Believe it or not, the government lies to you.

I’m sure you will find this difficult to believe, but the U.S. government lies to you about many things, this time about its finances.

The following is from the government Bureau of the Fiscal Service:

Executive Summary of the Fiscal Year 2022 Financial Report of the U.S. Government
An Unsustainable Fiscal Path
An important purpose of this Financial Report is to help citizens understand current fiscal policy and the importance and magnitude of policy reforms necessary to make it sustainable.

A sustainable fiscal policy is defined as one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is stable or declining over the long term.

That is the definition of a “sustainable fiscal policy??? Who in the government invented such a definition?

First, the debt/GDP ratio is a ridiculous, meaningless number with zero analytical or predictive power. A high ratio says nothing. A low ratio says nothing. A rising or declining ratio says nothing.

The Debt/GDP ratio is a classic Apples/Oranges measure. GDP (Gross Domestic Product) is an annual, usually one-year measure of productivity. Debt is a decade-long measure of net deposits. GDP begins every year at 0. Debt is cumulative. Mathematically, it’s a silly fraction, no better than butterflies/butter churns.

But it gets worse:

DEBT/GDP RATIOS BY COUNTRY

Countries with the Highest
Debt-to-GDP Ratios (%)
Venezuela — 350%
Japan — 266%
Sudan — 259%
Greece — 206%
Lebanon — 172%
Cabo Verde — 157%
Italy — 156%
Libya — 155%
Portugal — 134%
Singapore — 131%
Bahrain — 128%
United States — 128%

Countries with the Lowest
Debt-to-GDP Ratios (%)
Brunei — 3.2%
Afghanistan — 7.8%
Kuwait — 11.5%
Congo (Dem. Rep.) — 15.2%
Eswatini — 15.5%
Burundi — 15.9%
Palestine — 16.4%
Russia — 17.8%
Botswana — 18.2%
Estonia — 18.2%t

Do the above ratios tell you anything about whether a government’s fiscal policy is “sustainable”? Is Russia’s economy more “sustainable” than Japan’s and the US’s?

Then there is this graph. What does it tell you about sustainability (whatever that supposedly means)?

The debt/GDP ratio rose during World War II. Then, for about 35 years, it declined until 1980, when it began to rise. In 1996, the ratio had a 5-year decline, after which it grew until 2020 and a short decline.

Meanwhile, GDP has had relatively steady growth.

So, what did the debt/GDP ratio tell you about the economy? What did it predict? What did the ratio say about “sustainability”? Nothing.

GDP measures the size of the nation’s economy in terms of the total value of all final goods and services that are produced in a year.

Considering financial results relative to GDP is a useful indicator of the economy’s capacity to sustain the government’s many programs.

I keep reading and rereading that phrase, “the economy’s capacity to sustain the government’s many programs. “ I can’t visualize what it means.

Does it mean the government is running out of money (which, for a Monetarily Sovereign government is impossible)?

Former Federal Reserve Chairman Alan Greenspan: “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.” 

Does it mean the government doesn’t have enough people to run its programs? (Just hire enough people.)

Or what?

World War II tested the government’s “capacity to sustain many programs.” It merely spent more money, hired more people, and sustained very nicely, thank you.

Since then, despite repeated claims that the federal debt is a “ticking time bomb,” and much to the consternation of the debt Henny Penny crowd, the economy keeps growing and remaining healthy. Even COVID was only a short-term setback for the U.S. economy.

This report presents data, including debt, as a percent of GDP to help readers assess whether current fiscal policy is sustainable. The debt-to-GDP ratio was approximately 97 percent at the end of FY 2022, down from roughly 100 percent at the end of FY 2021.

The long-term fiscal projections in this report are based on the same economic and demographic assumptions that underlie the SOSI.

The Statement of Social Insurance (SOSI) presents the projected actuarial present value of the estimated future revenue and estimated future expenditures of the Social Security, Medicare, Railroad Retirement, and Black Lung social insurance programs which are administered by the SSA, HHS, RRB, and DOL, respectively.

In short, the government is comparing probable expenses of these social programs with projected revenue — mostly tax receipts.

There’s one small problem with that comparison. The federal government’s finances are nothing like the finances of monetarily non-sovereign entities like you, me, businesses, and local governments, which require income to pay bills.

The federal government requires, and indeed uses, no income to pay its bills. Being Monetarily Sovereign, it creates new dollars every time it pays a creditor. In fact, paying creditors is how the federal government creates dollars.

To pay a bill, the government sends instructions (not dollars) to the creditor’s bank. The instructions are in the form of a check or wire, telling the bank to increase the balance in the creditor’s checking account (“Pay to the order of”).

When the bank does as instructed, new dollars are created and added to the M2 money supply measure.

Thus, even if the federal government received $0 taxes and any other revenue, it could continue spending forever simply by sending instructions to banks.

The current fiscal path is unsustainable.

To determine if current fiscal policy is sustainable, the projections based on the assumptions discussed in the Financial Report assume current policy will continue indefinitely.

The projections are therefore neither forecasts nor predictions.

Nevertheless, the projections demonstrate that policy changes need to be enacted for the actual financial outcomes to differ from those projected.

I don’t know what the above paragraphs are supposed to mean, but I’ll take a guess. See if you agree with this translation:

“The government can’t keep increasing deficits the way it has been for the past eighty years. We don’t know why, but it simply can’t.

“Although this isn’t a forecast or a prediction (if there is any difference between the two), something has to change, just because we say so.”

If there is another meaning, please let me know.

The debt-to-GDP ratio ratio was approximately 97 percent at the end of FY 2022. Under current policy and based on this report’s assumptions, it is projected to reach 566 percent by 2097.

The projected continuous rise of the debt-to-GDP ratio indicates that current policy is unsustainable.

Let’s return to the Debt/GDP graph. In 1974, the Debt/GDP ratio was 23%. By 2022, 48 years later, the ratio was 97%, a 4.217-fold increase.

The government forecasts and predicts (Oops, supposedly it isn’t a forecast or a prediction) — let’s say it’s a WAG (wild ass guess) that by 2097, which is 75 years later, the ratio will be 566, which represents a 5.8% increase from the 97% of 2022.

In short, we had a 4.217-fold increase in 48 years, and the WAG is for a 5.8-fold increase in 75 years. And that is supposed to be “unsustainable.” Except . . .

Except the Treasury’s WAG is that future ratio growth proportionately will be less than the past ratio growth.

Apparently, Wild Ass Guesses aren’t as accurate as they used to be. Not that it matters because, as we have seen, Debt/GDP for a Monetarily Sovereign entity is meaningless.

Federal “debt” isn’t federal, and it isn’t debt.

It’s deposits into T-security accounts that are wholly owned by the depositors and never invaded by the federal government. That’s right. The government doesn’t own or even touch those dollars. They belong to depositors.

The government merely holds them in safe keeping, like it holds whatever is in your bank safe deposit box.

To “pay off” the misnamed “debt,” the government merely returns the depositor’s’ dollars to the depositors. It does that every day.

Think about it. Do you really think the government of China would turn over ownership of billions of their dollars to U.S. government usage?

In summary, the Treasury supports the lie that the growing “Federal Debt/ GDP is in some way “unsustainable,” without ever saying what they mean by “unsustainable.”

There never has been a time when the U.S. government has not been able to “sustain” (whatever that means) its “debt” (whatever that means).

So why the lies?

For much of the government, it’s pure ignorance. The people writing this stuff simply do not understand Monetary Sovereignty.

But for some, it’s malevolence, paid for by the rich who run America.

“Rich” is a comparative. There are two ways to become richer: Get more for yourself or make those below you have less.

A millionaire is rich if everyone else has a thousand dollars. But a millionaire is poor if everyone else has a billion dollars. It’s the income/wealth/power Gap that determines whether you are rich or poor.

Cutting the Debt/GDP ratio requires cuts to such programs as Social Security, Medicare, and/or other benefits for those who aren’t rich. Or it requires increases in FICA and income taxes — the taxes that most affect the not-rich. You seldom hear recommendations to reduce the tax loopholes enjoyed by the rich.

By impoverishing the middle and the poor, the rich make themselves richer. So, they bribe the media, the politicians, and the university economists to tell you your benefits must be cut and your taxes increased because “the current policy is unsustainable.”

They rely on the public’s ignorance about Monetary Sovereignty, and so far, that has worked.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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

MONETARY SOVEREIGNTY