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.
The 8 Myths That
Damage Our Economy

CONTENTS OF THIS PAGE

The Myth of Revenue-Neutral
The Myth of "Taxpayer Money"
The Myth of Owing Federal Debt
The Myth of Low Interest Rates
The Myth of Inflation
The Myth of Wall Street Speculators' Greed (written September 2008)
The Myth of Social Security and Medicare Bankruptcy
The Myth of Greed
The links at the bottom of this page will guide you to other pages.
Please click the cover to see excerpts from FREE MONEY. Questions? Ask the author, Rodger Malcolm Mitchell at: rmmadvertising@yahoo.com

The Myth of Revenue-Neutral

                America desperately needs universal health care, care for the elderly, improved education, a better infrastructure, military, police, ecology, "green" energy, a solution to poverty. To greater or lesser degree, all of these issues could be addressed with money.
                Where will the money come from? The answer, "From the federal government," quickly is discounted. Though the government has the unlimited power to create money, we fear increasing federal debt. We are obsessed with the notion of "revenue-neutral."
               Yet, not one iota of historical data indicates a large federal deficit hurts GDP or any other measure of economic productivity or condition. Large federal deficits have not caused inflations, recessions, depressions, stagflations, tax increases, bankruptcies, bank closures or defaults, but they do stimulate economic growth.
               President Reagan ran the largest deficits in American history, which led to economic prosperity. President Clinton ran federal surpluses, which led to a recession.
               The federal government not only can create money to support all the above needs, but the creation and input of money stimulates our economy.
               We are left with a choice:
               A. Shall we minimize a federal debt that stimulates the economy and never causes economic problems, or
               B. Shall we provide for health care, the elderly, education, infrastructure, military, police, ecology, green energy and reduced poverty.
                Which choice do you prefer?


Contrary to popular wisdom, every recession is preceded by declining federal deficits. Every recovery coincides with increased deficits. The reason: A growing economy requires a growing supply of money.

The Myth of "Taxpayer Money"

               Editorials describe the bailouts of Fannie Mae, Freddie Mac et al as spending "taxpayer money." That is a myth. There is no such thing as "taxpayer money."
                Although virtually every article concerning the current (September 2008) economic crises mentions "taxpayer money," there is no relationship between taxes and government spending. The only thing approaching taxpayer money is tax money. When the government spends money, but does not collect that amount in taxes, no taxpayer money has been spent.
               The government spent $150 billion for an economic "stimulus package" and another $150 billion for the troop "surge." No extra taxes were collected. No taxpayer money was spent.
               The government spent many more billions to bail out troubled financial companies. But both presidential candidates are talking about lowering taxes. Clearly, no taxpayer money was spent.
               Question: If taxpayer money was not spent, whose money was spent? Answer: Government money. The government has the unlimited ability to create money, without collecting taxes. From 1980 to today, the government spent $9 trillion dollars, unsupported by taxes. The government did not spend taxpayer money on those $9 trillion in spending. It spent government money.
               Another myth: "We are the government, so when the government spends money, it spends our money."
               We are not the government. The government levies taxes. We pay taxes. The government cannot go bankrupt. We can.
               Today (9/17/08), the government sent $70 billion dollars into the economy. It didn't cost taxpayers a cent. The only time taxpayer money is spent is when we pay taxes. Cut taxes, and no taxpayer money is spent. Bailing out the economy could cost upwards of $2 trillion. The government will create the money and insert it into the economy. There need be no inflation and no additional taxes. No "taxpayer money" will be spent.

The Myth of Owing Federal Debt

               Editorials and "debt-clock" web sites tell us we owe the federal debt. Loudly, they proclaim that every man, woman and child in America owes more than $30,000, which they calculate by dividing America's population ($300 million +) into the federal debt ($9.5 trillion +). Even more loudly, they proclaim we and our grandchildren are responsible for the debt.
               Nonsense. We are not the debtors. The government is the debtor. Mostly we are the creditors, who in buying T-bills, notes and bonds, have lent money to the government.
               We have not, and never will, pay the federal debt. The only thing we pay is taxes, the amount of which has no relationship to federal debt.
               The federal debt has risen almost every year since 1939. But tax rates have gone down and up mostly down since then, and never have correlated with federal debt.
               In 1979 the federal debt was well under $1 trillion. Today, it approaches $10 trillion, nearly a 900% increase. But tax rates are no higher today than they were then.
               So relax, taxpayers. You aren't debtors. You don't owe the debt. Neither you nor your grandchildren will be asked to pay a debt you don't owe.

The Myth of Low Interest Rates

               Many believe low interest rates stimulate the economy. Why? Stock markets rise in anticipation of low rates, which allow borrowing corporations to use more cash for expansion and allow consumers who borrow, to spend more on goods and services.
               But when rates are low, lenders receive less money. Banks receive less interest, with which to create money. The public receives less interest from bank accounts, money markets, T-securities and bonds to spend on goods and services.
               For every borrower there is a lender. Low rates help borrowers and hurt lenders equally, with one exception: With high rates, the government pays more on its T-securities, which adds money to, and stimulates ,the economy. Historically, high interest rates have correlated with economic growth.
               During the previous recession, and for the past year again, the Fed repeatedly cut rates to no avail. Low rates never have stimulated the economy and never will. Low rates stimulate inflation.
               "Stimulating" an economy means making it larger. A large economy requires more money than does a smaller economy. Only the addition of money can stimulate an economy. Today, the Fed should raise interest rates to end inflation and pump in at least $500 billion to $1 trillion of liquidity.

The Myth of Inflation

               Many people believe inflation is caused by the government printing too much money. Occasionally, one hears the example of the pre-war German hyper-inflation, where people carried money in wheel barrows. This often is given as an example of out-of-control money creation, and is one of the arguments against federal deficit spending.
                The facts say otherwise. Hyper-inflations, come first. The massive printing of money is in response.
               Money is a commodity, the value of which is determined by supply and demand. If the supply of money were to go up, without an offsetting increase in demand, the value would go down (inflation).
               Demand is based on risk and reward. The risk is inflation. The reward for owning money is interest. When interest rates are low, people demand non-money assets like stocks, real estate and physical commodities. When rates are high, people demand money assets like bank accounts, bonds and money markets.
               By controlling interest rates, the government controls the demand for, and value of, money. This has allowed the government to increase the supply of federal money 900% in the past 30 years, without causing significant inflation. Inflations and hyper-inflations, which are caused by insufficient demand, can be prevented by raising interest rates.

The Myth of Wall Street Speculators' Greed (written September 2008)

               Oh, what convenient bogey men are those "greedy" Wall Street speculators. Don't blame Congress for repealing the part of the The Glass-Steagall Act which prohibited banks from offering investment, commercial banking, and insurance services. Don't blame the government for failing to regulate and for starving the economy of money.
               Blame those greedy Wall Street speculators, for doing what we all do: Trying to make money. By absolving Congress of the need to regulate and to supply the economy with money, we assure a repeat of today's problems.
               How did it happen? With real estate values rising, unqualified people could obtain mortgages, then refinance to pay those mortgages. When real estate dropped, those people couldn't refinance. That cooked the borrowers and the banks.
               Thousands of mortgages were bundled into huge derivatives and sold to investment banks. To attract investors, insurance companies guaranteed these products. When the derivatives lost value, that cooked the insurance companies and the investment banks.
               Why did real estate drop so precipitously? Partly lack of federal oversight and partly because the government starved the economy for money by limiting deficit spending.
               An ounce of prevention is worth a pound of cure. Now that we have a crisis, the federal government is instituting regulations and pouring hundreds of billions of dollars into the economy, to stimulate the economy. Had they done that in previous years, the economy would have been healthier; the real estate market would have come down to a soft landing rather than a crash; banks would have had time to unwind their risky portfolios, and there would have been no need for bank rescues.
               Strange, now that we are in trouble, and it has become clear the economy needs money infusions, I don't hear anyone asking, "Where will the money come from?" or worrying about the federal deficit. There is no more talk about "revenue-neutral" spending. Now all we hear is, "Save us; save us." Perhaps, this will teach the debt hawks a few lessons, such as:
               --The government has the unlimited ability to create money, so never ask, "Where will the money come from?"
               --Federal deficits not only stimulate a sick economy, they stimulate a healthy economy and absolutely are necessary for a growing economy.
               --We never should strive for "revenue-neutral" expenditures. On the contrary, we need continual deficit spending. This, by the way, would simplify solutions to Medicare and Social Security
               --The Fed's repeated interest rate cuts never have and never will stimulate the economy, but tax cuts do and will.
               At long last, we must learn from experience.

The Myth of Social Security and Medicare Bankruptcy

               There are 400+ federal agencies , including all the military agencies, all the Departments, Congress, (www.house.gov), the Supreme Court (www.supremecourtus.gov) and dozens you never have heard of. For historic reasons, and not for any logical reasons, expenditures for two, and only two, of these agencies, are limited by an earmarked tax: Medicare and Social Security.
               When the military needed money to pursue the wars in Iraq and Afghanistan, Congress quickly voted hundreds of billions of dollars to this effort. No added taxes were needed.
               When the economy needed a stimulus, Congress quickly voted $150 billion to this effort. No earmarked tax limited this effort. When Freddie Mac and Fannie Mae ran into financial difficulties, the Treasury immediately gave them a blank check. No added taxes were allocated for this effort.
               When Bear Stearns showed serious financial stress, the Federal Reserve Bank of New York stepped with a financial rescue package intended to keep the firm afloat.
               When the FDIC was forced to take over IndyMac Bancorp, no new taxes were levied to cover this government expenditure. When AIG foundered, the Fed allocated $80 billion to save them.
               Now the government wishes to buy up all the bad mortgages at a cost of many, many billions. No extra taxes have been requested. None will be needed.
               Not only were no new taxes allocated for any of these expenditures, but no one asked the question, "Where will the money come from?" And no one insisted that spending be revenue neutral. The only words we heard from the public and Congress were, "Help, help, please save us."
               But, when Social Security and Medicare have financial difficulties, Congress suffers mental constipation and is unable to come up with a solution. The solution is this: Fund Medicare and Social Security the same way we fund the other 400+ federal agencies, not through taxes, but through general fund spending.
               You can read more about this in FREE MONEY.

The Myth of Greed

               Populist politicians like to blame the "greedy" rich for our economic ills. This relieves the politicians of their rightful culpability for our faltering economy. It also appeals to the "have-nots," who always seem to believe the "haves" should be punished.
               But, greed is a sin we all commit. Being wealthy is no evidence of greater greed than being poor. It only is evidence of being financially more successful.
               By labeling the wealthy as greedy, the politicians open the door to the question, "Why should we help those greedy people. Their own greed got them into this trouble."
               Visualize this: A wealthy man and a poor man stand on a cliff. The wealthy man reaches for a large bag of money, and poor man reaches for a dime. In reaching, both men slip off the cliff. The wealthy man grabs a rope and the poor man grabs the wealthy man's ankle. As people begin to pull up the rope, the poor man shouts, "Don't pull him up. Let him fall. He's rich and greedy and he brought this on himself."
               So the people drop the rope.
               That is the position of the people who don't want the government to save the large investment firms.
                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? | 10 Reasons to Eliminate FICA | Rodger M. Mitchell -- Ideas |