Solution to Medicare
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.
Medicare and Social Security Solutions And Reform

ASSOCIATED PRESS: -- 12/19/2007 WASHINGTON - "Congress approved $70 billion Wednesday for military operations in Iraq and Afghanistan. The House's 272-142 vote also sent the president a $555 billion catchall spending bill that combines the war money with money for 14 Cabinet departments."
CHICAGO TRIBUNE: -- 12/19/07: "The Consumer Product Safety Commission is poised to get the largest budget hike in three decades under an appropriations bill passed by Congress. The bill sets aside $80 million for the agency."
NEW YORK TIMES: -- 12/28/07: "U.S. Officials see waste of billions sent to Pakistan. American officials now acknowledge that there were too few controls over how the money was spent."
LOS ANGELES TIMES: -- February 08, 2008 - "In rare bipartisan compromise, Congress approved a two-year, $168-billion economic stimulus package today."
ASSOCIATED PRESS: -- 6/30/2008 WASHINGTON - "Bush signs $162 billion war spending bill"
          Do you see the pattern? Congress has the power to allocate any amount of money for any purpose it deems necessary, without levying new taxes. So, why are Social Security and Medicare in danger of bankruptcy? Read FREE MONEY for the answers.
           The politicians and the media speak of Medicare and Social Security reform. What about these two programs requires reform?
           Both Medicare and Social Security are projected to run out of money in the foreseeable future. All ideas seem to be variations on just three solutions:
  1. Raise taxes
  2. Change the investment strategy
  3. Cut benefits
           Given that we have millions of brilliant citizens, this paucity of ideas is surprising.
          Cutting benefits would seem to be an unappealing solution. The need for medical and retirement help is real and growing. To cut back benefits would be a sad step backward.
           So we are left with the need to find a way to add money. The simplest, yet least productive, approach is to increase taxes. Ultimately, all taxes, even taxes on business, come out of the pockets of the populace. So increasing taxes devolves to taking from the left pocket and putting in the right. Our politicians have a terrible record in this regard. Not only does the government take FICA taxes, but when Social Security is paid, the government taxes the benefits -- a double taxation.
           Increasing taxes for Medicare merely means the people will pay for their health care in advance. Increasing taxes for Social Security will increase the unfair double taxation of this already poorly-paying program.
          Changing the investment strategy always devolves to a higher-risk approach, which means some people will lose part of their pensions. What then? Should the government stand by and allow the elderly to starve. Is this reform?
          The total expenditure for Social Security and Disability insurance in 2007 was $594 billion ( Social Security budget). The total budget for the Department of Defense and the Department of Homeland Security was $632 billion, including an additional $150 in "emergency" funding.
           The amount of Military spending is eerily similar to the amount of Social Security spending, and even greater than Medicare spending. Yet, when the military needs money, Congress merely appropriates it. We do not hear: "If tax laws are not changed and/or spending is not reduced, the military will run out of money in ten years."
Please click the cover to see excerpts from FREE MONEY. Questions? Ask the author, Rodger Malcolm Mitchell at:

The amount of military spending is eerily similar to the amount of Social Security spending and even greater than Medicare spending. Yet, when the military needs money, Congress merely appropriates it. We do not hear: "If tax laws are not changed and/or spending is not reduced, the military will run out of money in ten years." Why?

           But that is exactly what we hear about Social Security and Medicare, and why solutions are not forthcoming.
           With dramatic wailing and hand-wringing, our politicians provide us with charts and graphs purporting to show the day when Social Security and Medicare will run out of money -- unless of course, we dramatically increase FICA or cut benefits -- solutions that are unacceptable to most Americans.
           Why, alone among all the 400+ federal agencies, including Congress itself, are Social Security and Medicare singled out? The reasons are murky, but probably have to do with the way these two federal agencies were created, together with the fundamental misunderstandings about the federal debt and federal deficit.
           Because popular wisdom holds that federal debt is bad for the economy and the federal deficit should be eliminated, large new spending programs (other than military, an economic stimulus and any other programs that appeal to Congress) are expected to be "revenue neutral." Thus, when Social Security, and later Medicare, were proposed, sponsors had to answer the question, "Where will the money come from?" The solution was to create a special tax for each.
           You'll notice that the military, and indeed virtually all other federal agencies, seldom have to answer that question, which is why the federal deficit and federal debt increase nearly every year -- and when the federal deficit and federal debt don't increase, we have a recession or a depression.
           So where does the money come from to support federal agencies? The government uses deficit spending, which creates all the money needed to support all federal spending needs.
           Is there a limit to the amount of money the federal government can create via deficit spending? No, none. Ever since the Richard Nixon administration, when the U.S. dollar finally and totally was divorced from gold, the federal government has had the unlimited ability to create money.
           How does the federal government create money? By a process we misleadingly call "borrowing," but which really should be called "money creation," the federal government creates money by issuing Treasury securities -- T-bills, T-notes and T-bonds.
           Is a T-note money? It's not part of the money measure called "M-3," but it should be. It is a federal note, paying interest and with a maturity date. When a T-note matures, the federal government will give you the appropriate number of $1 bills. Is a dollar bill money? It is a federal note without interest or a maturity date, but otherwise identical with a T-note.
           Because the only difference between a dollar bill and a T-note is interest and maturity date, both are forms of money. Both can be spent and both are backed by the full faith and credit of the U.S. government. Indeed, all federal debt is money. So when the federal government increases federal debt via the federal deficit, it creates money -- and it can do so without limit.

All federal debt is money. When the federal government increases federal debt via the federal deficit, it creates money -- and it can do so without limit.

           Objections have been raised to the notion that there is no limit to federal debt creation. For instance, "What if people stop buying federal debt?" often is expressed as "What if the Chinese (or Japanese or Europeans, etc.) stop helping us by buying our debt?" The implication is the Chinese et al are doing us some kindness by buying federal debt, and when their good nature wears thin, we won't be able to create money.
           Nonsense. No one buys federal debt out of kindness. Everyone buys federal debt for one reason only: They believe it to be a good investment.
           What is a good investment? One that is save and pays a good return. Is U.S. federal debt safe? It may be the safest investment in the world, because we keep inflation low and we never have defaulted on any federal debt payment. Does U.S. federal debt pay a good return? It pays whatever return the government wishes it to pay.
           Can't sell at T-bill at 3%? No problem, raise the rate to 4% or 5% or 10% -- whatever is needed. The government easily can pay any percentage rate merely by issuing more federal debt.
           Doesn't creating money, i.e. issuing federal debt (also pejoratively known as "turning on the presses"), cause inflation? We often hear that argument from people who have no knowledge of U.S. financial history. In the 18 year period beginning with 1980, the U.S. federal debt rose an astounding 500% without significant inflation. Interestingly, the period ending at 1980 -- a period with low federal debt growth -- did have significant inflation.
           Inflation is not caused by federal debt growth, even massive federal debt growth. Inflation can be prevented and cured with interest rate control. The Fed's primary responsibility is to prevent undue inflation, not to attempt to stimulate the economy, which interest rate control cannot do.
           Finally, we hear the objection, "Doesn't issuing large amounts of federal debt 'use up' lending funds, so there will be nothing left for consumers and business to borrow?" Surely, this is the strangest objection imaginable.
           The federal government keeps no money. All the dollars the federal government receives immediately are pumped back into the economy. That is why we have a federal deficit and federal debt. The more federal debt the government creates the more money is available for lending.
           In summary, there is no limit to the amount of money (federal debt) the federal government can create. There always will be lenders. There always will be lending funds. And money creation does not cause inflation.
           This leads to three inescapable conclusions:

1. The Federal government never can go bankrupt, because it always can create money (Federal debt) to pay all its bills, no matter how large.
2. Medicare and Social Security, being Federal agencies and part of the federal govenment, never can go bankrupt. If the overall organization (Federal government) is immune from bankruptcy, its integral parts (government agencies) also are immune.
3. Federal taxes are unnecessary, not only unnecessary, but economically harmful, because they use resources that could be applied more productively.

Letter to the editors of the Chicago Tribune:
           In your Sept. 4 editorial "A cure for the walletectomy," you indicate that medical care costs too much and because patients canít audit hospitals and doctors, the medical community doesnít provide the quality care it would if it were audited.
          This editorial goes on to assume if we make patients pay a larger share of medical costs, patients will receive better, more affordable care, and if we cut doctor and hospital profits, patient care will improve.
          These points are illogical. Making patients pay a higher percentage will result in patient reluctance to visit the doctor or go to the hospital. Goodbye to the annual checkup. Farewell to periodic colonoscopies, mammograms, prostate and diabetes exams. We will be encouraged to visit the cheapest doctor, as we now are encouraged to fly the cheapest airline or shop at the cheapest store, regardless of quality. Even among the middle-class, who can afford insurance, these type of optional procedures will decline, thus injuring the health of the nation.
          Cutting hospitalsí and doctorsí income will not force them to improve patient care. On the contrary, as the airline industry has taught us, cutting profits puts some providers out of business, reduces the number of providers willing to enter the business and dramatically reduces quality of service. Already many doctors refuse to accept Medicare patients because payments are too skimpy. Over time more of our best and brightest young men and women will refuse to accept the years of drudgery and long hours future doctors must endure.
          The suggestions in the editorial will drive our magnificent health-care system into the Wal-Mart theory of health care, where price is everything and quality is low and imported.
          So what is the solution, or more accurately, what is the problem? I propose that the problem is not overcharging by Americaís medical community, which arguably provides the best care in the world. The problem is, there are too many people in America who cannot afford health insurance, medicine and health care.
          Itís a consumer problem, not a provider problem. The solution is not to cut payments to the industry, which will force cuts in quality and availability. After all why do we pay doctors and hospitals? The solution is to expand Medicare to include all Americans.
The solution is to expand Medicare to include all Americans.

          Unaffordable, you say? What is it that this nation, which increased its national debt by six-fold in only 18 years, beginning with President Ronald Reagan, cannot afford? What is it that the America that spent for wars in Korea, Vietnam, Afghanistan and Iraq -- while cutting taxes -- now cannot afford?
          The federal government has the unlimited ability to support a dramatically expanded and more generous Medicare, which not only would obviate cutting payments to doctors and hospitals but eliminate the health-care-deprived consumer.
          Yes, lower prices motivate consumers, but lower prices drive providers away. Look around you. Why have so many high-quality, personal-attention stores disappeared in this Wal-Mart economy?
          The solution is to make it possible for all Americans to pay more for medical care, not less. The way to do that is via government spending. Increases in federal deficits, federal debt, and total US debt are proven to stimulate the economy, without inflation. There is a national debt solution to Medicare and Social Security.
Rodger Malcolm Mitchell
   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.

See what FREE MONEY says about Medicare and Social Security problems and solutions.
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

What does this logical progression tell you?
*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 |