The Big Lie About The Federal Budget
Picture, if you will, a farmer growing his crop. It doesn’t make any difference what she/he is growing. The farmer is constantly adding water to the field. Some of that water seeps down, farther into the ground and some of that water is recuperated in the crop itself. Some of that water may even run off into a stream somewhere. But the farmer always has a net loss of water, right? Because that’s the farmer’s job. That’s what farmer’s do. The farmer is always losing water, but recuperating the COST of the water from selling the fruits or vegetables (or government subsidies). This is a great analogy for the federal budget. You see, the federal government is where money comes from in the first place. The federal government is the farmer, and its the government’s job to water (infuse with money) the public sector.
We earn money from our paychecks, which we mostly give to others in the private sector when we shop(the government taking small amounts as we go), those people spend elsewhere in the private sector by paying employees or buying the goods that they sold to us in the first place. Little by little, the government nickels and dimes us, removing money from the private sector.
But where does that tax money go? If you think the government has some big vault of nickels and dimes, you would be mistaken. Tax money, at least on the federal level, is destroyed*. You read that right. Destroyed. Money transferred by computer is simply deleted. Federal taxes don’t fund social programs like Medicare at all. Taxes don’t fund military spending. They don’t even fund the aid money we might send another country after a natural disaster. Well, if taxes don’t pay for all those things, where does all that money come from?
This is where the farmer comes in. When the public sector needs to have money added to it, the federal government makes more. Physical money is minted, electronic money is created with a few keystrokes and voila! That’s why our Congress can talk about not having enough money to pay for a program (like Medicare for all) and then turn around and increase military spending by $70 billion or give a trillion dollars in tax breaks to the wealthy when it seems like they really need that money. That’s why my Congressman can say that he never voted for a bill that wasn’t payed for- because EVERY bill that passes is payed for!** It’s also why our government could give $12 billion to bail-out the banks, after the banking crisis, without totally wrecking the economy.
So, am I saying that if our federal government wanted to create a Medicare for all system, they could, without any problems? Am I saying that they could pay for healthcare, tuition-free college AND a huge infrastructure bill, all without causing inflation? Yes, that is actually what I’m saying. I know it sounds crazy, because we’ve all been told a big lie about balancing the federal budget for so long that we’ve ne’er heard anything else, but according to a number of highly accomplished economists (Mosler, Kelton, Wolffe, and many others), the federal government CAN create the money for all these things, and without creating inflation, so long as we don’t run out of materials or reach 100% employment- and we haven’t reached 100% employment for a very long time. Check out this quotation from former Chairman of the Federal Reserve Ben Bernanke, “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” **
According to economic theorist Rodger Malcolm Mitchell, “All federal debt could be eliminated tomorrow.” ** That is because our economy is a fiat system, which means exactly what this article is describing. It means that our dollar has the value that it has, because we all agree that it is so. Prior to 1933, the value of our dollar was based on the gold standard, but FDR cut ties between the dollar and the gold standard to get the U.S. out of the Great Depression***, although foreign countries were still allowed to trade dollars for gold until 1971, when Nixon halted that completely. And it seems like the only people who truly understand this are the ones getting very wealthy, perhaps because of this understanding. The United Kingdom has been using a fiat system since 1931.
Are the wheels turning? Are you thinking, right now, “Wait a minute, if what he’s saying is true, that means that poverty and homelessness exist because our government CHOOSES not to fix these problems?” Sadly, frustratingly, that is the cold, hard truth****. The billionaires that give money to our “elected” officials have no interest in fixing issues like poverty or healthcare, or education or even ending for-profit wars, because they make a lot of money from the existence of these problems. Let me say that again, so that it sinks in: poverty exists so that the very wealthy can make more money.
So why aren’t there two hundred million people in the streets protesting? Its because the truth has been so obfuscated by politicians, especially Democrats, and the media, every time they talk about balancing the federal budget, which ALWAYS balances*****. Every time a “journalist” asks someone running for office “How will you pay for that?” they reinforce the lie. Again and again. Over and over. “How will you pay for that?” The answer is that any bill that passes the houses of the Congress, and is signed into law, is payed for. An electronic note is sent to the Federal Reserve, which creates the money with a few keystrokes. Once that bill is signed into law, paying for it probably takes less than a minute. **
“Well, wait a minute”, you say, “This all sounds too simple. Congressman So-and-so wouldn’t take part in this. He’s on our side. And where does all that money go?” My response is “Oh, yes he would.” Convincing the public that they are Mr. Nice Guy, so the public blames their problems on someone else is how politicians work. The federal government recuperates money through taxes, or course, and issues bonds to recuperate any further money it needs.** Who buys those bonds? The private sector. Yes, some of them probably do live in China, which is probably where some of us get the idea that China is some giant international bank that other countries borrow their money from. We don’t borrow money from China. We make our own money. Why would the wealthiest country in the world need to borrow money from China? The idea is ludicrous, and yet even I believed it until my eyes were opened to the truth.
So, what about the deficit? Isn’t the deficit something to be concerned about? And where is that money going, if it isn’t going to China? To the public sector, of course. A budget deficit means that the government has spent more money than it has received in taxes. That is as it should be. It does NOT mean that the U.S. owes money to some other country. There is no other country in the entire world that can legally create U.S. dollars. The budget surpluses that President Clinton used to boast about meant that the government was actually taking in more than it was distributing to the public sector.******
Now, all of this is not to say that it works that way for state or city governments. It does not. Because states and cities are not currency issuers- not monetarily sovereign. But it is true, for example, that funding to state education systems could be doubled by money the federal government granted to states. This is why teachers are so under payed. It is also why parents (and even teachers) have to pay for school supplies that used to be given freely.
I also want to mention PayGo, which according to taxpolicycenter.org is “A budget rule requiring that new legislation affecting revenues and spending on entitlement programs, taken as a whole, does not increase projected budget deficits.” ******* Democrats like Nancy Pelosi and, you guessed it, my Congressman (Mike Thompson) love it. So what’s the problem? Well, for starters, it’s an open-ended invitation to increase taxes on the private sector, but even worse, by preventing the budget deficit from ever being increased, the status of all of these problems that we drastically need changed will, I fear, be cemented. We will never be able to pass tuition-free college or end homelessness, because those things will increase a deficit (which only means that the government is putting money into the public sector).
As long as the establishment keeps us poor and uneducated, we are easier to control and too busy to put any real time into changing our government. We also are far more likely to encourage our high school aged children to go into the military, where they are being irresponsibly deployed. The system, with all of its corruptions, is being sealed more and more, making change more and more difficult. I leave you with a quotation from John F. Kennedy “Those who make peaceful revolution impossible will make violent revolution inevitable.”
P.S. Many, many thanks to Steven Grumbine, who was the one to open my eyes to the ramifications of monetary sovereignty and a fiat currency. Keep planting seeds, Steve. And I do hope those who have made it this far in the article bookmark the footnoted references below and read them later, more than in any article I have written. People need to know!
* - https://www.theatlantic.com/business/archive/2011/04/the-destruction-of-money-who-does-it-why-when-and-how/236990/
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