Daily hygiene

If readers would like to see this blog deleted, please let me know. So few people come here that I’m thinking of deleting it anyway.

Anyway, to be a full member of society is to defend the lies of society. In most people this practice is voluntary. Even when people imagine themselves to be rebels, many still conform to the herd. For example, the “positive money” people imagine themselves mavericks for advocating public banking, when in fact they continue to echo the herd’s lie that the federal government gets its spending money from loans and from tax revenue.

Social lies are so pandemic and pervasive that they are like a plague that threatens to consume us if we do not practice daily mental hygiene. If we clean the lies out of our minds often enough, we will break their life cycle, and finally become immune.

I mention this because I have discussed the following topic before, and here I will do so again for the sake of daily mental hygiene.

To “finance” something means to provide money for it (i.e. to fund it) by whatever means, including the creation of money out of thin air. However most people falsely think that to “finance” something means to get a loan for it. Therefore when most people are asked how the U.S. government “finances” a war, most people falsely assume that the government takes out a loan for a war.

Consider this paragraph…

How did America finance WW II? How did Washington pay the lofty bills presented by GM, ITT, and the other corporate suppliers of war equipment? The answer is: partly by means of taxation – about 45 per cent – but much more through loans – approximately 55 per cent. On account of this, the public debt increased dramatically, namely, from 3 billion dollars in 1939 to no less than 45 billion dollars in 1945. In theory, this debt should have been reduced, or wiped out altogether, by levying taxes on the huge profits pocketed during the war by America’s big corporations, but the reality was different. The American state failed to tax corporate America’s windfall profits, allowing the public debt to mushroom. The U.S. government paid its bills, and the interest on its loans, with its general revenues, that is, by means of the income generated by direct and indirect taxes. Particularly on account of the regressive Revenue Act introduced in October 1942, these taxes were paid increasingly by workers and other low-income Americans, rather than by the super-rich and the corporations, of which the latter were the owners, major shareholders, and/or top managers. “The burden of financing the war,” observes the American historian Sean Dennis Cashman, “was sloughed firmly upon the shoulders of the poorer members of society.”

No. Wrong.

Financing the war was not a “burden” on anyone. The U.S. government funded WW II by simply creating the money out of thin air, as the government does today. This caused so much money to flood into the U.S. economy that it created a potential for disruptive inflation, since consumer goods were rationed, and were in short supply. (Simply adding money to an economy does not automatically cause inflation. What causes inflation is an extreme abundance of money combined with an extreme shortage of things to spend the money on.)

To fund the war, the U.S. government created dollars out of thin air. And to prevent inflation, the U.S. government pulled dollars back out of the economy by [1] introducing the federal withholding tax (which took dollars permanently out of the economy) and [2] by convincing workers to buy war bonds (which took money temporarily out of the economy until the bonds matured).

In both cases workers were lied to — i.e. the government told them that their income taxes and their war bonds “financed” the war. This lie was necessary during the war, since people don’t like to part with their dollars. The U.S. government needed to convince workers that if they didn’t pay taxes and buy war bonds, then they would all become enslaved by Hitler, who threatened to destroy the galaxy or…something.

After the war, the government continued to falsely claim that taxes were necessary to “finance” the U.S. government. The government continues to lie today in order to [1] maintain the gap between the rich and the rest, and [2] make workers grovel to politicians.

During WW II, war bonds could be purchased in stores, banks, post offices, you name it. To buy a war bond was to deposit money in a Federal Reserve savings account, just like buying a T-security today.  Indeed the formal name for a war bond was a “war savings bond.”

You could not use a war bond to buy anything, since this would have defeated the purpose of the bond, which was to get money out of the economy. Hence the bonds included the printed words “not transferable.” Money paid for bonds became non-negotiable “reserves.”

Today people falsely claim that Fed savings deposits have created a “debt crisis” for the U.S. government.

BELOW: When you bought a war bond, you were given a piece of paper that you could later redeem for money when your bond matured. The money you paid was forwarded to the U.S. government, which destroyed it upon receipt, just as the federal government did with federal tax revenue, and still does today. Likewise when you buy a T-security today, your money is “deposited” in a Fed savings account. “Deposited” is merely a figure of speech, since money is not physical (and therefore is not “deposited”). The $20 trillion in Fed deposits (the so-called “national debt”) consists of mere numbers on spread sheets.

When you bought a war bond, the money you paid was removed from the U.S. economy. Your money was destroyed, because the money you paid did not “go” anywhere. Money is not physical. When your war bond matured, the Fed paid you off by creating new money out of thin air (plus interest) by simply crediting your checking account — i.e. by changing the numbers in your account. Today, T-securities function in exactly the same way.

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11 thoughts on “Daily hygiene

  1. So far, I only find very few people including share my view about economy and money. Only recently I found your blog. I did learn quite bit from your writing. So called “learning” is really forming the answer on your own to match those known success or correct or real world results. If did not match, try to figure out why. Sometime, it is your teacher who is wrong at end! That is how I learn anyway.

    To know the truth while others are ignorant can be a either very frustrating or rewarding experience. If you try to teach the mass, you will be frustrated. Just imagine that Einstein tried to teach theory of relativity on factory floor. But taking your knowledge edge into real world business and investment is really rewarding.

    I use those wall-street experts including my own financial adviser with ivy league degree in a very perverse way. When they all forecast market based on wrong understanding of economy, these experts would create inefficient market for me because I knew I was right deep down. I put money on what I believed and won hugely. Extremely rewarding experience! Only God answer who is right and wrong at end. Human opinions are just noise. Democracy or populism never mean truth or correct.

    “In the short run, the market is a voting machine, but in the long run, it is a weighing machine” -Warren Buffett

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    1. Caution: Those experts are not always wrong. If you are wrong and others are right, you can lose your shirt in investment! Bind contravariant action is no difference from blindly gambling.

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      1. Like Charlie Munger said, stock investment is like pari-mutuel bet of horse race. The huge win is from upset result when most bets are wrong and only your bet is correct. But the opportunity is rare.

        If you have better understanding how money and economy work than others, you are ready to spot such opportunity when it comes.

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  2. Dont delete your blog. Maybe archive your writings if have to. Someday (maybe 2000s years later), your writings would become classic wisdom.

    Newton’s writings were kept to himself for long time and had no intention publishing them. Only his friend brought those writings into light.

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  3. Popularity or high approval rating is sign of mediocracy.

    The bell curve of IQ distribution determines the most people with intelligence at median value (IQ=100). Thus a person with IQ near mediocre value can easily achieve popularity and high approval rating since their ideas can be easily appreciated by majority.

    If your thought or ideas could be only produced at far right end of bell curve, for example IQ >135 which means only less than 1% people can comprehend, you will only forever appreciated by less than 1% people in this society.

    Popularity or high approval rating is actually a bad sign in my eyes.

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  4. Elizabeth, I think computer simulations should be the most persuasive argument for your thesis. You mentioned Monaco recently. A small country like Monaco might be good to use in a simulation (You will be, uh, simulated!).

    The simulation could demonstrate:
    1. the difference in effects of laws that allow and disallow creating money;
    2. what policies lead to wide income gaps;
    3. what policies and conditions lead to deflation, inflation, hyperinflation and stagflation;
    4. what policies lead to prosperity for all;
    5. etc.

    Let’s look for competent programmers. Shall we?

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