Would you trust a baker who doesn’t know the differences between salt and sugar?

It often isn’t easy to determine whether information falls into the “miss-” (unintentional) category or the “dis-” (intentional) category.

For instance, Fox News has promulgated faulty information of the “dis-” sort, while your addled neighbor usually mouths “mis-“.

The following article comes from the Associated Press, so I would put it in the misinformation category.

National debt: Trump’s big challenge
Paying down $36T could limit his tax cuts, other policies

By Josh Boak and Fatima Hussein Associated Press

WASHINGTON — President-elect Donald Trump has big plans for the economy — and a big debt problem that will be a hurdle to delivering on them.

Trump has bold ideas on tax cuts, tariffs and other programs, but high interest rates and the price of repaying the federal government’s debt could limit what he’s able to do.

High interest rates and debt do not prevent anything. The government has infinite money available to fund anything.

And heaven forbid we ever begin to “repay” the federal debt (which isn’t federal and isn’t debt).

The federal debt is the total of deposits in Treasury Security accounts, all wholly owned by the depositors, not the federal government.

These accounts can be “repaid” simply by returning the dollars currently in the accounts to the depositors. This would not burden the government, taxpayers, or anyone else.

The article’s authors believe that federal so-called “debt” should be reduced, which requires increased taxes and/or reduced deficits. This is what reducing federal debt causes:

Every U.S. depression has come on the heels of a federal “debt” reduction.

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 reason is simple. Federal debt reduction removes dollars from the economy, which causes the economy to shrink. By definition, a shrinking economy is a depression.

There is no magic here. To grow, an economy must have a growing supply of spending money. The formula  is:

GDP = Federal and Non-federal Spending + Net Exports

There is no way to avoid a recession or depression when the money supply shrinks. Basic mathematics.

Not only is the federal debt at roughly $36 trillion, but the spike in inflation after the coronavirus pandemic and Russia’s invasion of Ukraine have pushed up the government’s borrowing costs such that debt service next year will easily exceed spending on national debt.

Again, the AP writers demonstrate monumental ignorance about federal financing, which is quite different from the business financing Donald Trump and Elon Musk know.

First, the federal government is Monetarily Sovereign and has the infinite ability to create U.S. dollars. So it has no need to borrow dollars and, indeed, doesn’t.

Statement from the St. Louis Fed: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”

“Not dependent on credit markets” is Fed-speak for “doesn’t borrow.”

Those T-bills, T-notes, and T-bonds mistakenly are called “borrowing,” though they are deposits into accounts similar to safe deposit boxes.

The government never owns those dollars, so it does not owe them. Instead, it merely holds them in a secure place and returns them to their owners to repay the so-called borrowing.

Second, “debt service” means interest payments, which the federal government can do endlessly without collecting a penny in taxes.

The higher cost of servicing the debt gives Trump less room to maneuver with the federal budget as he seeks income tax cuts.

Unlike state and local governments, the federal government has infinite “room to maneuver.” Even if the misnamed “debt” were double or triple its current size, the federal government could cut taxes to $0 and still pay all its bills simply by pressing computer keys.

It’s also a political challenge because higher interest rates have made it costlier for many Americans to buy a home or new automobile. And the issue of high costs helped Trump reclaim the presidency in November’s election.

The Fed raises interest rates to fight inflation. However, contrary to popular wisdom, those higher rates actually cause inflation.

Almost every business must add interest to its cost of goods and services. Raising rates increases the cost of goods and services, which exacerbates inflation.

“It’s clear the current amount of debt is putting upward pressure on interest rates, including mortgage rates for instance,” said Shai Akabas, executive director of the economic policy program at the Bipartisan Policy Center.

“The cost of housing and groceries is going to be increasingly felt by households in a way that are going to adversely affect our economic prospects.”

“Federal debt” (which isn’t federal and isn’t debt) does not put pressure on anything. Interest rates are set arbitrarily by the Fed and are not forced by anything.

The so-called “debt” isn’t federal, because the dollars always remain the depositor’s property. It isn’t debt because the government never owned or owed the dollars; it merely held them for depositors in safe storage.

The government doesn’t need to accept T-security deposits. T-securities’ purpose is not to provide the government with spending money but rather to provide a safe place for dollar holders to store unused dollars.

China, for instance, would much prefer to store its unused dollars in Treasury Security accounts than in any bank.

This safety stabilizes the dollar, making it attractive as the world’s primary money choice.

Akabas stressed that the debt service is already starting to crowd out government spending on basic needs, such as infrastructure and education.

About 1 in 5 dollars spent by the government are repaying investors for borrowed money, instead of enabling investments in future economic growth.

Because the federal government has infinite dollars, it does not borrow. So-called “debt service” is interest on T-security deposits.

These payments do not “crowd out” spending. On the contrary, federal payments add growth dollars to the economy.

It’s an issue on Trump’s radar.

In his statement on choosing billionaire investor Scott Bessent to be his Treasury secretary, the Republican president-elect said Bessent would “help curb the unsustainable path of Federal Debt.”

Federal “debt” growth is infinitely sustainable. Even if the “debt” were triple its current size, it still would be sustainable.

See: Historical BULLSHIT Claims the Federal Debt Is a “Ticking Time Bomb”: From Sept. 26, 1940 to October 10, 2024

The debt service costs along with the higher total debt complicate Trump’s efforts to renew his 2017 tax cuts, much of which are set to expire after next year.

The higher debt from those tax cuts could push interest rates higher, making debt service even costlier and minimizing any benefits the tax cuts could produce for growth.

Utter nonsense. Tax collections could be cut to $0, and the government could continue to spend, forever.

Nothing “pushes” interest rates higher. They are set arbitrarily by the Fed.

“Clearly, it’s irresponsible to run back the same tax cuts after the deficit has tripled,” said Brian Riedl, a senior fellow at the Manhattan Institute and a former Republican congressional aide.

“Even congressional Republicans behind the scenes are looking for ways to scale down the president’s ambitions.”

This is another classic example of ignorance about federal finance.

They don’t understand the difference between Monetarily Sovereign (federal government) and monetary non-sovereignty (state and local governments).

Democrats and many economists say Trump’s income tax cuts disproportionately benefit the wealthy, which deprives the government of revenues needed for programs for the middle class and poor.

The tax cuts disproportionately benefit the wealthy but do not deprive the government of revenues. It has infinite revenues. The ignorance is appalling.

“The president-elect’s tax policy ideas will increase the deficit because they will decrease taxes for those with the highest ability to pay, such as the corporations whose tax rate he’s proposed reducing even further to 15%,” said Jessica Fulton, vice president of policy at the Joint Center for Political and Economic Studies, a Washington-based think tank that deals with issues facing communities of color.

Increasing the deficit adds growth dollars to the economy. Cutting corporate taxes helps the economy grow. The federal deficit is not a burden on the government or on taxpayers.

Seemingly, the Joint Center for Political and Economic Studies doesn’t understand basic economics.

Trump’s team insists he can make the math work.

“The American people reelected President Trump … to implement the promises he made on the campaign trail, including lowering prices. He will deliver,” said Karoline Leavitt, the Trump transition spokeswoman.

He won’t deliver if he increases import duties as he promises. American consumers pay those duties.

When Trump was last in the White House, the federal government was spending $345 billion annually to service the national debt. It was possible to run up the national debt with tax cuts and pandemic aid because the average interest rate was low, making repayment costs manageable even as debt levels climbed.

The federal government doesn’t pay for debt; it merely returns depositors’ money. In any event, the federal government has the infinite ability to pay for anything without collecting taxes.

The sole purposes of taxes are to:

1. Control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to reward and
2. To assure demand for the U.S. dollar by requiring taxes be paid in dollars.

Federal taxes do not provide the federal government with spending money.

Congressional Budget Office projections indicate that debt service costs next year could exceed $1 trillion. What fueled the increased cost of servicing the debt? Higher interest rates.

Translation: The federal government will pump more than 1 trillion growth dollars into the economy at no cost to anyone.

In April 2020, when the government was borrowing trillions of dollars to address the pandemic, the yield on 10-year Treasury notes fell as low as 0.6%.

They’re now 4.4%, having increased since September as investors expect Trump to add several trillions of dollars onto projected deficits with his income tax cuts.

The federal government never borrows dollars. It has the infinite ability to create dollars.

Treasury securities do not represent borrowing. They are deposits, easily returned simply by sending them back to their owners.

The Fed arbitrarily determines interest rates, which could be 0% if it chooses to.

Democratic President Joe Biden can point to strong economic growth and successfully avoiding a recessionas the Federal Reserve sought to bring down inflation.

Still, deficits ran at unusually high levels during his term. That’s due in part to his initiatives to boost manufacturing and address climate change, and to the legacy of Trump’s previous tax cuts.

Federal deficits are income for the economy. Without federal deficits, the economy would not grow, and the greater the deficits, the greater the growth.

People in Trump’s orbit, as well as Republican lawmakers, are already scouting out ways to reduce spending to minimize the debt and bring down interest rates.

The Fed could bring down interest rates simply by lowering the base rate. Reducing federal debt causes depression.

Elon Musk and Vivek Ramaswamy, the wealthy businessmen leading Trump’s efforts to cut government costs, have proposed simply refusing to spend some of the money approved by Congress. It’s an idea that Trump has also backed, but it would likely provoke challenges in court as undermining congressional authority.

Musk and Ramaswamy are showing pure ignorance. They seemingly don’t understand that our Monetarily Sovereign government has the infinite ability to create dollars.

The so-called “debt” does not burden the government or taxpayers.

Refusing to spend money is refusing to insert growth dollars into the economy.

Russell Vought, the White House budget director during Trump’s first term and Trump’s choice to lead it again, put out an alternative proposed budget for 2023 with more than $11 trillion in spending cuts over 10 years to potentially generate a surplus.

Translation: Russell Vought proposed costing the economy $11 trillion.

Trump has also talked up tariffs on imports to generate revenues and reduce deficits, while some GOP lawmakers have discussed adding work requirements to trim Medicaid expenses.

Tariffs on imports are identical to taxes. Thus, Trump wants to increase taxes and reduce economic income.

SUMMARY

Our leaders’ ignorance of the difference between federal and business finance is like a baker’s ignorance of the difference between salt and sugar.

Decisions based on ignorance cause massive damage. Try baking a cake using salt instead of sugar.

The facts are:

1. The U.S. federal government is uniquely Monetarily Sovereign. It creates dollars simply by pressing computer keys. It never can run short of dollars.
2. The U.S. economy is monetarily non-sovereign. During recessions and depressions, it can and often does run short of dollars.
3. Being Monetarily Sovereign, the federal government never borrows dollars. Treasury bonds are fundamentally different from corporate bonds. Treasury bonds are a safe storage device, while corporate bonds are used to obtain spending dollars. The same word, “bonds,” describes two completely different functions.
4. While state government taxes provide states with spending money, federal taxes have a different purpose — to control the economy and assure demand for the U.S. dollar.

In short, confusion arises when words like “bond,” “note,” “debt,” “owe,” and even “tax” have different purposes and functions when applied to federal finances vs. personal finances.

It’s one thing for the public not to understand the differences. It’s far worse when our political leaders don’t.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

Search #monetarysovereignty

Facebook: Rodger Malcolm Mitchell;

MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;

https://www.academia.edu/

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY