Deficit spending generates private sector savings
(Image by Dr. Stephanie Kelton) Permission Details DMCA
Ryan, Obama, McConnell, Reid, Pelosi, MSM, and most of Americans need to grasp and act on the irrefutable fact that America can never, involuntarily, go broke. We can afford anything we need which serves a public purpose. All of our needs are paid for from the Treasury's General Fund Account, not from tax dollars or revenue from bond sales.
Because Speaker Ryan and his allies, wrongly, couch discussions of spending in the context of scarce resources, the public is always led to believe that Congress must rob Peter to pay Paul, raise taxes, or sell Treasury bonds to fund federal government expenditures. They insist there is only and always the harbinger of debt being the singularly most constraining factor preventing our government from funding public purpose.
Nothing is further from reality and the irrefutable truth than this cynical presentation of America's capacity to fund itself.
There needs to be an open discussion concerning fiscal policy constraints on Congress allegedly preventing it from appropriating funds to resolve health care provision not only in South Carolina but the provision of funding health care nationally.
Clearly, one constraint is ideology (politics.) It would seem that a reasonable political solution would begin with the acknowledgment that doing nothing exacerbates human suffering. No one should support that alternative.
A second alternative is to agree to do something that optimizes available resources to resolve the problem of poverty. That solution begins with the acknowledgment of the indisputable power of the Congress to make laws that create the currency with which all Federal Programs are funded.
Because our Federal Government is monetarily sovereign, it can never, involuntarily, "become bankrupt." We can never be Greece, or any of the EC member nations because they do not have monetary sovereignty, cannot issue currency.
Our Federal Government (Congress, Treasury, and Federal Reserve) issues a sovereign currency, the dollar, as a non-convertible, fiat currency, in a flexible exchange rate regime, and it has no debt in a foreign currency. Under these, irrefutable, monetary characteristics Congressional appropriations are constrained only by the actuality of inflation and Congress' refusal to pay our bills (appropriate funding.)
Moreover, Congress never needs revenue per se to fund its appropriations. The notion that our government needs income to spend is, categorically, false in our post gold standard Modern Money Era which began in 1971-'73.
Speaker Ryan and company would have us believe that tax revenue is needed to accomplish spending. That contention is illogical. Tax policy in America manages inflation by taking dollars out of the economy to prevent over spending. While there has been no serious threat of inflation since the 1970's, we are over-taxed. Tax policy is also supposed to be designed to manage income distribution. It has failed this task over the past 45 years as marginal tax rates have become more regressive favoring the rich over the rest.
Simply put, tax revenue does not fund the Federal Government. That revenue is never recycled. The government simply issues more electronic dollars. It's illogical and inefficient to recycle government liabilities.
The dollars with which we pay the tax liability must first come from government spending. Speaker Ryan knows this and that Government spending is the first source of dollars entering the economy. Fiat creates dollars.
In the instance of the Federal Government, when it spends more than it receives in revenue (which it never needs and this construction is purely accounting not a financial requirement.) Ryan and too many others, consider this an economic Armageddon. None of them admit to the existence of the surplus. That surplus, from government "deficit spending dollars" is now held by those of us in the private sector. We now possess the dollars; it's our surplus or technically our net financial savings after taxes are paid. It's essentially interest-free money for us to spend as we choose. That's why the financial sector/commercial bankers hate deficit spending. Americans benefit from deficit spending and therefore, don't need to go into debt to maintain living standards.
Our surplus from deficit spending is what keeps the economy growing. Federal (public) deficit spending is equal, to the penny, to net financial assets in the private sector. When Ryan and company tell us they're going to cut the deficit, it automatically means they are going to reduce the amount of interest-free money available to us. That eventually will, in short order, force us to use our savings, retained earnings or borrow from banks at interest just to maintain current spending. The last six times our economy went into recession were each preceded by either a government surplus or a balanced budget. In all cases too much was cut or taxed away from us by austerity policies and conversely, not enough government spending was authorized by Congress to support interest-free stimulus.
Moreover, since this economy has high levels of regional and sub-regional unemployment (ranging from 12% to 35%), the Federal Government should deficit spend until we have a full employment economy.