BeforeItsNews only exists through ads. We ask all patriots who appreciate the evil we expose and want to
help us savage the NWO with more Truth to disable your ad-blocker on our site only so we can grow and expose more evil! Funding
gives us more weapons! Thank you patriots! Oh and If you disable the Ad-blocker - on your deathbed you will receive total
consciousness. So you got that going for you...which is nice!
% of readers think this story is Fact. Add your two cents.
The Washington Post and Jeff Stein have joined the ranks of IAMS (Ignorant About Monetary Sovereignty). The following article was published yesterday.
ECONOMIC POLICY:U.S. deficit explodes even as economy grows
Jeff Stein
A strong economy usually reduces the deficit. Not this time.
By Jeff Stein, September 3, 2023 at 6:00 a.m. EDT
The federal deficit is projected to roughly double this year, as bigger interest payments and lower tax receipts widen the nation’s spending imbalance despite robust overall economic growth.
The so-called spending “imbalance” implies that federal spending should be “balanced” against federal taxes. Nothing could be further from the truth.
The U.S. government is unlike state/local governments, businesses, and individuals. It uniquely is Monetarily Sovereign. It alone has the unlimited ability to create dollars. It never unintentionally can run short of dollars.
Even if the federal government collected $0 taxes, it could continue spending forever. The purpose of collecting federal taxes is to control the economy by taxing what the government wishes to discourage and giving tax breaks to what it wishes to encourage.
Unlike state/local taxes which provide state/local governments with spending money, federal taxes do not provide the federal government with spending money.
The typical measure of the economy is GDP. For the economy to grow, the federal government must run deficits, as demonstrated by the formula for GDP:
GDP = Federal Spending + Non-federal Spending + Net Exports
When federal spending declines or doesn’t grow enough, GDP declines. Not only does the formula demand it, but this graph illustrates it:
The red line demonstrates changes in federal deficits. The vertical gray bars are official recessions. The slanted lines show declining deficits leading to recessions, which then are cured by increased deficits.
The graph shows that when federal debt increases too little, we have recessions, which are cured by federal debt increases.
After the government’s record spending in 2020 and 2021 to combat the impact of COVID-19, the deficit dropped by the greatest amount ever in 2022, falling from close to $3 trillion to roughly $1 trillion.
Did you get that line, “Record spending in 2020 and 2021 to combat the impact of COVID-19?” Here, Stein demonstrates his understanding that deficit spending grows the economy, yet still complains about it. And he fails to understand the reverse, that the lack of federal spending will recess the economy.
Quite amazing.
But rather than continue to fall to its pre-pandemic levels, the deficit shot upward.
The deficit shot upward to cure the 2020 recession, a cure that the deficit accomplished.
Budget experts now project that it will probably rise to about $2 trillion for the fiscal year that ends Sept. 30, according to the Committee for a Responsible Federal Budget (CRFB), a nonpartisan group that advocates for lower deficits.
The so-called “non-partisan CRFB” leans heavily to the right, invariably recommending fewer benefits and higher taxes on the middle- and lower-income people, but seldom (if ever) mentions the tax loopholes of the wealthy.
If you go to the CRFB website, you will see many articles grousing about the federal debt and deficits, but none explaining exactly why these are bad for the economy. Perhaps this is the reason for their reticence:
U.S. Depressions tend to come on the heels of federal surpluses.
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.
That is the information you never will see on the CRFB website nor presumably in any article written by Jeff Stein for the Washington Post.
The unexpected deficit surge, which comes amid signs of strong growth in the economy overall, is likely to shape a fierce debate on Capitol Hill about the nation’s fiscal policies as lawmakers face a potential government shutdown this fall and choices over trillions of dollars in expiring tax cuts.
The deficit surge didn’t come “amid” the signs of strong growth. The deficit surge caused the strong growth. It’s like saying the Cubs’ good pitching came amid signs of a winning streak. No, the good pitching caused the winning streak.
Stein and the Washington Post don’t see the relationship between adding dollars to the economy and economic growth, despite the abovementioned formula for GDP.
The Senate will return from the August recess this week, and the House will return the following week. Biden and House Speaker Kevin McCarthy (R-Calif.) approved a deal in June to raise the nation’s borrowing limit, but it did little to alter the long-term debt trajectory.
Except, the U.S. federal government, which has the unlimited ability to create U.S. dollars, never borrows U.S. dollars. Who says so? The Federal Reserve:
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.”
That phrase, “not dependent on credit markets,” is Fed-speak for “doesn’t borrow.” Accepting T-security deposits is not “borrowing,” as the government never touches the money. The dollars are held in privately-owned accounts and upon maturity, they are returned to the depositors.
The higher deficit may undermine Biden’s attempts to take credit for reining in the budget ahead of the 2024 presidential election.
Because Americans have been programmed to believe, falsely, that federal spending is bad — and perhaps because of his own ignorance about federal financing — Biden takes credit for doing something stupid: Reducing the amount of growth dollars the federal government pumps into the economy.
And it could pose a challenge to Republican lawmakers, who — despite their calls for fiscal responsibility — are pushing to extend more than $3 trillion in tax cuts they approved in 2017.
The Republicans always call for “fiscal responsibility” (i.e. the fiscal irresponsibility of reduced spending) when the President is a Democrat. They don’t want the economy to grow during a Democratic administration.
The 2017 tax cuts were cuts for the rich. The GOP, the party of the rich and Trump, always wants those tax cuts. They don’t want cuts to taxes that ordinary people pay, i.e., FICA.
“The deficit will double from 2022 to 2023,” said Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget. “This should prompt a serious evaluation of federal policy going forward, though I worry it won’t.”
If the deficit actually does double, the economy will grow beautifully. Remember: GDP = ….etc., etc.
Stock market tip: The larger the deficit spending, the faster the stock market will grow. Cut deficit spending, and we’ll have a recession. We always do.
The surge in red ink has confounded many economists’ expectations. Typically, deficits contract when the economy grows because businesses and consumers owe more taxes, and the government does not need to spend as much to protect those who have lost their jobs.
It confounded only those economists who don’t understand Monetary Sovereignty. (Yes, they exist and some have “Peter Principled” their way up to important jobs. Hello, Larry Summers.)
Deficits begin to contract when the economy grows because the ignorante believe they no longer are needed. Eventually, however, this contraction leads to a recession that is cured by increased deficit spending. Recessions aren’t necessary. They are caused by reduced deficit spending.
Think Jeff, if deficit spending grows the economy and cures recessions, why wouldn’t deficit spending grow the economy during non-recession times?
Then deficits typically expand again in downturns, as those factors go into reverse. And yet, the current surge in the deficit is coinciding with a period of unusually strong economic growth amid historic lows in unemployment and robust corporate profits.
No, Jeff, deficits are intentionally expanded to cure downturns.
Jason Furman, who served as a top economist in the Obama administration and is now an economics professor at Harvard, said the current jump in the deficit is only surpassed by “major crises,” such as World War II, the 2008 financial meltdown, or the coronavirus pandemic.
During a major crisis, the government spends more to cure the problem. One wonders why this is so difficult for Furman to understand. Obama was notorious for not understanding the economy. Perhaps Furman was at fault.
It also is difficult to understand why economists, people who spend their lives looking at the economy and federal spending, can’t make that mental connection. It’s quite simple:
The government has infinite dollars.
Adding dollars to the economy grows the economy.
Therefore the federal government always should run deficits.
Is that really beyond their ken? Or is the problem simply semantic? Words like “debt,” “borrow,” and “deficit” do not have the same implications for a Monetarily Sovereign entity as they do for monetarily non-sovereign entities.
Or do they falsely believe that federal spending causes inflation?
The wrongheaded printing of larger currency denominations when facing inflation gives the illusion that the currency printing causes inflation, when in fact, inflation causes the wrongheaded currency printing.
The slogan, “Inflation is too much money chasing too few goods and services,” should be, “Inflation is too few goods and services.” Period.
Today’s inflation was caused by shortages of oil, food, lumber, computer chips, shipping, labor, and other goods and services. If the Saudis keep cutting production, we will have another increase in inflation. And no, raising interest rates will do nothing to stop it.
In fact, raising interest rates makes things more expensive as interest is a business cost that must be overcome.
The U.S. economy is expected to grow at a steady 2.1 percent this year.
Thankfully, the government was smart enough to increase the spending that pumped growth dollars into the economy.
“To see this in an economy with low unemployment is truly stunning. There’s never been anything like it,” Furman said. “A good and strong economy, with no new emergency spending — and a deficit like this.
The fact that it is so big in one year makes you think it must be some weird freakish thing going on.”
The “weird, freakish thing” is the economy’s normal reaction to federal spending. Seemingly, Mr. Furman, the Harvard economist, doesn’t understand basic algebra: GDP=Federal and Nonfederal Spending + Net Exports.
From August 2022 to this July, the federal government spent roughly $6.7 trillion while bringing in roughly $4.5 trillion. According to the Committee for a Responsible Federal Budget, that represents a total increase in spending of 16 percent relative to last year and a 7 percent decrease in revenue.
Let me rephrase his statement: “From August 2022 to this July, the federal government pumped a net of 2.2 trillion growth dollars into the economy.” And he thinks the GDP growth is “weird and freakish”??
The Treasury Department is also on track to take in substantially less new revenue this year, partly because of the stock market’s slump last year.
Rephrase: “The Treasury Department is also on track to take in substantially fewer growth dollars out of GDP this year.”
In 2021, amid a cryptocurrency bubble and an explosion in housing prices driven by rock-bottom interest rates, investors recorded huge gains that led them to pay capital gains taxes at record levels. But then the bubble burst, leading to a sharp drop in capital gains tax revenue.
Automatic adjustments to the tax brackets to account for inflation also reduced tax obligations for many Americans, resulting in less incoming revenue relative to last year.
Then, a number of other spending increases contributed to the rising deficit — Social Security payments increased because they are indexed to inflation; the government spent more on education, veterans benefits, and health care; and the bipartisan infrastructure law, as well as the 2022 Inflation Reduction Act, started sending billions of dollars out from the government’s accounts.
Experts are fiercely divided on the extent to which the higher deficit amounts to a pressing problem for the economy.
The experts who understand basic algebra and Monetary Sovereignty are not divided. Deficits are not a problem; they are how the economy grows.
The federal government can issue more debt even as interest payments rise, with demand for the dollar remaining strong.
The federal government doesn’t need to “issue debt.” The sole purposes of so-called “debt” (i.e., T-securities) are:
To provide a safe place for people and nations to store unused dollars. This stabilizes the value of the dollar.
To provide a continuing demand for the dollar because taxes must be paid in dollars.
Issuing debt does not provide the federal government with spending money. It creates, ad hoc, all the dollars it spends.
That isn’t always the case: In Argentina, soaring debt levels have forced the government to impose limits to prevent citizens from taking money outside the country.
Argentina printed currency rather than curing the food shortages causing its inflation.
Other government debt crises have been marked by catastrophic drops in the exchange rate amid investor concerns that the currency will be devalued. These signs of distress have not materialized in the United States.
Fears of a debt crisis during the Obama administration also consistently failed to materialize, emboldening those who regarded the warnings of fiscal conservatives demanding budget cuts as overblown and ideologically motivated.
The demands being seen today are overblown, ideologically motivated, and based on national ignorance about Monetary Sovereignty. If the populace understood MS, the politicians would not be able to get away with nutty “debt ceilings” and ignorant arguments by the Committee for a Responsible Federal Budget.
“If you think of places that have actually had problems of real fiscal sustainability which have gotten to the point of crisis — we know what those places look like, and this doesn’t look anything look like that,” said Matthew C. Klein, publisher of the Overshoot, a subscription research service focused on the global economy.
“You can argue about whether you want it, but this is not a crisis.”
