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Monetary Sovereignty: The key to understanding economics

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Follow Me on Twitter     Message Rodger Malcolm Mitchell

Perhaps no words more accurately and succinctly illustrate the confusion about economics than "Monetary Sovereignty." It is not a theory or a hypothesis or a philosophy. In its essence it merely is a description of the way federal financing actually works.

A Monetarily Sovereign government has the exclusive and unlimited power to create its sovereign currency. Monetary Sovereignty is the foundation of economics. The United States is Monetarily Sovereign. It has the exclusively unlimited power to create the dollar. China, Canada, Australia, the UK and Japan are Monetarily Sovereign. They have the exclusively unlimited power to create their sovereign currencies.

The U.S. government created the dollar from thin air, by creating from thin air, all the laws and rules that made the dollar possible. Being sovereign over the dollar, the U.S. can do anything it wishes with the dollar. It can make the dollar equal to three euros, two pumpkins or one partridge in a pear tree. The federal government's power over the dollar is unlimited.

Illinois, Cook County and Chicago are monetarily NON-sovereign. The dollar is not their sovereign currency, and they do not have the unlimited power to create dollars. France, Germany and Italy are monetarily non-sovereign. They do not have the exclusively unlimited power to create their currency, the euro.

You, your business and I also are monetarily non-sovereign. Even Bill Gates and Warren Buffet do not have the unlimited power to create dollars. They are monetarily non-sovereign.

Because our Monetarily Sovereign nation has the unlimited power to create its sovereign currency, the dollar, it never needs to ask anyone for dollars. It doesn't need to tax or borrow, and it never can be forced into bankruptcy. It can pay any bill of any size at any time.

In fact, the federal government creates money by paying its bills. The U.S. has created many trillions of dollars, simply by pressing computer keys, and will continue to do so. It does not "owe" anyone for creating these dollars. The government cannot live beyond its means; it has no means to live beyond.

By contrast, if the debts of France, Germany et al, exceed their ability to obtain euros they, as monetarily non-sovereign nations, could be forced into bankruptcy. They did not create the euro, nor do they have the unlimited ability to pay bills.

Everything you believe about your personal finances -- debts, deficits, spending, affordability, saving and budgeting -- are inappropriate to U.S. federal finances. For this reason, your personal intuition about U.S. financing likely is wrong.

Because no Monetarily Sovereign nation can be forced into bankruptcy, none of that nation's agencies can be forced into bankruptcy. The U.S Supreme Court, the Department of Defense, Congress, Social Security, Medicare and any of the other 1,300 federal agencies cannot go bankrupt unless the federal government wishes it.

(All the talk about Social Security or Medicare going bankrupt is misguided. Even if FICA were eliminated, Social Security and Medicare would not need to go bankrupt, unless Congress wished it. They could pay benefits, forever.)

The unlimited ability to create money is an uncontested fact for Monetarily Sovereign nations, although at any given time,economic growth, inflation, deflation, recession, depression and social factors may influence a nation's decision to create money.

A Monetarily Sovereign nation even can choose to declare bankruptcy, for various reasons, but this would be an arbitrary matter of choice, not a forced necessity. An example would be Congress's failure to raise the debt ceiling. This could force the U.S. into bankruptcy.

Debt hawks do not (or do not wish to) understand the implications of Monetary Sovereignty. You never will see that term on such debt hawk web sites as crfb|AT|newamerica.ne Email address">The Committee for a Responsible Federal Budget" or the Concord Coalition.

If you go to those sites you will see federal debt described in the same terms as personal debt -- as an unsustainable obligation. While debt can be unsustainable for you, me, businesses, states, cities, counties and the monetarily non-sovereign EU nations, no debt is unsustainable for the U.S. government.

Debt hawks suffer from Anthropomorphic economics disease -- the false belief that federal finances are like yours and mine.

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Rodger Malcolm Mitchell Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Economist since 1995. Wrote the book, FREE MONEY. Economics blog is at http://www.rodgermmitchell.wordpress.com. Also maintain a site at www.rodgermitchell.com

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