Paying Off the National Debt

The national so-called "debt", all $20 trillion of it, will belong to the Republicans about four weeks from now. It cannot happen, but let's suppose they follow through on their neoliberal ideology and decide to pay the "debt" off. Just suppose. First, how would they pay it off and second, what happens to all that money when they do pay it off?

First, the easy part, paying the debt off. The national "debt" consists almost entirely of US Treasury securities held by individuals, businesses, retirement funds, and governments from around the world. All it would take to pay off the so-called "debt" is to cancel all the Treasury securities, transfer the $20 trillion out of the security accounts at the Fed, and give the money back to the people who invested in those securities. Poof! Debt gone. Balance zero.

Then what?

Well, all of a sudden the world would be full of extra US dollars on the loose and millions of people who must figure out what to do with them. People had those $20 trillion in Treasury securities because they wanted their extra dollars protected in a safe, secure, virtually risk-free investment. Now, they must place those dollars elsewhere, but where? Very little of it would be spent because these were investment dollars, extra dollars that people chose to hang on to for various reasons. Some of it probably would go into other, more risky non-federal savings accounts. A trickle might be repurposed to more risky business ventures. But my guess is that the bulk of it would go into relatively secure foreign government bonds. Remember, the $20 trillion was "safe" money, no risk, small return money because people wanted it that way. They likely will look for another safe haven, even if overseas.

So, paying off the national "debt" does nothing for the US government except to remove its major inflation-fighting tool, put dollars into foreign accounts, strip the Fed of its major interest-rate setting tool, and probably force the Treasury into changing its accounting procedures and issue dollars strictly as a debit to a spending account with no incoming credits.

One thing for sure, it would prove to the debt-hawks that the so-called national debt really is a private sector asset and not the tax curse on our grandchildren that they think it is. Many would probably soon wish we had it back.

The Secret Language of Conservatives

My US Congressman, Walter Jones (R-NC), loves to claim that federal spending is "out of control" and that the federal debt will spell financial disaster for our kids and grandkids. Congressman Jones has voted against every stimulus bill and every debt ceiling increase that has come up during his tenure in the House of Representatives. You could be forgiven if you accused Rep. Jones of being tight-fisted or niggardly. You might even confuse him with Ebenezer Scrooge.

But I have noticed that Rep. Jones has no problem voting for expenditures for expanding the military presence in North Carolina, or for improving veteran care, or for protecting North Carolina fisheries, or for stabilizing the beaches along North Carolina's shore. He does, however, want to defund Planned Parenthood, cut welfare, privatize Social Security and Medicare, and pass a balanced budget amendment, all of which are deeply rooted in right-wing ideology.

Well, I have decided that Rep. Jones and his so-called "conservative" cohorts in Congress and the Senate are not really stingy at all. Rather, they are devious. They are not really worried about "out of control" spending, deficits, or federal debt at all. They just want the public to worry about those things. Why? To cloak their ultra-conservative ideological agendas from the public.

Jones and crew know that many constituants may not be as rabidly conservative as they are. In fact, many of their constituants are beneficiaries of the federally funded programs that he and his cronies despise, programs like SNAP, the Affordable Care Act, Medicare Disability, and many others. While there may be disagreement on the ideologies behind various federal funding initiatives, Jones and company are pretty safe in assuming that nobody wants the government to go bankrupt. So these devious politicians have developed a very effective code language that they drag out when their ultra-conservative ideologies are challengable. If a bill promises to garner too much liberal support for Rep. Jones to bear, all he has to do is say that the bill will increase the deficit and send us deeper in debt with out of control spending. That rhetoric brings out the fiscal conservative in even the most left-wing constituants. It's a very effective code.

Of course, we know from studying monetary sovereignty and modern monetary theory that the federal government cannot involuntarily overspend or go insolvent because it alone issues the free-floating US dollar and can do so with no limit as long as there are goods and services available for it to spend dollars on. If Jones knows this, he is not fessing up to it. To do so would, in fact, break the code.

Social Security Increase! Yay! Er....

The good news is that Sue and I each got a Social Security cost-of-living raise for 2017. Wonderful! The bad news is that the Medicare premium that is deducted from our checks went up by exactly the amount of the raise. So our SS checks will not change at all. Basically, the increased Medicare premium accounts for the full increase in the cost of living.

This is especially egregious to me because I know, unlike most of you, that the Medicare premium is not a premium at all but a tax. The federal government does not need money in order to spend money, even on Social Security and Medicare. Every dime of Social Security and Medicare outlay is brand new money created by the federal government as it is spent. That's how it works. A dollar is simply a promise from the federal government to you. It cannot recycle that promise (money) any more than you can recycle a promise because the promise (tax dollars), once collected, ceases to exist. But the people who run the government, Congressmen, do not know this. They are dumbbells. They still think taxes pay for federal spending. The Treasury people know that's not the case, but they aren't saying anything because they are afraid of inflation and they think that by extracting dollars from the money supply and destroying it via taxation there will be less inflationary pressure on the economy. They too are dumbbells. And we are all dumbbells for letting both those groups continue to think that way.

SS and Medicare explained here.

Taxes explained here.

With thanks to Geoff Coventry for the links.

News Flash! The Government Is Broke!

OMG! The federal government really is broke!

At least in the sense that it does not have any money. That's right, the federal government does not have any money. Nothing in a bank account, nothing under the mattress, no stacks of paper money idling away in vaults. The federal government has no money!

But what about all those taxes we paid? Oh, those are just destroyed and disappear once they leave your bank account. Federal taxing just drains dollars out of circulation and destroys them. The government does not, in fact cannot, save and respend those.

But what about all the money it has borrowed from China and elsewhere? It's surely not all spent already? Actually, none of it was spent. What hasn't been returned to the "lenders" is sitting in securities accounts under the lenders' names at the Treasury. Those don't belong to the federal government but to the people who have asked that their extra dollars be stored away as interest-bearing savings at the Treasury. That's what is known as the "national debt".

So, does the government being broke mean we now have tipped the scales of disaster that the politicians always warn about? Are we headed for depression and doom?

No, no, no. Get over it. The federal government has no money because, by definition, money is not money unless it is in the hands of someone other than the issuer. In our case, money resides only in the hands of the private sector. And that's okay because the federal government doesn't need money. It creates money in the form of US dollars whenever it spends. And conversely, the federal government does away with money by un-issuing, or taxing, US dollars out of existance.

So, the federal government is broke in the sense that it has no money. But the entire country is rich in the sense that the federal government provides the private sector with the medium of exchange it needs in order to produce, sell, and save. In that sense, we are rich because the government is broke.

So You Don't Like Welfare, Huh?

1935 - A time when the USA still promised to redeem dollars in gold (internationally but not domestically). It was critical then for the government to limit the country's money supply to an amount that did not exceed by too much the amount of gold it owned. Defaulting on its promise to redeem dollars with gold could have brought the entire monetary system down and taken the economy and the country with it. To limit the money supply, the government systematically destroyed dollars by taxing the people.

In that year, 1935, President Roosevelt and Congress concocted a federal welfare program called Social Security (actually it was called The Old-Age, Survivors, and Disability Insurance Act) in which people of retirement age, and some others, could recieve money from the government in an amount based on what their working salaries had been. But Roosevelt and Congress had a problem. They knew that Social Security expenditures would increase the money supply well beyond the amount of gold on hand. They knew that they would have to raise taxes to drain enough money from circulation to keep the money supply in check. But they also knew the people of the US would not stand for higher taxes. Then one of them had a brilliant idea. He said "Hey. Instead of just raising taxes, suppose we taxed a percentage of payroll dollars and instead of calling it a tax, let's call it a contribution. Then the people will think they are actually paying for their own retirement plans. Ha, ha, ha, ha, ha." "Good one!" said Roosevelt. "Let's go with that." And they did. Ever since then we have been thinking that the payroll tax we pay is not a tax at all, but a contribution to our Social Security accounts.

In 1971 the US abandoned the gold standard and it has not been necessary or advisible to limit the money supply so severely. Even though taxes have not been necessary since 1971, the payroll tax has remained and continued to drain dollars from the people and the economy. People have continued to be fooled that they were actually contributing to their Social Security accounts and they stand ready to fight if told that their Social Security is, in fact, a form of federal welfare..

Backward Thinking Americans

You know what's funny to me? Well, not exactly funny, but odd. Well, not exactly odd, but annoying. Yes, annoying.

What's annoying to me is that probably most Americans are convinced, totally convinced, that our federal government gets its money from the American people. You see it when people talk about the government spending taxpayer money. You see it when certain politicians and their disciples complain about out-of-control federal spending. You see it in Tea Party and Republican and even some Democrat platforms to cut federal spending in order to reduce taxes. You see it when people rant about the federal deficit and how the resulting federal debt will impoverish our children and grandchildren and in how the federal debt amounts to $55,000 per person.

Why do I find it annoying for people to complain about federal spending? Why do I not fall in and join the complaint about the federal government spending too much of my money, wasting it on people who don't work, on countries that don't like us, on initiatives that are counter to my beliefs?

I find it annoying because I know, and you should know, that the federal government does not get its money from the American people. In fact, just the reverse is true. The American people get their money from the federal government. Only the federal government is authorized to create and issue US dollars. No one else can. The federal government issues those US dollars every time it spends into the private sector to acquire the goods, services, and goodwill that only the private sector can produce. It produces those US dollars out of thin air when it spends because each US dollar is nothing more than a federal government IOU backed by the good faith and credit of the US government. In short, the government creates money and injects it into our pockets, the private sector pockets. The private sector does not create dollars and inject them into the government sector. We get our money from the government, not the other way around. Isn't that ironic, since most of us think it works the other way?

Taxes? Taxes at the federal level do not fund the federal government. The taxes we pay, whether income taxes, payroll taxes, estate taxes, corporate taxes, or whatever, simply drain dollars from the money supply. The taxes we pay disappear from this earth when we pay them. After all, we are simply returning to the federal government a bunch of its own already-issued IOUs. An IOU back in the hands of the issuer is meaningless. It is no longer an IOU. It is nothing but history.

So, rather than the American people funding the US government, it is clear to me that the US government funds the American people - just the opposite of what most Americans think. It is funny, odd, and annoying to me that the American people can be nearly unanimously, almost 100 per cent, backwards on this issue.  

Here's To You Debt Phobes

GOVERNMENT MONEY ISSUES?

NO…

GOVERNMENT ISSUES MONEY!

National debt...

Those two words scare people, way too many people, because they needlessly conjure up images of federal bankruptcy, failed government, and bank failure. Even worse, national debt angers many people who are convinced that government spending means big, irresponsible government, massive tax increases, and strangulation of private sector business and freedom.

Here is a quote from one such person:

"The government takes as much as they can, spends it all and then borrows more and blows that too. And now we have a tremendous debt that has to be paid back."

There is so much wrong with that statement, in fact, everything is wrong with that statement, but it is probably how most people think the federal government must operate. Conventional wisdom, sadly all too common, is that "government is just like a household or business". People act like the national debt is their personal debt. This paradigm could not be more wrong. Why? Because the federal government issues US dollars while households and businesses cannot. And by "issue", I mean that the federal government creates US dollars. Households and businesses cannot create dollars. That makes all the difference. The issuer of the US dollar has absolutely no need to take tax money or to borrow dollars from someone else in order to spend. Yet the federal government does take tax money and it does sort of "borrow", which makes it difficult if not impossible to convince people that it does not spend those taxes and "borrowed" dollars.

When the federal government spends, it orders the receiving bank to insert a deposit into the recipient's bank account. At the same time, the Federal Reserve Bank credits the receiving bank with a like amount of dollars called "reserves". Reserves represent actual US dollars while the recipient's deposit amount is a credit against those dollars. At that point in time the federal government has created and issued brand new US dollars. It is that simple. To spend tax dollars and borrowed dollars would be redundant and the government does not spend them. In fact, tax dollars go out of existence altogether and "borrowed" dollars go on the shelf, so to speak. The federal government "borrows" dollars by selling Treasury securities to investors worldwide who seek a safe and secure interest-bearing place for their extra dollars. Both taxing and selling Treasury securities are artificial constraints the Congress has placed on itself along with the "debt ceiling", an artificial limit on the amount of Treasury securities the government can sell.

Now, what about that "debt"? The national debt is merely the sum of unexpired Treasury securities. It is "debt" only in the sense that the federal government holds someone else's money that it must give back at some point in time. The government does not take out loans or use a Chinese credit card to fund its expenditures. Why should it? It issues US dollars. Taxing and "borrowing" are not funding mechanisms; they are mechanisms for draining dollars from the money supply to reduce the likelihood that federal spending will cause inflation. Dollars not in circulation are not inflationary. The fact is private sector lending is far more likely to cause inflationary pressure than is federal spending because private lending adds credit to the economy equal to three times the amount of federal spending.

Because the federal government does not spend Treasury securities and merely holds dollars like a bank holds savings accounts, and because the federal government can always create US dollars by issuing them, there is absolutely no way that the US government can go insolvent or bankrupt, unless the Congress decides to artificially limit or put an end to federal spending. So the threat of federal bankruptcy is a myth, a bogeyman, a bad joke. It will not happen. No taxes will be raised to pay for it. No heavy burdens will be laid on our grandchildren. You can read all about how the US "borrows" by selling Treasury securities in many books and blogs, and one of the best explanations can be found here.

Finally, there are a couple of standard quips that people always utter when confronted with the above revelation. The first is that "only the private sector creates wealth". Well big whoop. Everybody knows that, and what does that have to do with anything anyway? People who like to say that do not seem to realize that "Only the federal government creates US dollars, and only the private sector creates wealth." The two go hand in hand.

The second quip is this "federal spending costs taxpayers money." That too is wrong. Federal spending supplies the US dollars that people spend, save, and give back in taxes. Federal spending is private sector revenue, your revenue directly or indirectly. Federal spending does not cost taxpayers money - federal taxes cost taxpayers money and as we saw earlier, federal spending does not rely on or use taxes.

To summarize, the federal government does not have money issues because the federal government issues money. Federal "debt" is private sector savings. Federal spending creates US dollars. Federal taxes destroy US dollars. We need federal spending. We do not need federal taxation. Taxpayers foot the bill only for taxes, not for spending and not for paying off any federal "debt".

     

Democrats vs Republicans - Both Wrong

The problem with Democrats is that they think we have to tax more to spend more. The problem with Republicans is that they think we have to spend less to tax less. Both are dead wrong! Federal taxes are not revenue. They are never respent. They simply drain dollars out of the economy.

The federal government is in no way like a business or a household. It is the source of all US dollars, not just a mere user like a business or household. It does not need or use income to fund its spending, it creates new dollars each time it spends. The sooner we all realize that, the sooner we can quit all the stupid bickering about harmless federal deficits and debt and get on with rebuilding our failing physical and social infrastructures.

Virtually all politicians either don't get it, or are profiting from our ignorance. We need to get real and create a politic based on spending more and taxing less at the federal level. A balanced budget just means that the federal government will no longer provide the money that the private sector economy needs for spending and saving. And if you disagree for financial reasons, then you do not understand the US economy.

What Photographers (and the Rest of Us) Should Know About Federal Spending

Do you remember how photography used to be a very different activity than it is today? Because you needed film in your camera to take pictures, and because each picture used up some of that film, you had to be very sparing and judicious with the pictures you took. You missed the opportunity to get some of your best shots because you had to be frugal with your film. The danger of taking more than a few pictures was that you would run out of film. Because you had to put new film in the camera to take more pictures, you were constrained in the number of pictures you could take by the amount of film you had at your disposal.

Then along came digital photography. Suddenly the film constraint was gone. Since then, you have been able to take as many photos as you like with no worry about running out of film. The only constraint with digital photography is that you might run out of storage capacity to hold all the pictures. At that point, you could delete some pictures or add more storage.

One might argue that unlimited picture taking is wasteful, but why? Each film photo expended some amount of a limited supply of film while each digital photo costs nothing.

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Do you remember how federal spending used to be a very different activity than it is today? Because the government needed gold to back its dollars, and because expenditures tied up some of that gold, the government had to be very sparing and judicious with the amount of its spending. The government missed the opportunity to do what was best for the country because it had to be frugal with its dollars. The danger of spending more than a few dollars was that the government would run out of gold. The government had to take back some dollars to free up gold so it could spend again. It was constrained in the number of dollars it could spend by the amount of gold in its vaults.

Then along came the end of the gold standard in 1971. Suddenly the gold constraint was gone. Since then, the government has been able to create (spend) as many dollars as it needs to with no worry about running out of gold. The only constraint with federal spending now is that the economy might some day run out of capacity to hold all those dollars. At that point the government could remove some dollars from the economy or the economy could expand to absorb those dollars.

One might argue that unlimited dollar creation is wasteful, but why? Each gold-backed dollar expended some amount of a limited supply of gold while each unbacked dollar costs nothing.

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When President Nixon took us off the gold standard in 1971, he eliminated the risk of federal bankruptcy or insolvency. Since then the government has had the ability to create unlimited quantities of dollars without needing to recover dollars by taxing or borrowing (yet it inexplicably continues those activities). Federal spending no longer transfers money to some by taking it from others. The federal government has been freed to spend on the things America really needs, such as better health care, better education, better roads and infrastructure, safer environments, and medical and technological advances.

For some reason, ignorance I think, we continue to act as though we are still on the gold standard. We act as though the next dollar spent will send the federal government into bankruptcy. We cry and moan about the government taking dollars from hard workers and giving them to lazy shirkers. We are too stupid to realize that we have moved from film to digital with respect to federal finances. The capacity constraints have, if not lifted entirely, been altered to the extent that any limit on federal money creation is not in running out of money, but in creating too much if the economy itself is at full capacity. Federal insolvency is not in the picture, so to speak.   

If the Federal Government Creates Dollars, Why Borrow?

If you believe that the federal government truly must borrow and tax to be able to spend, then quit reading and move on because you won't accept what I'm about to tell you anyway. But if you acknowledge that the federal government creates US dollars and wonder why, with that ability, it taxes and borrows as well as spends, then listen up.

But first, let me acknowledge that there is some truth to the common assertion that "printing" too much money could, under conditions of full production, cause inflation. So for you folks who like to talk about the US turning into the Weimar Republic or Zimbabwe, this is for you.

Now, as I have said many times, federal spending creates US dollars while federal taxing destroys US dollars. The federal government's ability to create dollars gives it the ability to spend however much Congress wants to spend, even if there were no such thing as taxes. The purpose of taxing, then, is not to respend those dollars. Taxes do not produce revenue. There is no operational need for revenue. There are a few reasons for having taxes, all pure policy, but the main purpose for having federal taxes is a policy decision to reduce the supply of US dollars in order to prevent inflation. Taking dollars out of circulation helps prevent there being too much money and theoretically helps thwart inflation. It may not really be necessary to tax in order to check inflation, but policy is policy.

Okay. But why does the federal government borrow?

The same reason - to prevent inflation.
Each year the government spends about $4 trillion and taxes back about $3+ trillion. That leaves about $1 trillion or so more spent than destroyed. That $1 trillion or so is called the federal deficit and could be inflationary, or so Congress thinks. In order to remove that $1 trillion deficit from circulation and keep it from being inflationary, Congress has mandated that the Treasury offer the public very safe savings accounts in which to hold those extra dollars. Thus, the Treasury "sells" Treasury securities which means the Treasury accepts and holds onto peoples' current dollars in exchange for a promise to give those dollars back later with interest. And each year they do it in the amount of the deficit. Over the years those Treasury security savings accounts add up and now have reached $19 trillion, otherwise known as the federal debt. Imagine that. The combined private sector savings at the Treasury is called the federal debt and considered by many to be a big problem of some kind. I'm still trying to figure out why savings is a problem.

So with all the newly created and spent US dollars taken out of circulation by taxes and "borrowing", we can safely say that federal spending is not inflationary.

Yet, we still have inflation to varying degrees. Why? Not from federal spending. Taxes and "borrowing" have seen to that. But the federal government does not control all spending. The private sector creates "money" (although not US dollars) by bank lending and credit creation. All the debt money created by the private sector amounts to about $12 trillion a year compared to the $4 trillion actual dollars created by the federal government, it's easy to see that any inflation pressure (which hasn't been much in recent years) comes from the private financial sector, not federal spending.

So there you have it. The federal government has reasons for taxing and borrowing, but those reasons have nothing to do with its ability to spend. That makes any accusations of the government taking money from some people in order to give it to some other people inherently false.

Why Did Gatlin Resign His Confederate Commission?

On March 19, 1862, five days after the Union Army gained control of much of North Carolina's coastal plain with its victory in the Battle of New Bern, the Confederacy dismissed Brigadier General Richard C. Gatlin from command of the Department of North Carolina. Gatlin, ill with fever in Goldsboro, was unable to lead his troops in New Bern, leaving Brigadier General Lawrence O'Bryan Branch to suffer the battlefield loss. The local newspapers excoriated Gatlin for the loss, claiming he had neglected New Bern's defenses and his Department in general, and that he was drunk during the battle. The papers soon recanted their stories, but for some reason Gatlin never was assigned another command in the Confederate Army. After spending a full year trying to determine why the Confederate War Department, a War Department that was in desperate need for experienced military leaders, overlooked him for another command position, he gave up and resigned his commission on March 23, 1863, effective September 8, 1862. We do not know why Gatlin became persona non grata. Bad publicity may have kept him from receiving another command, he may have refused to serve in Virginia, away from his beloved North Carolina, or there may have been other reasons. We may never know, but here is Gatlin's resignation. It was accepted and made official by Special Order No. 85 from the Confederate War Department in April 1863.

Gatlin's Resignation from the Provisional Army of the CSA

The following is a true and full transcription of a photocopy of a document written by Richard Caswell Gatlin, such document on file with the National Archives. The photocopy was sent to James L. Gaddis Jr from the National Archives upon his request for military records of Richard Caswell Gatlin July 5, 2001. Transcription by James L. Gaddis Jr, January 31, 2016.  

1

On the 19th Mar. 1862, Brig. Gen'l Gatlin was relieved from duty in the State of N. Carolina in consequence of ill health. On that day he addressed a note to the War Dep't asking an investigation into his conduct while in command of the Dep't of N.C. provided it had not met with the approval of the government, and this request was further urged in a note dated the 27th of March. The reply of Sect'y Randolph, though unsatisfactory from its neither exonerating or condemning, or promising investigation could only lead to one conclusion, viz that Gen'l Gatlin had been relieved for the reason stated in the order and from no other. Hence when he reported for duty on the 23rd of May 1862, he confidently expected to be at once assigned to a Command. This was not done however, and he continued to make the stated monthly reports until the month of September when he received Asst Adj't Gen'l Whiting's letter notifying him "that having no assignment, his appointment of Brigr Genl in the Provisional Army was vacated under the 2 par: of Genl Orders No 48." Soon after, Genl Gatlin proceeded to Richmond, and in an interview with Secty Randolph on the 24th of Sept, it was stated that the order was designed to be an exponent of the law, but if Genl Gatlin did not think that it applied to his case, he might protest, and the matter would be referred to the law Officer of the Government for his opinion.

2

The protest was then made, not with the vision of forcing his services upon the country, but to place himself in a position to again repeat his request, to have his conduct investigated by a proper tribunal, which could not be done so long as his appointment of Brigr Genl was not acknowledged by the Government. The investigation was the more to be desired, in as much as the Secty had stated that certain reports, rumours or allegations - not specified - prejudicial to Genl Gatlin had reached the War Dept. He had expected a speedy reply to his protest, as he did not presume but that the Secty had referred it according to promises. Up to this time however, nothing has been heard from the War Dept on the subject.

In as much as so much time has elapsed since the protest was made, that if an answer favorable to Genl Gatlin was now returned, he could hardly hope to have his conduct investigated, without which he would not willingly serve in the Army, he desires that the letter of Asst Adjt Genl Whiting be withdrawn or cancelled, and his resignation of the appointment of Brigr. Genl in the Provisional Army - which he believes he still holds under the law - be accepted to take effect on the 8th Sept. 1862, the date of Major Whiting's  letter.

March 20th 1863. 

Are US Dollars Really Federal Debt?

Here is how dictionary.com defines debt:

1.       Something that is owed or that one is bound to pay to or perform for another: a debt of $50.

2.       A liability or obligation to pay or render something: My debt to her for advice is not to be discharged easily.

3.       The condition of being under such an obligation: His gambling losses put him deeply in debt.

4.       Theology. An offense requiring reparation; a sin; a trespass.

Because we are not discussing theology, forget about #4. Let us, though, discuss the US dollar and its relation to debt.

The US Dollar is a Federal Debt

Clearly, a US dollar satisfies both definitions 1 and 2. When the federal government spends, it issues US dollars. Each dollar is a federal IOU, that is, an accounting liability to the government and an asset to the holder. That IOU (the dollar itself) signifies that the US government owes something to the holder of that dollar. That something is simply a credit for one US dollar, not 1/35th of an ounce of gold, nor a chunk of silver, but only another US dollar. That is because the US monetary system is a fiat monetary system with a currency not pegged to any commodity or to any other country's currency. It seems evident that the US dollar is, in fact, a debt of the US government and that, consequently, the US government is in debt to the holder of that dollar.

How Ae Debts Discharged?

Paying a debt discharges the debt. Example: I owe you $5.00. If I give you $5.00, the debt is paid. I no longer owe you $5.00. By giving you $5.00, I have transferred my $5.00 asset to you, thus reducing my assets. I also have reduced my liability by $5.00. Even though I may be cash-poor now, I no longer am obligated to pay you. My side of the transaction is in balance because both my liability and asset have been reduced equally. You, on the other hand gained a $5.00 cash asset but you lost a $5.00 loan asset. You are better off cash wise, but you no longer have a loan due you. Your side of the transaction is in balance because you have gained and lost equal amounts of assets. The crux is that the debt is eliminated by paying it back.

How Does the Government Discharge Its Dollar Debts?

Okay, this is going to sound bizarre, but there is no way the federal government can discharge its US dollar debt to you by paying it. Think about it. If you have $5.00 (a $5.00 bill, $5.00 in your checking account, or whatever), it means the federal government owes you $5.00. Remember that US dollars are a form of government debt. If the government then pays you another $5.00, it does not discharge the original debt; it simply means that the government is now in debt to you for $10.00. This is because US dollars are IOUs, that is, federal liabilities. Paying money to you does not reduce the federal liability - it increases it. Consequently, the federal government cannot discharge or reduce its debt by issuing more money. No. The federal government can reduce its debt (at least the debt inherent in the US dollar) only by taking those dollars back! Stop now. Think about that. Only by taking those dollars back can the government pay its debt to you. Stated another way, the federal government can discharge its US dollar debt to you only by your paying it! Got that? The government owes you money and the only way it can stop owing you that money is for YOU to pay that money back.

How does it take money back? It taxes you. By taxing you the government removes your asset, removes its liability, and voila, the liability, the asset, and, thus, the US dollar are all gone. Once back in the hands of the issuer the IOU no longer exists. The debt is gone, accounted out of existence. Taxes can be viewed as the government reneging on its debts. Federal taxes simply remove money from your pocket and from the money supply.

So Are US Dollars Really Debt?

If the person to whom the debt is owed must pay off the debt to the debtor, as with federal taxes, is it really debt to begin with? Is the US dollar, although clearly a federal liability, really a federal debt to you the holder? You can decide that for yourself. If US dollars are not debt, then does the federal government actually accrue any debt by spending? You can decide that also.

Please Do Not Bite That Apple

I keep hearing phrases like "our country is broken", "government intrusion on our lives", "we must take the country back", "this country is on the wrong path", and so on. I do not know about you, but these observations, or mindless bitching or whatever they are, fail to resonate with me. My life is certainly no worse than it was say, ten years ago, and in many ways, it is better. Americans as a whole are certainly in better shape than they were following the economic debacle of 2008. Employment has rebounded, gas prices are low, our military presence has wound down in far off war zones, inflation is nearly non-existent, good health care is at my disposal, no one has taken my gun, and I have not had to cough up anything to the federal government other than more taxes than I think are necessary. Consequently, I fail to appreciate the growing din of people sounding off about an out-of-control federal government.   

I am angry with the federal government, however, not for being overbearing on me or for spending my taxpayer money. I am angry with the federal government for continuing the charade that it must borrow and tax in order to have money. The federal government does not need or spend our tax dollars and it can never go broke thanks to the flexibility of its fiat monetary system. Welfare queens are not living off my income. The federal debt, the annual deficit, and warnings that we owe billions to China are about as true as the Uncle Remus Tales and as dangerous as dust-bunnies under the couch. Really, the federal government continues its "poor-mouth" charade as an excuse to avoid doing for the American people what the American people most need, providing the infrastructure basis for people to make decent livings and to avoid becoming helpless victims of the economy. In no way do I fear that the federal government is coming after me or that it wants to run my life.

Many folks in this country seem to have gotten meaner over the past few years. So many appear to have lost track of the fact that we live in a society rather than in a loose amalgamation of individuals. I often think this may be a subconscious response to our having a black president although, if presented with such an assertion, people would vehemently deny it. The rise of the Tea Party and what I call the "Minutemen for Christ" mentality, that is, evangelical, gun-totin', tough-talking, Bible thumping folks who disdain the public good in favor of what they consider to be individual rights, is far more troubling (and irritating) to me than notions of ours becoming a "socialist" or "communist" country. Neither of those adjectives is realistic. No, I am more afraid of the dark side - the side that disdains doing public good for fear of losing individual rights. The growing love affair with private anarchist, totalitarian, corporate, plutocratic leanings that see swelling all around me, especially here in the South but also overtly within the Republican Party and covertly within the Democratic Party looms far more dangerously in my thinking. From a couple of acerbic, loudmouth dinks in our own local county commission; to Nazi-looking federal legislators, some running for president and some not; to an irreverent, bombastic, charismatic like Donald Trump; our statesmen are becoming less like public servants and more like public serpents. 

So You Think $19 Trillion Is a Lot of Money?

F/Y         Redeemed Amount

2005       $37,859,890,000,000

2006       $35,910,551,000,000

2007       $38,242,892,000,000

2008       $42,120,248,000,000

2009       $52,531,898,000,000

2010       $63,780,546,000,000

2011       $63,968,929,000,000

2012       $67,407,248,000,000

2013       $61,491,537,000,000

2014       $63,566,328,000,000

2015       $60,448,876,000,000

See the numbers above? The dollar amounts are in the trillions. What do you think they are?

The first column is the US government fiscal year.

The second column is the amount of federal "debt" that the government paid off in that fiscal year.* Note that each year's payment is far greater than the current federal debt.

Whaaat? Paid off? Wait a minute! The entire federal debt is only $19 trillion. Why would the government have paid such big numbers and, if it did, why is there still a $19 trillion debt?

The answer lies in the definition of federal "debt". The federal "debt" is not a credit card balance or a long list of unpaid bills no matter what Paul Ryan, Rand Paul, Ted Cruz, and Barack Obama may tell you. No. The federal "debt" is nothing like that. In fact, "federal debt" is a misleading code phrase for outstanding US Treasury securities. US Treasury securities are interest-bearing investments or savings accounts, much like bank CDs, sold by the Treasury to the public, primarily to lessen the number of dollars in circulation.

Treasury securities are classified by maturity length. Treasury "bills" mature in 1 year or less. Treasury "notes" mature in from 2 to 10 years. Treasury "bonds" mature in longer than 10 years. Each Treasury security sold is a separate "debt" of the Treasury to the purchaser of the security. Each time the security expires and the Treasury redeems it, the Treasury has paid off that debt. There are thousands of Treasury securities in existence. Thousands of Treasury securities expire every day, every week, every month and every year and when they expire, the Treasury redeems them, that is, the Treasury pays them off. For example, let us say I buy a 3-month $1000 T-bill for $950. At the end of three months, the T-bill expires and the Treasury pays me $1000. Boom! That federal debt is paid. I may turn around and buy another 3-month T-bill and the process repeats. If I buy a new T-bill each time one expires, I will have bought four $1000 T-bills in a year and been paid $4000 by the Treasury. Of that $4000 I received, $3800 was money I had originally invested and $200 was interest I earned. If I buy a fifth $1000 T-bill, the federal "debt" on my T-bill will be $1000 until that T-bill expires and is redeemed.

So it is with all so-called "federal debt". In 2015, for example, the Treasury paid off over $60 trillion ($60,448,876,000,000) in Treasury securities, largely short-term Treasury bills and notes, thus paying off that amount in federal debt. So why is there still $19 trillion in federal debt? Because there are $19 trillion in Treasury securities that have not matured yet. Those securities will be redeemed (paid off) as they mature, just like all Treasury securities have been paid off on maturity since the late 1780s. The US has never defaulted on a Treasury security, which means the US has never defaulted on its "debt". Notice that the bulk of the money the Treasury uses to "pay off" Treasury securities is the money originally invested by the buyers of the securities. The Treasury returns the investors' money and pays only interest. Most of the time, the investors opt to reinvest in new Treasury securities and renew the "debt". That's why the federal "debt" continues to exist even as it is paid off.

Many people worry about the size of the federal debt and demand that it be paid off. But they do not realize, or know, that federal debt is paid off every day, Treasury security by Treasury security, even as new securities are sold. It is virtually impossible for the US to renege on its debts unless Congress does something stupid by refusing to honor and redeem Treasury securities as they expire.

So the next time some political ying-yang warns that the federal debt is out of control, that we can't afford any more debt, and that our grandchildren will be saddled with the debt, remember that every year the government actually pays off federal debt many times larger than the current debt amount. In fact, in the last eleven years the US government has paid off the debt, that is, it has redeemed US Treasury securities, in an amount well over $600 trillion and the country has not gone bankrupt, has not defaulted on its "debt", and has not had to sell out to China. And we are worried about today's $19 trillion "debt", that is, $19 trillion in outstanding Treasury securities? Please. Get serious America and get on with the business of running this country.

Remember that the US government pays its bills as it goes with newly issued US dollars. It does not borrow money or run up a credit bill, or spend the Treasury security investments. The term "debt" is technically accurate because the Treasury does owe the holders of Treasury securities the money invested in those securities, but the government has no overdue bills or overextended credit or goods bought on layaway. And it always redeems its Treasury securities as they come due, to the tune of $60 trillion last year alone.

* From the US Treasury website -  http://www.treasurydirect.gov/govt/reports/pd/pd_debtposactrpt_0915.pdf

         

Politics - This, That, and the Other

This:

How much of Donald Trump's early presidential campaign success is attributable to his not being a Washington insider? It is difficult to determine, but we are hearing more and more folks, including some of the candidates, express hope for a President from outside the Beltway, new blood so to speak, someone not steeped in the old politics. Trump, and earlier Ben Carson, Carly Fiorina, and some of the various governors, have enjoyed poll popularity over the insider candidates. If space between the new president and the old DC ways is what the people want, the people might want to be careful what they wish for. Do you remember 2008 when a then Washington outsider, a first-term DC newbie senator with only four years in office, won the presidency on the wings of a "Hope and Change" motto? Since then we have had nothing but rancor and malfunction between the executive and the legislative branches, and polarization among the American people. It shows that picking an outsider for president is not necessarily a prescription for harmony and progress in the federal government and satisfaction among the electorate. If Trump wins, would he be able to exert sway over the Congress? Would Washington suddenly morph into a model of cooperation and good judgment? Hah! Yeh, you bet. I suspect we could count on four or eight more years of stalemate, bickering, and ineffective government.

That:

Many things puzzle me, but one I understand the least is the slogan "We must take back the country!" When people say this I wonder who took the country, when did they take it, and where did they go with it? Apparently, the slogan is a metaphor for government having done something offensive to the right wing. Does it mean someone breached the Constitution? Does it mean white, Anglo-Saxon, protestants no longer constitute a majority? Does it mean foreign labor has relegated American manufacturing to second place? Does it mean the rich now have all the money? Does it mean having a President with an un-American sounding name makes us hostages to the Middle East? Does it mean we should demand that Pittsburgh start belching smoke again? I just do not know what it means. The only people I have heard threatening to "retake the country" are frustrated libertarian-type thinkers who seem to eschew any form of governmental intervention in any facet of American life. Those people apparently think the United States has been hijacked somewhere along the way and that we should mount up, strap on our six-shooters, form a big posse, and rescue it.

The Other:

One other thing, I am getting tired of people claiming that Social Security is an investment program when in actuality it is simply, by design, a federal welfare program, no different than food stamps or Section 8 housing. People often cite payment of payroll taxes as their "premium" that funds their future SS income. Thus, they think they are "investing" in Social Security. It is not so. Our payroll taxes go into the same federal accounting black hole as do our income taxes and all federal taxes. By collecting taxes, including payroll taxes, the federal government destroys dollars. It always pays for all its spending with newly created federal IOUs, that is, new US dollars. In short, we pay taxes, we do not pay premiums, and the federal government can and does fund SS independently of any tax collections. Only the people who meet the eligibility requirements of SS receive SS payments just as only the people who meet the eligibility requirements of food stamps receive SNAP payments. If you are one of those who bitterly despise federal welfare you should, in good conscience, forego your Social Security checks when the time comes. In the meantime, if you want to complain, complain about rising payroll taxes that reduce the national money supply, pay for nothing, and fool you into thinking you are investing in Social Security.