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Gdp=federal Spending + Non-federal Spending – Net Imports

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People, this is not rocket science. It is so simple, even Donald Trump understands it.


I. GDP = Gross Domestic Product. It is the most common measure of the U.S. economy. When people say the economy has grown, they mean GDP has grown.

A recession is usually characterized by a fall in GDP for two successive quarters.   A depression may be defined as an extreme recession that lasts three or more years or which leads to a decline in real gross domestic product (GDP) of at least 10% in a given year.

II. Federal Spending is all the spending the federal government does. It includes every dollar the government spends.

III. Nonfederal spending includes all the dollars spent in the economy by every individual, every business, and every state/local government.

IV. Net Imports is the difference between dollars spent on imports vs. dollars received for exports. Usually, we spend more on imports than we receive for exports, so just to break even, either Federal Spending or Non-federal spending must take up the slack.

However, if we break even, the economy will shrink because of inflation. So — and this is very important– for the economy to grow, government spending must grow.

There is no way for the economy to grow when government spending does not grow. That is basic algebra.

Now someone might say, what if federal spending doesn’t grow but nonfederal spending grows enough to overcome both Net Imports and Inflation.

The problem with that hypothetical scenario is that when Federal Spending doesn’t grow, there is no way for the Non-federal sector to obtain the spending dollars that would grow the economy.

In fact, not only do we have recessions and depressions when Federal Spending doesn’t grow, we even have recessions and depressions when Federal Spending grows, but too little to overcome inflation and Net Imports.

U.S. depressions 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.

Federal Spending increases the money supply. When the money supply increases, GDP increases. When the money supply decreases, we have recessions and depressions. The above graph shows the parallel paths taken by the money supply and GDP.

Again, GDP is the measure of two things. It is the measure of the economy, and it is the measure of spending. This is just simple algebra. You don’t need a degree in economics to understand it.

And yet, Congress, the President, the Republican, Democratic, and especially the Libertarian Parties pretend it’s all a mystery to them because they say they don’t want Federal Spending to grow.

In essence, they don’t want the economy to grow; more accurately, they want us to have recessions and depressions that affect the rich much less than they affect the rest of us.

Congress, the media, and the economists all parrot the same line. They claim federal spending is “unsustainable” and should be reduced. But what makes federal spending “unsustainable”?

The federal government is Monetarily Sovereign, meaning it cannot run short of U.S. dollars. The Federal government can pay any bill of any size if it’s denominated in dollars. Send the government an invoice for a trillion dollars; it could pay it tomorrow by pressing computer keys.

This is not just my opinion. It is a well-known fact:

Former Federal Reserve Chairman, Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

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

Alan Greenspan: “The United States can pay any debt it has because we can always print the money to do that.”

Former Fed Chairman, Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Quote from Ben Bernanke when he was on 60 Minutes:
Scott Pelley: Is that tax money that the Fed is spending?
Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.

Despite what you’ve read and heard, not only can the government create all the dollars it needs by pressing computer keys, but it never needs to borrow dollars.

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.”

The words “not dependent on credit markets” means the federal government does not borrow. Those T-bills, T-notes, and T-bonds that wrongly are called “borrowing” are nothing of the sort.

A borrower borrows because it needs money. The federal government doesn’t. The government merely accepts deposits into T-security accounts. It never touches those dollars. Why would it, given its infinite ability to create dollars?

The purposes of T-securities are not to provide the government with spending dollars, but rather to:

  1. To provide a safe storage place for unused dollars. This helps stabilize the dollar
  2. To help the Fed control interest rates.

And then there is the false “inflation” claim. The mantra is that we will have inflation if the federal government prints money.

Historically, that simply is not true:

If federal spending caused inflation the red spending line and the green inflation line would essentially be parallel. They are not. They move randomly with respect to one another.

The thing that always causes prices to rise is scarcity. You know this from experience.

When weather causes a shortage of oranges or apples, the price of oranges and apples goes up.

When COVID creates shortages of oil, steel, lumber, computer chips, labor, etc., the price of everything goes up. We have inflation.

The single most common scarcity that has caused inflation for the past few decades is the scarcity of oil:

Oil scarcity causes oil prices to rise, and because the price of oil affects the prices of almost every other product, oil scarcity causes inflation.

While federal spending does not parallel inflation, the scarcity of oil does parallel inflation.

Again, none of this is rocket science, and none of it is secret. Politicians, the media, and economists all have these data.

So why do they conduct these mock battles about a useless, meaningless, misleading debt ceiling? Why all the lies?

Because the politicians, media, and economists have been bribed by the rich, who run America.

The politicians are bribed by campaign contributions and promises of lucrative employment at think tanks.

The media are bribed by advertising dollars and by straight-out ownership of the media.

The economists are bribed by contributions to their universities and promises of employment in think tanks and controlled corporations.

And why do the rich want the politicians, media, and economists to pretend that federal spending should be reduced? It’s because of something called “Gap Psychology.”

The word “rich” is comparative, not absolute. Someone with a million dollars is poor if everyone else has ten million. Someone who has a hundred dollars is rich if everyone has one dollar. Getting richer requires acquiring more compared to everyone else.

You can do this in either or both of two ways:

  1. Acquiring more for yourself and/or
  2. Making sure everyone else has less.

Gap Psychology is the human desire to distance oneself from those below you and/or to come closer to those above you on any scale of income, wealth, or power.

Most people wish to become richer. This is especially true of the rich, who are driven by their insatiable desire to become even richer, i.e., distancing themselves from those below and coming closer to those above.

They hate your receiving government-funded healthcare insurance. They hate food stamps, unemployment benefits, government-funded college — anything that even slightly narrows the Gap between them and those below.

To distance themselves from the middle and lower quadrants, the rich do all they can to make you believe the federal government cannot afford to give you benefits. They draw false comparisons between your personal financing and federal government financing.

They talk about federal “borrowing” though the government, unlike you, does not borrow dollars.

They talk about the federal “credit card,” though the government uses nothing that resembles a credit card.

They talk about “out-of-control” spending, though unlike you, the federal government has the infinite ability to spend.

They claim federal deficit spending is “unsustainable” though the government has “sustained” deficit spending for more than 80 years — deficit spending that grew the economy from several billion dollars to thirty trillion.

Here is another graph that shows the essentially parallel paths of federal spending and GDP.

Naturally, the lines essentially are parallel. Federal Spending is an integral part of GDP. It would be like a graph comparing total touchdowns with total points. The lines essentially would be parallel.

To say that federal spending is too high, unsustainable, or out-of-control — i.e., to say that federal spending should be reduced — is to say that economic growth is too high, unsustainable, out of control, and should be cut.

No one believes that, not even the rich. They just want to cut the benefits you receive, not the benefits they receive.

They bribe Congress to give them tax loopholes so that they, like Donald Trump, pay at a far lower rate than the average salaried person.

And they spread the myth that giving the Internal Revenue Service more money will send investigators after you when the money was meant to investigate the rich.

Everywhere you turn, the rich have bribed your sources of information to indoctrinate you with the belief that federal spending should be cut and taxes increased, especially the spending and taxes related to benefits for you who are not rich.

The purpose of federal taxes is different from the purpose of state/local government taxes. Federal taxes do not provide spending money to the federal government, which already has infinite spending money. Federal taxes have two financial purposes plus a third purpose that should anger you:

  1. To control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to encourage
  2. To assure demand for the U.S. dollar by requiring taxes to be paid in dollars. And here is the one you’ll really hate:
  3. To help widen the income/wealth/power Gap by giving tax loopholes to the rich.

And now we have the phony “debt-limit” struggle. The Republicans (the party of the rich) demand cuts to Medicare, Medicaid, food stamps, etc., and the Democrats (pretending to be the party of the poor) fight weakly against too many cuts (just a few).

And neither of them tells you the truth. The entire charade is a professional wrestling exhibition held in the halls of Congress.

The bottom line is: You have been brainwashed into ignorance. Federal deficit spending is not unsustainable, nor does it cause inflation.

The federal government easily could fund no-deductible, comprehensive, generous Medicare and Social Security benefits for every man, woman, and child in America, a college education for everyone who wanted it, food so that no child in America ever would need to go hungry, and decent housing for even the poorest among us.

The federal government could do all that while funding the military, medical research and development, the physical sciences, renewable energy, and all the other things that would improve your life and the lives of those you love.

It can be done, and it will be done, but first, you must understand the lies you are being fed and then demand, en masse, that the government does what it was formed to do.

Rodger Malcolm Mitchell
Monetary Sovereignty

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


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



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