JUST MONEY THREE
One of the most pernicious myths regarding US Federal Government monetary operations, is that our Federal government budget is like a household budget – it must get money before it can spend money. This leads to another deeply ingrained, and equally false belief – that our taxes pay for Federal Government spending.
Let these two myths, these two falsehoods, sink in – – – our Federal government has no money of its own and, like our households, it must get money before it can spend money – – – and the way our Federal government gets money is to collect taxes from us, the citizens.
Let us really think about these falsehoods. Money doesn’t exist in nature – it doesn’t “grow on trees.” Somebody has to create money – out of nowhere, out of thin air. Article 1, Section 8, Clause 5 of the US Constitution grants the power to create the nation’s money to our Federal government. But since we the citizenry have been convinced that our Federal government has no money of its own and must collect taxes to spend, it truly begs the question – Who is creating the money???
Who is creating the money? Since the Constitution grants the money creation power only to our Federal government, and yet we believe our Federal government has no money of its own and must collect taxes to spend, we can only conclude that for a few centuries now, someone has been counterfeiting America’s money. These counterfeiters then somehow give some of the money to us to pay our taxes so our Federal government can spend! It’s magic! And it’s destructive nonsense. Yet this is effectively what we believe.
It is true that our Federal government’s money creation power has been corrupted by the private banking industry. This process began back in 1913 when the US Federal Reserve Bank (the Fed) was formed under the advice and guidance of private bankers such as J.P. Morgan. But in the end our Federal Government is still the ultimate source, the creator, of our nation’s money. This has major implications.
To begin with, this means our Federal government can never, ever, run out of money. It creates the money. It doesn’t need to get money before it can spend money. This means our taxes do not – repeat – do not pay for Federal government spending. Indeed, Federal government spending creates the money we use to pay our taxes! Federal taxes have other functions which will be covered in a future edition of “Just Money.”
Additionally, our Federal government’s money creation power means our Federal government never needs to borrow money in the conventional sense of this misleading word. The terms “deficit” and “debt,” when applied to our Federal government, are equally misleading. The Federal government “deficit” is simply the difference between how much money our Federal government creates out of nowhere in a given year and how much it taxes back. Federal government “debt” is simply the total of annual Federal government “deficits” accumulated since our Federal government began creating money. Federal government “deficit” and “debt” aren’t owed to anyone. They’re just record keeping. Nothing more. A poor choice of words.
There is only one limiting factor that determines how much money our Federal government can create and spend – and it is not “debt” or “deficit.” It is inflation. If our Federal government creates and spends too much money at any given point in time, money begins to lose its value.
As stated earlier, all of this has major implications. When we begin to understand that our Federal government can create money as needed, we begin to realize – – – Social Security cannot go broke – it’s a political decision – not a monetary one. We can afford publicly funded national healthcare any time our politicians choose. It’s a political decision – not a monetary one. We can afford to repair or replace infrastructure any time our politicians choose. It’s a political decision – not a monetary one. We can fund education any time our politicians choose. We can forgive student debt any time our politicians choose. The list goes on, and should anyone doubt any of this, all they need to do is look at our military/industrial/congressional complex. Our politicians choose to spend what effectively amounts to over a trillion dollars a year to fund an arms industry that does nothing more than impoverish us. The money appears out of nowhere – no questions asked. It’s a political decision – not a monetary one.
To learn more about “money,” see The Alliance For Just Money