Facts - Sm Posted: Oct 23rd, 2017 - 10:33 am In Reply to: National Debt - Sm
1) Congress is the "ONLY" entity empowered to create US dollars and it incurs no debt obligation when it does so.
There are many types of "currency" in circulation and credit often appears to function as a currency, but there is only one US dollar that is acceptable to settle tax obligations or transact business with the government and Congress creates that every time it spends into the private sector to provision itself or pay for programs it appropriates. This right/duty to create the dollar is subject to no limitations or conditions not self-imposed by Congress and never was. Even the gold standard that so many are infatuated with still was not an actual hard limitation to the authority of Congress, and it was more often ignored than adhered to, with good reason.
2) Taxes "DO NOT" fund spending for the federal government and never have.
Taxation initially drives acceptance and demand for the currency that the government imposing it creates. The government can offer its currency in exchange for the goods and services it requires, but to set a value to that currency and create the demand to allow its use in purchasing goods and services it first levies a tax payable only in that currency at some future date. This effectively makes everyone unemployed until they can find a way to procure enough of the currency to settle the tax obligation and avoid punishment. The use of the issued currency as a store of value in conducting commerce and saving is an expected result but is of secondary interest to the government. This tax levy and spending of the currency into the private sector "MUST" precede any actual collection of taxes or there is no currency in the private sector to collect. Spending funds taxes, not the other way around.
Once the currency is accepted and used in commerce as the dominant means of payment it behooves the government to provide sufficient supplies of the currency to enable it to effectively manage the economy, but not so much as to degrade its value in relation to its primary purpose of procuring goods and services. The government, as the sovereign issuer of the currency, has no need for it for its own sake. It needs the goods and services that it purchases with the currency that it can never run out of, ensuring that it can always provision itself. This gives a secondary function to taxation as a means to draw down existing currency supply in the economy to defend its value. It, having no use for currency it can create on demand and functionally needing to spend before collecting taxes, simply cancels any such collection of currency from existence.
There is no function of the Treasury or Fed that makes collections of taxes available to spend. The instant a tax obligation is satisfied the currency used in that transaction is no longer "money", so attempting to join it with newly created currency would be apples and oranges. The accounting of such collection serves only advisory purposes, primarily to establish a point where new spending by Congress goes into deficit. This was much more important when we self-imposed a gold standard and had to defend the currency's value against a gold reserve. It was/is never a "revenue" source for the government to spend from and imposes no limitation on the ability of government to create and spend new currency.
3) Deficit spending is not only advisable but absolutely necessary to maintain the economy.
This is the stark reality that caused the nation to abandon the archaic gold standard and adopt the current fiat system of currency creation. Only nations with a "very" progressive tax structure limiting hoarding of wealth and a positive trade balance can do well with commodity based or fixed exchange rate currencies. Their economies must also be tightly controlled to avoid the natural ups and downs of the business cycle or the very actions that would mitigate the damaging swings would be counter to protecting the value of the currency. Such currencies are very pro-cyclical and make recessions into depressions or kick off extreme bouts of inflation that then must be countered by dampening recovery and extending the time required for such.
While trade deficits are mostly harmless, and often even desirable, to a fiat currency economy they are killers of gold reserves and require careful balancing of currencies pinned to another currency by a fixed exchange. With a fiat currency, we are purchasing "real" goods and services made with "real" labor with certificates that we mostly pull from our collective backsides. Even if those certificates are then used as investments to collect additional interest the interest is no harder to create currency for than is anything else. We have some minor advantage in having the currency of trade that contains the day to day transactions within our system, but our Treasury bonds are not a necessary component to our economy, affecting only our ability to set interest rates and monetary policy, and reserves are not influential at all in this. This brings up the last, but possibly most important point I'll cover, but there are others.
4) "THERE IS NO DEBT"
As I mentioned above, deficit spending (above taxes collected) incurs no debt obligation on the government, and certainly not on the private sector that already exchanged goods and services for the currency. How long would you work for an employer that billed you for the total of the wages paid to you? In any other context presenting the total of such spending as an obligation would constitute theft by fraud. Luckily, the concept of the national debt is nothing more than political manipulation and gamesmanship, even if the politicians don't understand it. We aren't well known for electing the brightest bulbs in the chandelier, but catering to their ignorance and corruption is not good economic policy.
The accounting category labeled debt/surplus was originally an advisory function that allowed Congress to know where it stood in currency supply balanced against the gold reserve. If the currency supply was less than the value of the reserve it could spend more or cut taxes without creating inflation. If the currency supply was more than the value of the reserve Congress had to cut back spending or raise taxes. Without the value of the gold reserve to measure this category against the number suddenly appeared much larger and it had an entirely different function. It now represents the total of currency in the private sector that hasn't yet been canceled by taxation, not an obligation that we must repay, even if that were possible. It is our aggregate savings represented in Treasury bonds.
We don't "owe" $19 Trillion, we "OWN" $19 Trillion. We, the private sector, already paid for this currency when we exchanged it for the goods and services government needed to provision itself and pay for the programs it approved, and that is a completed contract, not a debt obligation. The use of this large number to scare us into submitting to very harmful austerity-based fiscal policy is the biggest con ever perpetrated, but it works because it resonates with our only other economic experience, our personal budgets. However, we are not "issuers" of the currency and only "use" it in our economy. The currency issuer has an entirely different set of rules that determine cause and effect in the economy, and they are almost always directly opposite to those we know from our experience.
If you believe the government should reduce spending to "pay" the debt you should ask your employer to reduce your pay because they will have the same effect and you can make your employer happy by taking less from him. Every dollar spent by the government becomes someone's asset in the private sector. "Balancing the budget" means removing/canceling a dollar for every dollar created and gives no consideration for the drains of wealth accumulation or trade deficits. It also provides no fuel for economic growth and it tends to drive people to leverage their private debt beyond their ability to pay in a currency starved economy. If your representative is beating you up with the debt and fear of America "going broke" (an impossibility with a fiat currency) s/he is either ignorant of how the economy functions or is corrupt and lying to you.
Post A Reply Reply By Email Options
Complete Discussion Below: (  marks the location of current message within thread)
|
