Eighty percent of everything we learn is acquired between birth and eight years of age. Arithmetic, language, spatial orientation, manual dexterity, interpretation of emotions, and all the other basic items we take for granted comprise far more information than we consciously realize.
The remaining twenty percent of our knowledge is picked up during the rest of our lives, and it is subject to revision and re-revision. In some cases the revision process can be quick; even sudden. In other cases the process is drawn out for decades, and may never be completed. Each person proceeds at his own rate. Each topic is revised at its own rate. Speeding up the revision process requires effort, concentration, and moral character. (Selfishness is a huge impediment to genuine wisdom.).
Put another way, “paradigm shift” is not a regular process like the ticking of a clock. It’s like a river with currents and eddies; a river inside our minds, and among society as a whole. A river that, for now, is extremely polluted with austerity mania and inequality.
And so, when people’s minds are full of lies (for example, when people falsely believe that taxes pay for the federal government), people cannot correct the lies right away. They need time, and their effort faces numerous barriers that they guard and defend. Barriers that interlock and reinforce each other.
In the crude illustration above, the white illuminated core represents a full understanding of Monetary Sovereignty. To arrive at the core we must strip away layers of lies, habits, and so on.
I mention all this because a moment ago I read an article titled Eight facts that prove our govt. is not going broke. The title sounds good, but the author still has a lot of residual “dead wood” to clean out of his mind.
Until we fully understand Monetary Sovereignty, we inevitably do more harm than good, no matter how honorable our intentions. Our act of opposing austerity ends up supporting austerity.
Anyway let’s glance at this article whose author means well, but who inevitably supports the Big Lie.
If there really is a national debt problem, then Pete Peterson and his fellow tax-evading financial moguls have contributed mightily to it.
BOOM. Right away he blows it, three seconds into the article. The instant we mention any part of the Big lie (e.g. the U.S. government runs on tax revenue) we lose. We forfeit to the entire Big Lie. We let poverty, austerity, and inequality win.
What’s really behind the debt mania is a relentless effort by the rich to use a trumped-up crisis to shred the social safety net and bring forth their bleak vision of a dog-eat-dog society where government provides for no one (except the super-rich). Unfortunately, many liberals are also buying into a “debt crisis” that doesn’t exist.
It’s time to inoculate ourselves from deficit hysteria. The first step is recognizing that virtually everything we read and hear about government debt and deficits is misleading, manipulative or just plain wrong.
Yes! But then come screw-ups. The author is tripped up by the residual dead wood in his mind.
Deficits are how much the government budget goes into the red in a given year. The red ink is covered by the sale of government bonds to investors here and abroad. The national debt is the total amount of what the U.S. owes on those government bonds. If we have deficits year after year, then the debt gets larger year after year.
No. The U.S. government doesn’t “go into the red,” since the government can create limitless dollars. Moreover the (non-existent) “red ink” is not “covered by the sale of federal government bonds.” Supposedly the Treasury sells T-securities whose aggregate nominal value in a given year equals the federal deficit in a given year. But since the U.S. government itself buys almost half of all T-securities, this factor is trivial and irrelevant. What happens in real life is that the Treasury sells T-securities (via the Fed’s Open Market Committee) according to what investors want, not according to the size of the federal deficit. The wording of the article makes it seem that the U.S. government borrows its spending money from investors.
And so the Big Lie wins again.
Then the author, Les Leopold, speaks of debt-to-GDP ratios, which are meaningless for entities that have Monetary Sovereignty (like the U.S. government). Once again, we lose the instant we so much as mention any part of the Big Lie such as “U.S. government debt-to-GDP ratio.”
And then come more errors…
The national debt is only too high if the underlying economy is shaky. Investors all over the world are betting that the U.S. is the strongest, most stable nation right now, and over the long haul. They expect our economy to grow, which automatically will shrink the debt ratio. It’s simple math. Economy up, debt down as a percentage of the economy (all other things being equal).
No, no, and no. For a nation with full Monetary Sovereignty like the USA, the “national debt” can never be “too high,” regardless of the strength or weakness of the U.S. economy, since the U.S. government can create as many dollars as it likes. And the “debt ratio” will always be meaningless.
The author, Les Leopold, wants to claim that the U.S. government has no “debt crisis.” However he thinks that dollars are limited. That is, he wants to debunk the Big Lie but he still clings to it. This shows why I started this blog post by mentioning the learning process, and how it takes a long time to clear out the dead wood in our minds.
Then Les Leopold gets it right. He says the USA can’t become like Greece, since the USA has its own currency. He says that “economies mired in major recessions require spending, not austerity, to function properly.”
Good. But then come more errors. More dead wood.
As John Maynard Keynes noted two generations ago, when an economy is in a depression, the worst thing you can do is pay down government debt, precisely because families and businesses already are belt-tightening so much. Instead you need to run up even more debt to make up for the demand we lose when households “tighten their belts.” If major governments move to austerity during hard times, the recession grows deeper.
Yes, but austerity has nothing to do with “paying down the debt.” Austerity is about reducing the federal deficit. The purpose of austerity is to suck money out of the real economy, thereby plunging the masses into poverty so that they become debt-slaves of the bankers, and so rich people can become gods over the rest of us. In the USA there is never any “paying down the debt,” no matter how much austerity the government imposes on the masses.
Leopold wants more deficit spending, which is good, but when he talks of “paying down the debt” he opens the door to austerity and the Big Lie.
Then Leopold correctly notes that when it comes to T-securities, the ratings agencies should be ignored, since the agencies are paid to lie. They are paid by the criminal bankers to rate securities the way the criminals want them rated.
But then – whoops – Leopold refers to the “Social Security Trust Fund.” There’s that residual dead wood again.
Then Les Leopold flies completely off the rails.
Leopold says the “national debt” is not caused by “runaway entitlements,” but by the W. Bush tax cuts, plus the “unfunded wars,” plus the “loss in federal revenues” caused by the 2008 financial crisis, plus the Obama stimulus package of 2009.
Let’s correct him.
 In the real world, the size of the “national debt” (that is, the amount of money that people deposit in Fed savings accounts by purchasing T-securities) has nothing to do with the size of the deficit. Not really. Therefore it does not matter if taxes are high or low.
 “Unfunded wars” is another aspect of the Big Lie. For the USA there are no such things as “unfunded wars.” The U.S. government funds its wars with dollars created out of thin air.
 The U.S. government has no need or use for “revenues.” Furthermore the “loss in revenues” is irrelevant to the amount of money that people deposit in Fed savings accounts.
But Leopold gets worse…
As the bottom black line on the graph below shows, instead of our current deficit, we’d be very close to a balanced budget were it not for Wall Street’s reckless greed, the unnecessary wars, and tax cuts for the rich. And we’d get there without shrinking social programs.
The Big Lie wins yet again. For Leopold, a balanced federal budget is a good thing since the U.S. government is like a household, right? I mean, it’s not like the U.S. government can create money out of thin air. Right? Wrong. That’s the residual dead wood again.
But Leopold gets still worse…
With long-term interest rates at record lows (2.81% for 30 years) we could easily afford to borrow more to rebuild our infrastructure, weatherize all public buildings, provide free tuition for college students, and finance a host of other public programs that would move us to a full employment economy. And Obama could even make the case for funding much of it through a financial transaction tax on Wall Street’s casinos, as well as increased taxes on the super-rich.
For Leopold the U.S government gets its spending money by borrowing and taxing. The Big Lie wins again.
Won’t our kids be forced to shoulder the debt we leave behind? No. Government debt, unlike our mortgages, is rarely repaid in full. Instead they roll over. The cost to taxpayers is the interest we pay on the outstanding debt and the refinancing of it. With the global economy at stall speed there is no danger in the foreseeable future of rising interest rates.
If we (falsely) say that taxpayers pay the interest on T-securities, and if we (falsely) say that the Fed’s interest rate decisions are dictated by economies, then we champion the Big Lie and austerity.
You as an individual cannot create money out of thin air. Therefore the more you go into debt, the more you become a risk to your creditors, and the higher your creditors will set your interest rate. This is not the case with the Fed or the U.S. government. The Fed sets its own interest rates for its own reasons that may or may not have anything to do with the state of the economy.
If we borrow cheaply now to put our people back to work, if we invest in funding higher education, and if we build up our crumbling infrastructure and tend to the environment, then we’ll leave behind a prosperous economy. Debt will shrink over time as the economy grows. And more revenues will come in as our people go back to work.
Debt hysteria is like a pandemic that quickly cripples logical thinking. Once infected, people sound like fools. Let’s hope there’s a cure…and soon.
Indeed. And let’s hope that you, Mr. Leopold, stop contributing to the Big Lie and austerity…and soon.