Federal Deficit Solution
Solution to Federal Deficit Budget
The measure of an economy is money. A large economy needs a larger supply of money than does a small economy. Therefore, a growing economy needs a growing supply of money. All money is a form of debt. Therefore, a growing economy requires a growing supply of debt. U. S. Federal Debt is the safest, most controllable form of debt. The federal government, alone among borrowers, never will default. Thus, there is no federal debt or deficit problem, and a balanced federal budget leads to a recession or a depression.
Federal Deficit Solution

                “There is . . . no historical data to demonstrate that a balanced budget enhances gross domestic product or any other indicator of economic productivity . . . On six consecutive occasions from 1817 until 1930, when government cut spending considerably without simultaneously seeking to stimulate the economy with equally deep tax cuts . . . depressions arose.” Michael Johns, The World and I, April 1996
               “If we choose wisely, we can pay down the debt, deal with the retirement of the Baby Boomers, invest more in our future and provide tax relief.” President Clinton, January 18, 2001. [The recession began shortly afterward, only to end with the Bush federal budget deficits. As a result of those deficits, the economy grew.]
                Had anyone in 1980 announced that in sixteen years the U.S. federal debt would increase more than 500%, most experts would have predicted rampant inflation, depression, default on debt and the destruction of the world's financial system.
               Experts in 1980 would have used the same arguments they now use when they bemoan the current federal budget deficit and debt. They would have been the first to demand a federal surplus. Yet:
               1) The federal debt rose more than 500% in sixteen years.
               2) We did not have rampant inflation. Our inflation was as modest as the Federal Reserve wanted it to be.
               3) We did not experience a depression, a default or the destruction of the world financial system. Our economy grew massively, along with federal deficits.
               4) To legislate a balanced federal budget is to legislate against the creation of money.
               5) Our economy today, being larger and stronger than it was sixteen years ago, has and must have more money than it did then.
               What would our economy be today if we had eliminated the federal budget deficit sixteen years ago? We would have had a depression, for lack of money. Federal surpluses have been associated with every depression in American history. (See below.)
CONTENTS OF THIS PAGE

What Would A Federal Budget Deficit Solution" (i.e. a surplus) Accomplish?

What Would Happen If the U.S. Debt Were to Grow 500% in Sixteen Years?

Can the Economy Grow If the Federal Budget Deficit, and Then the Federal Debt, Shrink?

The Best Solution to the Federal Budget Deficit Problem


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Please click the cover to see excerpts from FREE MONEY. Questions? Ask the author, Rodger Malcolm Mitchell at: rmmadvertising@yahoo.com

What Would A Federal Budget Deficit Solution" (i.e. a surplus) Accomplish?

               With a surplus, the U.S. government spends less than it receives. On net, the government destroys money and eliminates the Federal Budget Deficit.
               With no federal budget deficit, the total real value of existing money declines due to inflation. If our economy contained $5 trillion dollars tomorrow and forever, even the most minuscule inflation would cause those $5 trillion to have a real worth of less than $5 trillion.
               With an inflation of only 2%, those $5 trillion would be worth, in constant dollars, $4.9 trillion in one year. After sixteen years, our economy would contain only $3.6 trillion in constant dollars.
               We are geared to inflation. Experts feel a small amount of inflation creates the beneficial illusion that salaries and real-estate values are increasing.
               If the real value of all the money in our economy declined, the entire economy would decline, and in a short time, we would enter a depression. It happened in the Great Depression. Workers lost their jobs. Businesses lost their profits. The value of real estate plunged -- all this from a federal surplus.
                Taxes result from salaries, business profits and real estate holdings. A recession or depression causes tax collection to decline. If the federal government were not allowed to create money via a federal budget deficit, it could not pay its bills as tax revenues declined.
               The government would be forced to increase tax rates, which further would destroy our economy. The federal government would go bankrupt, thanks to its balanced budget.
               A federal surplus will be even worse.

What Would Happen If the U.S. Debt Were to Grow 500% in Sixteen Years?

               Compare the above economy to an economy that increases its money supply 500% in sixteen years, with the same 2% inflation. That economy would contain a real $18 trillion. In constant dollars, is a $3.6 trillion economy as strong as an $18 trillion economy? Obviously not.
               What will happen to the U.S. economy if the federal budget deficit causes the federal debt to rise 500% in the next sixteen years? History shows we will continue to have whatever modest level of inflation the Federal Reserve wants, no depression, no default and no destruction of the world financial system. Our economy will grow larger and stronger than it is today. And yes, we will have more lending capital than ever.
               Will the U.S. government service the $25 trillion debt it would have in sixteen years? Yes. The U.S. always repays its debts, right on schedule (unless Congress gets into a political hissy-fit of ignorance, as it sometimes has in the past, and refuses to approve a higher federal debtceiling).
               The U.S. repays its debts with U.S. dollars, the same money you use to repay your debts. Because U.S. dollars are credit, the U.S. repays its debt with credit/money, the only money in existence. To create credit/money, the government must create a federal government deficit.
               To service a growing debt requires an accelerated creation of money. Borrowing begets borrowing at a growing rate because of the need to cover interest. When the government borrows one dollar, it must pay back more than one dollar.
               At current interest rates, and no change in spending or taxes, the U.S. federal debt would double in less than sixteen years. The government easily will service that debt.
               A 4% inflation, against the total debt/money supply of $20 trillion, costs us $800 billion in real money, annually. Today's (2008) 1% population growth costs us another $200 billion in per capita real money. Include the $800 billion current account deficit, and the money supply must grow $1.8 trillion, or 9% just to break even – that is, for a no-growth economy.
               In 2007, total debt/money growth was $7.5%, which was less than necessary for ongoing zero growth. In short, the economy has become starved for money (aka "credit crunch"), which is the root of today's problems and leading us into a recession or worse.
               As our population grows and ages, many more people will require Social Security and Medicare payments. We have had a long period of relative peace and the end of the cold war. Though these conditions have allowed for a reduction in military spending, the situation will change.
               It is unlikely the government will be able to limit its expenditures and to accomplish no more in future years than it does now.

Can the Economy Grow If the Federal Budget Deficit, and Then the Federal Debt, Shrink?

               Stop and Think: A shrinking federal debt reduces the amount of money the federal government creates. Can the economy grow if the federal debt shrinks?
               For about twenty years after World War II, the federal budget deficit averaged $0, so the federal debt remained flat, decreasing in certain years, while increasing in others. Yet the economy grew.
               Question: How was this possible?
               Answer: Federal debt is one part of total debt. At the end of World War II (1945) federal debt amounted to about 62% of total debt. We also had consumer debt, business debt and non federal (state, county, city, park district, school board, etc.) debt.
                During the post World War II period, non federal debt rose substantially. Twenty years after World War II, federal debt amounted to only 26% of total debt. The rise in total debt supported the growing economy. Graphs showing average annual changes in total debt and Gross Domestic Product reveal that the two tend to move together.

The Best Solution to the Federal Budget Deficit Problem

               The best solution is to eliminate the federal budget deficit and debt altogether, not by paying the debt down, but by ending the government practice of borrowing.
               The government does not need to borrow money, because the government has the unlimited ability to create money without borrowing. The process would be:
  1. Congress would create an account called "Money."
  2. Congress arbitrarily would fund this account by fiat. That is, Congress merely would determine how much money this account contains. The process would be similar to the way Congress now determines the debt ceiling.
  3. Federal agencies would write checks against this account according to budgets decided by Congress. If any federal agency needed additional funds, Congress would decide whether or not to allow this spending, in the same way that Congress votes for additional spending by the military et al.
                   There would be no need for federal borrowing, which would eliminate concerns about "our grandchildren paying for the federal debt." There would be no federal debt.
                   To see a complete discussion of the federal budget deficit and the historical effect it has had on the U.S. economy, please see FREE MONEY.

    Medicare: A Solution to the Problem

    Read Letters to the Media

    US National Debt is $9 Trillion!

    For those who want a balanced budget, here is a history lesson:
    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.
    1998-2001: U. S. Federal Debt reduced 9%.    Recession began 2001


    CONTENTS OF THIS WEB SITE
    1. Stagflation
    2. Federal Budget Deficit
    3. Social Security and Medicare Solutions
    4. National Debt Letters
    5. Federal Deficit Solution
    6. Concord Coalition.
    7. Balanced Federal Budget
    8. Federal Deficit Problem
    9. Federal Government Budget
    10. US National Debt
    11. National Debt Solution
    12. A Child In Arms
    13. Inflation and Stagflation
    14. Glossary of Economic Terms Debt, Money, Deficit, Spend, Owe
    15. U.S. National Debt
    16. US National Debt Clock
      A large economy needs a larger supply of money than does a small economy. Therefore, a growing economy needs a growing supply of money. All money is a form of debt. Therefore, a growing economy requires a growing supply of debt. U. S. Federal Debt is the safest, most controllable form of debt, because the federal government, alone among borrowers, never will default. Thus, there is no federal debt or deficit problem, and a balanced federal budget guarantees recession, and depression.
      The Interest Rate Fallacy | Social Security Solutions | Medicare Solutions | Economic Solutions | Recession | Federal Debt of the U.S. | Federal Budget Deficit | Stagflation | National Debt Letters | Federal Deficit Solution | Balanced Federal Budget | Federal Deficit Problem | Federal Government Budget | US National Debt | National Debt Solution | A Child In Arms | Glossary of Economic Terms Debt, Money, Deficit, Spend, Owe | US National Debt Clock | Inflation and Stagflation | Pseudoeconomics   | Money supply and the weather | The Relationship Between Gold and Money | Social Security Reform | Does Federal Debt Cause Inflation? | The 5 Myths That Damage Our Economy | 10 Reasons to Eliminate FICA | GETROYS | Rodger M. Mitchell -- Ideas |