ECONOMICS(Continued from above)
Do you know more than a university economist? Now you willhttps://mythfighter.com/2018/07/06/do-you-know-more-than-a-university-economist/Friday, Jul 6 2018
The six propositions lead to the following conclusions:
Every form of money is “fiat,” i.e. created by the fiat of an issuer. (Contrary to popular belief, “fiat” does not mean “paper” as opposed to gold. There is no “paper” money, nor is gold money. Unlike barter commodities, money has no physical existence. )
The U.S. government can pay any obligation denominated in U.S. dollars. It is impossible for the U.S. government unintentionally to run short of its own sovereign currency.
No agency of the U.S. government can run short of U.S. dollars unless that is the intent of Congress and the President. (This includes such agencies as the White House, the Supreme Court, the military branches, Social Security, and Medicare.)
The U.S. government neither needs nor uses tax dollars nor borrowing to pay its bills. (Because the Monetarily Sovereign U.S. government cannot unintentionally run short of its own sovereign currency, it has no need to obtain dollars from outside sources.)
FICA does not pay for Social Security of Medicare benefits. (Even if FICA were $0, the government could pay unlimited benefits, forever.)
The federal government does not borrow. (It accepts deposits in Treasury Security accounts. It does not use the dollars in those accounts. The dollars remain in the accounts until maturity, at which time they are returned to the account owner.)
Deposits in T-security accounts provide a safe depository for U.S. dollars (which stabilizes the dollar), and assist the Fed with its interest rate (and inflation) controls.
Raising interest rates increases the Demand for dollars (to purchase dollar-denominated debt.)
All dollars received by the U.S. government are destroyed upon receipt. (They disappear from any money supply measure.)
There are two ways to create dollars and two ways to destroy dollars:
.
Create Dollars
I. Lend dollars
II. Federal deficit spending
Destroy Dollars:
I. Pay off a loan
II. Federal taxation
Lending creates dollars. When a loan is supported by a loan document owned by the lender, the loan document is money. Like a dollar bill, it represents dollars owned by the lender, while the borrower receives new dollars. That is the difference between a loan and a payment. Though both are transfers of dollars, loans create new dollars, payments do not.
Federal spending creates dollars. To pay a creditor, the federal government sends instructions (not dollars) to the creditor’s bank, instructing the bank (“Pay to the order of”) to increase the balance in the creditor’s checking account. The instant the bank obeys those instructions, new dollars are created an added to the money supply (M1).
Paying off a loan destroys dollars. It reduces or eliminates the value of the loan document owned by the lender.
Federal taxes destroy dollars. They remove dollars from all measures of the nation’s money supply.
State and local taxes do not destroy dollars. These taxes are held in private bank accounts (M1 and M2), from which the state and local governments take them for paying creditors.
The purpose of federal tax dollars is to control private spending (i.e. “sin” taxes, tax deductions for businesses, etc.)
The Social Security and Medicare “trust funds” are bookkeeping fictions. (In private-sector trust funds, receipts are deposited and invested. In federal trust funds, receipts are recorded and removed from the nation’s money supply. Spending creates new dollars, ad hoc.)(Medicare Part A supposedly is paid by a fictional “trust fund,” while Medicare Parts B and D are paid out of the Treasury’s “General Fund.” The Medicare “trust fund” supposedly is running short of money; the General Fund never can run short of money.)
The formula for Gross Domestic Product (GDP) is: Federal Spending + Non-federal Spending + Net Exports.
Federal deficit spending stimulates GDP growth by adding dollars to the economy, i.e. by increasing Federal Spending and Non-federal Spending.
Reductions in federal deficit spending lead to recessions. (Vertical bars are recessions. Red line is deficit spending.)
Recessions are cured by increases in deficit spending.
Decreases in federal debt lead to depressions.
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
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.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001
The Federal Reserve controls inflation via interest rate control. (Interest rates support Demand for dollars.)
The primary cause of inflation has been an insufficient Supply of goods, not an excessive Supply of dollars.(Most modern inflations have been related to a shortage of oil. Every hyperinflation also has been caused by a shortage, usually a shortage of food.)
Despite endless concerns that the federal “debt” (deposits in T-security accounts)) may be a “ticking time bomb,“ the federal government has no difficulty servicing its “debt” and inflation has averaged close to the Fed’s 2.5% target.
Red line is federal “debt.” Blue line is inflation.
The commonly referenced federal Debt/GDP ratio has no function or meaning. It does not indicate economic health, nor does it indicate the federal government’s ability to service its obligations (which is infinite).
Interest rate increases are economically stimulative. They force the federal government to pump more interest dollars into the economy.
A trade deficit is more beneficial to a Monetarily Sovereign nation’s economy than is a trade surplus. In a trade deficit, the Monetarily Sovereign entity receives scarce goods and services, while sending money it has the infinite ability to create from thin air. In a trade surplus, the Monetarily Sovereign nation, receives money it doesn’t need in exchange for goods and services it must create by valuable labor and scarce resources.
People stimulate GDP by being creators, producers and consumers. Political entities (nations, cities, counties, states) that have net immigration grow compared with entities that have net emigration. GDP is a spending measure; adding immigrants increases government and private spending.
Federal anti-poverty spending is economically stimulative. It increases the nation’s money supply, and it helps the poor population to be more creative and productive.
Bigotry is economically depressive. Bigotry marginalizes a population (a gender, a race, a religion, a sexual preference) and prevents that population from being as productive as it otherwise could be.
The sole purpose of government is to improve the lives of the people. Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
In answer to the title question, now you know more than most university economists. Read the “Ten Steps” below, and you’ll know even more.
See
https://mythfighter.com/2018/07/06/do-you-know-more-than-a-university-economist/Rodger Malcolm Mitchell
Author
Topic: Future School: Many Topics (Get Smart Blog) (Read 19848 times)