and a stable currency.

In contrast, MS’s primary goals are economic growth and a reduction in income/wealth inequality (via the Ten Steps to Prosperity, below).

Since the great recession of 2008, unemployment (blue line) has dropped to low levels, and inflation as been within the Federal Reserve target of 2.5%. That would mean the economy already has met MMT’s goals. Presumably then, for MMT, all is well.

But wealth/income inequality has grown markedly, so clearly MMT’s goals are inadequate.

GINI index for the United States

Of the nations measured, only Brazil and Mexico have greater inequality than the U.S.

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

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

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

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

Ten Steps To Prosperity:

1. Eliminate FICA

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

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

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

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

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

9. Federal ownership of all banks

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

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

MONETARY SOVEREIGNTY