Rodger Mitchell’s blog…
–Monetary Sovereignty: The key to understanding economics
The jokers at the Forbes blog are at it again.
FORBES: Today’s federal government is a massive and out of control entity. Its annual spending, which is quickly approaching $3.7 trillion, is all the proof we need.
COMMENT: Actually the U.S. government expects to spend even more than that between now and 30 Sep 2016.
But don’t cry, Forbes. The U.S. government will claw back and destroy more than $3.5 trillion via taxes. Here’s what the U.S. Office of Management and Budget says…
The current federal budget will not be fully known until the end of the current fiscal year on 30 Sep 2016.
Bill Clinton’s surpluses are in red, because a surplus for the U.S. government is a deficit for the U.S. economy. (Likewise a federal deficit is an economic surplus.) Surpluses always cause recessions. (Likewise deficits can cure recessions.)
In 2001 the surpluses began to fall as W. Bush ordered the invasion of Afghanistan (“Operation Enduring Opium”). By 2002 the surplus became a deficit because of Bush’s tax cuts (mainly for the rich). Treasury Secretary Paul O’Neill screamed about the growing deficit, but Bush was planning to spend many more federal dollars for the upcoming invasion of Iraq. O’Neill screamed louder, so Bush fired him, and invaded Iraq four months later.
The corporate media outlets consider Republicans to be “fiscally responsible” no matter how much Republicans spend, and no matter how big the federal deficit becomes. Meanwhile Democrats are said to be “fiscally irresponsible” no matter how small the deficit shrinks. This happens because right-wingers use the (fake) “national debt” as a (fake) “crisis.”
This (fake) “crisis” will continue to grow as long as the U.S. Treasury keeps selling T-securities, and as long investors (and the U.S. government itself) keep buying them. When a democrat is President, this is “catastrophic.” When a Republican is President, it’s no big deal.
Incidentally, W. Bush’s spending was far larger than what the OMB says it was in the chart above, since Bush made his “war of terror” funding off-budget. Off-budget money does not fund social programs for average people. Thus, the money keeps flowing, unaffected by any “sequestration” or “budget control acts.”
How much money is created off-budget for the “war of terror”? The amount is classified for reasons of “national security.” No one could audit it anyway. Even the Pentagon’s on-budget money cannot be audited, since the military-industrial complex is too vast and corrupt.
Some sources say the war of terror funding for 2014 was 51 billion, and that the Republicans who control the U.S. want to double that. Once again we see that Republicans love to increase federal spending as long as it’s not on social programs that help average Americans. For example, Republicans like to give more and more to military contractors who pay bribes and kickbacks to Republican politicians. Indeed, with Republicans in control of the U.S. Congress, bribes and kickbacks no longer exist. There is only “free speech,” according to the U.S. Supreme Court.
(In any society, the rich and powerful control the money, plus the nation’s language and its collective thought processes.)
In short, U.S. dollars are in infinite supply, and politicians give as many dollars as they like to their friends, while telling you that the inexhaustible well is dry. Politicians do this to make you grovel before them, and to widen the Gap between you and the rich.
Despite the off-budget antics, the chart above remains more or less accurate. You can verify this yourself. When the deficit plummets, businesses start folding all around you, and everyone becomes poorer.
In 2009 (see chart above) Obama’s stimulus package increased the deficit. In June 2010, David Cameron and Stephen Harper unleashed the austerity mania virus in Toronto Canada, which quickly raged across the planet like a genocidal plague.
Austerity is always gratuitous. If a nation does not have Monetary Sovereignty, it cannot create its own spending money. If that nation has a trade deficit, then the nation cannot avoid austerity. Yet austerity nonetheless remains gratuitous, since that nation’s government chose to give up its Monetary Sovereignty, and the government could choose to reclaim it at any time.
Austerity mania did not infect the U.S. government until 2011 when Obama started making his “Grand Bargain” with Republicans in the U.S. Congress: “You Republicans want to cut social programs in order impose more poverty on the little people. I will agree to this if you will let me increase the tax base, in order to impose more poverty on the little people.”
For Republicans this was a win-win (or “heads I win, tails you lose), and the deficit began plummeting in 2011, as you can see in the chart above.
Forbes says that federal spending is what’s “out of control.” In reality, what’s out of control is austerity. Perhaps Forbes is not able to access any of the countless web sites that show the shrinking deficit.
FORBES: Federal government revenues will be slightly over $3.26 trillion during this fiscal year. Unfortunately, this is over $434 billion short of expenditures. This shortfall will worsen an already enormous $18.1 trillion debt.
COMMENT: Garbage. First, federal taxes are not “revenues,” since the U.S. government has no need or use for tax monies, and in fact destroys tax monies upon receipt. Second, the U.S. government does not have “expenditures,” since the U.S. government does not “spend” money. The U.S. government creates money by crediting various bank accounts. (Banks create money is the same way, but as loans.) Third, the size of the “national debt” depends on the aggregate nominal value of Treasury securities the U.S. government decides to sell. Technically the Treasury is supposed to offer Treasury securities whose aggregate nominal value equals the budget deficit, but this never happens in real life. Many T-securities are “purchased” by the U.S. government itself, including the Fed. It’s all a bunch of accounting sleight-of-hand. The point is that in real life, the federal deficit has little or no affect on the so-called “national debt.” Besides, a lot of the U.S. government’s funding operations are off-budget anyway.
FORBES: Spending for most of these items will continue to rise. This is inevitable because the cost of health care will continue to increase.
COMMENT: So what? The U.S. government can afford anything. Incidentally, government funding for things like Medicare will not necessarily increase. Politicians can slash Medicare, using the lie that the U.S. government is “broke.”
FORBES: Second, people are living much longer. Both issues will push spending higher for Medicare, Medicaid, Social Security, and federal pensions.
COMMENT: More nonsense. Austerity is causing average life expectancy to decline among poor whites. Some people are living longer, which means more federal money will be created each year, but so what? Dollars are as inexhaustible as are points on an electronic scoreboard. The U.S. government can literally create a hundred trillion dollars by typing the number “100,” followed by twelve zeroes.
“But then we’d have hyper-inflation,” you say.
Oh shut up. First you say that dollars are limited, and the U.S. government is broke. Then you admit that dollars are not limited, but you say we will have hyper-inflation unless we have more poverty and austerity. Which lie to you want to cling to? Make up your mind.
FORBES: In addition, because the national debt will continue to expand and interest rates will most certainly move higher, the net interest on the national debt will become an increasingly significant budget item. These factors do not bode well for the future.
COMMENT: More lies. The Fed sets the “overnight” rate, plus interest rates on T-securities, regardless of the size of the so-called “debt,” and regardless of federal “spending.” It’s a Fed decision. What does “not bode well for the future” is continued fiscal austerity.
FORBES: Even though we are currently experiencing large budget deficits, this has not always been the case. In fact, if you exclude World War I and World War II, the federal government did not overspend much until the early 1970s.
COMMENT: The deficit is plummeting, you moron. Incidentally the U.S. government created so much money to fund government operations during World War II that there was a danger of inflation. The U.S. government removed this danger by instituting a federal withholding tax, plus a campaign to encourage average Americans to by “war bonds.”
Once again we see that for right wingers,” over-spending” and “big government” is not a factor of the number of dollars, but of the target of dollars. Funding for social programs like Social Security is “over-spending” regardless of how small the funding is. Money created for war and for Wall Street bailouts is not “over-spending,” regardless of how giant the funding is.
FORBES: Since President Nixon removed the U.S. from the gold standard in the early 1970s, deficit spending has become the norm as politicians have used the federal checkbook as a means to payback their supporters and to remain in power.
COMMENT: Wrong. The “gold standard” was always a charade from the beginning. It was a pretense. As with the “national debt” gimmick, politicians cited the “gold standard” gimmick when they wanted to cut funding for social programs, and they ignored the gimmick when they wanted to increase federal funding. Whenever politicians actually tried to link U.S. federal funding to the shifting prices of gold on the markets, it caused such fiscal chaos that politicians quietly ignored the “gold standard.”
The Federal Reserve Act (1913) required 40% “gold backing” of Federal Reserve notes issued. This too was nonsense. It was a pretense. No money in world history has ever been “backed” by any precious metal, just as no points on an electronic scoreboard have ever been “backed” by gold, silver, or mayonnaise. Money and scoreboard points have value because people agree that they do. Period.
Gold has no intrinsic monetary value. None. Zero. Therefore how could gold “back” any currency, or “back” any government’s fiscal policy?
The monetary value of gold is determined by people who trade gold in the hope of getting more money in the trade. If there were no monetary system, then a mountain of gold would not even be worth a penny.
Today politicians don’t even bother with the “gold standard” pretense. Politicians simply say, “The U.S. government is broke,” and the masses believe them.
But if the “gold standard” was nonsense, then why did President Roosevelt issue Executive Order 6102 (5 April 1933) which forbade “the hoarding of gold coin, gold bullion, and gold certificates within the continental United States”?
Wikipedia says Roosevelt did this, “To remove the constraint on the Federal Reserve which prevented it from increasing the money supply during the depression.”
Huh? The Fed controlled the money supply? There was no fiscal funding from the government?
Roosevelt did it to prevent right-wing politicians from using the “gold standard” gimmick to nix the New Deal. (Even then, Roosevelt had to bow to the racists by initially barring non-whites from receiving Social Security.) Moreover, in 1933, dollars were not as widely accepted as they are today. The illusion of dollars being “backed by gold” encouraged foreigners to accept dollars for their goods that they exported to the USA. And if they didn’t want dollars, then the U.S. government could offer them gold, or offer them paper titles to quantities of gold. The Executive Order allowed the U.S. government to collect some of the gold out there. It required everyone to surrender his gold to the Fed in exchange for $20.67 per troy ounce, but do you think everyone obeyed the order? Of course not. They buried their gold coins and dinnerware in the cellar. (Jewelry was exempted by the order.) Roosevelt’s Executive Order was a means to leave the “gold standard” gimmick intact, while dollars were created for the New Deal, and then for World War II.
FORBES: The graph below shows the federal budget deficit or surplus from 1901 through 2020. As the chart clearly shows, the deficits were insignificant until the U.S. abandoned the gold standard in the early 1970s.
COMMENT: Forbes says that deficit spending became routine because the “gold standard” ended. Nonsense. As you can see above, deficit spending became necessary in the mid-1970s when the USA went from having a foreign trade surplus to a foreign trade deficit. Huge numbers of dollars started flowing overseas.
In the late 1990s you can see Clinton’s disastrous budget surpluses. Now look at the words “great recession.” Forbes implies that the recession was caused by an increased deficit, when in reality the increased deficit was Obama’s response to the recession of 2008. It was Obama’s “stimulus package” (The American Recovery and Reinvestment Act of 17 Feb 2009). This deficit seems far larger than the World War II deficit, because the chart makes no adjustments for inflation.
FORBES: This deficit spending may be one reason the electorate has been increasingly angry with Washington.
COMMENT: Agreed. The shrinking deficit spending is one reason why the electorate is angry with Washington. Austerity is impoverishing the lower classes (and making rich people richer).
FORBES: The United States of America is on an unsustainable path.
COMMENT: Agreed. Austerity (deficit reduction) is killing the lower classes. Soon the masses will not be able to materially support the rich and their Wall Street casinos.
FORBES: The U.S. government can no longer afford to overspend as it has been doing.
COMMENT: You mean the economy can no longer afford the government’s under-spending. A balanced budget causes an unbalanced economy.
FORBES: If our elected officials choose to ignore this, the debt will continue to climb until the U.S. begins to look like Greece.
COMMENT: Whoops, you mentioned Greece, which means your garbage gets cut off right there.