However, since 1971, the end of the gold standard and the beginning of Monetary Sovereignty, there has been no relationship between federal deficit spending and inflation.
At some level, deficit spending could cause inflation. For instance, if the government were to give every American $1 trillion, I am confident we would have inflation. But we are nowhere near that point.
Because taxes do not pay for federal spending, FICA does not pay for Social Security benefits. FICA could (and should) be reduced to zero, and benefits could be tripled, and this would not affect by even one penny the federal government's ability to pay Social Security benefits.
Recently, the federal government made a profit on its purchase and sale of corporate stock (GM et al). All such profits came out of the economy, and therefore were recessive -- harmful to the economy and useless for the federal government.
By reducing the money supply, federal profits = losses for the economy. Federal surpluses = economic deficits.
The federal government has "saved" money by firing, or reducing the pay of, federal employees. Those so-called "savings" would be money not sent into the economy, and therefore, are recessive. The federal government, having the unlimited ability to create dollars, does not need to "save" dollars.
Politicians and the press do not yet seem to understand Monetary Sovereignty. However,no one intelligently can discuss national deficits and debt without acknowledging the implications of Monetarily Sovereignty. The concept is the basis for all modern economics. Monetary Sovereignty is to economics as arithmetic is to mathematics.
The next time you go to any economics blog or web site, see if the contributors understand Monetarily Sovereignty and use it in their discussions. If they do, it might be a good site. If they don't, the site is worthless.
All debt hawk objections revolve around just two questions:
1. How much money can the federal government create? Answer: Infinite
2. How much money should the federal government create? Answer: Up to the threat of uncontrollable inflation.
Despite an astounding 3,500% increase in debt since 1971, we are not anywhere near the point where deficits cause uncontrollable inflation (which is controlled via interest rates). As of this writing, we are fighting deflation.
In short, most of our economic problems are caused by the politicians, the media and the public not recognizinging the implications of Monetary Sovereignty. By crippling the federal government's ability to grow the U.S. economy, the Tea/Republicans have injured more Americans than Al Qaeda.
Question of the day: How does a tax increase or spending decrease reduce unemployment or grow the economy?
Answer: When the federal government taxes, dollars are removed from the economy. When the federal government spends, dollars are added to the economy.
A federal deficit is a surplus for the economy.
Therefore, both a tax increase and a spending decrease reduce money growth in the economy. Because GDP = Federal Spending + Non-federal Spending + Net Exports, a reduction in money growth reduces economic growth.
Money is the lifeblood of an economy. Cutting the federal deficit to cure a recession is like applying leeches to cure anemia.
Rodger Malcolm Mitchell
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