None of our elected officials,
their economic advisers, and few financial wizards, including those who advise President
Obama, leave me to believe that they understand the real significance of deficits
and taxation and the simple mechanics involved in reserve accounting with a sovereign
fiat currency.
What this leads to is that
these "leaders" and "advisors" have it all backwards when
they talk and write about deficits, and taxation because they have not,
intellectually and operationally, made the transition from fixed exchange rates
and gold standard principles, to flexible
exchange rates and sovereign fiat currency principles.
Nor are they asking the right
questions during this recession. The leadership class needs to ask "what is
the purpose of deficit spending?" This question gets to the crux of the dilemma
of our national recession.
How can those on the right and left protest providing
net assets to the private sector to employ all who want to work?
That's right. No increase in taxes or borrowing needed. Instead, taxes on income need to be significantly reduced to allow immediate (next 12 months) and broad based economic benefits.
Is this irresponsible? Not if our leaders take the time to understand
that in a modern monetary system federal income tax collections don't support
spending. Among the operational axioms
of modern monetary operations in
Levying taxes on the rich, non-rich
individuals or corporations to raise revenue is nonsense. Continuing taxation of income, during a recession
with 25-30 million unemployed, is counterproductive where the objective is attaining full employment through deficit spending. Moreover,
because the federal government (Treasury & the privately owned Federal Reserve) is the sole issuer of our
currency, there is no need to raise revenue.
For 41 years we have believed,
and our "leaders" have led us knowingly or unknowingly to accept, the road
signs proclaiming, "Your Federal Taxes at Work."
If you could create all the currency
you needed to fund whatever you needed, why would you have to raise revenue through
taxation? You wouldn't. Moreover, you'd have
to spend your currency/dollars first, before you could tax or borrow.
So why does the Federal government tax? It taxes to manage spending, in other words to control inflation and deflation. That's it. It borrows for the same reason. They're automatic stabilizers. However, there's a real downside during recessions which our erstwhile leaders don't understand. The more they tax the more likely the economy will fall into recession and deflation. However, once full employment is achieved it may be necessary to resume income taxation to cool off a hot economy.
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