I can guarantee that the CBO isn’t responsible for those assumptions, as it is disallowed by law to do anything other than estimating the deficit increase/decrease of any policy it evaluates and must use existing law to reach its conclusions. Congresscritters are very defensive of their authority and ability to twist facts to their liking. I wish it had more authority to present possibilities and alternates, but that won’t happen in this lifetime.
That article started off with common assumptions that have been drilled into us for so long that they actually dictate much of our fiscal and monetary policy in spite of being totally false by any application of simple logic. Let’s look at the first dire prediction from the perspective of the functional reality of our monetary system.
“ Lower national savings and income”
Deficits are spending above the tax receipts in any given fiscal year, and the debt is the accumulated total of deficits since our nation’s founding. Good so far?
By simple logic, a dollar collected by the government, including any “borrowing” Treasury does, cannot perform any reduction of deficits or debt and survive the most basic accounting reality to “fund” any future spending by Congress. (-1+1=0) The debt serves to balance any revenue because every dollar created has its own matching debt entry in the government’s sector of our national spreadsheet. This leaves “ALL” spending as new money creation and “ALL” revenue as debt reduction to balance the new debt that money creation creates. Again, simple logic says one cannot collect or borrow what doesn’t yet exist, so spending must precede both. Still with me?
A self-imposed restriction by Congress built into the Federal Reserve Act (1913) requires that any deficit spending be “matched” with Treasury bond issues. This was entirely for the purpose of defending our gold reserve since we were restrained by the gold standard at that time. Bonds never were a “funding mechanism”, but made convertible reserves non-convertible to gold and paid a small premium to compensate investors for giving up the liquidity of their reserve holdings until the bond matured.
Congress opted to leave the law in place after we left the gold standard to give the Fed leverage to set interest rates via buying and selling of those bonds, which represented the base money in the economy, and to give investors a floor for their ROI. Dual entry spreadsheet accounting and sectoral balance say that every liability in one sector creates an asset in another. The government’s net liability (tax credit) is the net asset (money) of the private sector.
If deficit spending isn’t sufficient to compensate for currency drains presented by trade deficits and wealth accumulation the net money available to fuel commerce and growth is reduced, or eliminated as it was during Clinton’s surplus budget years, and will quickly cause a recession, or depression if supply chains experience cascading reductions from unemployment. This has proven true for the last seven times we have sustained even close to balanced budgets for more than two quarters. The safety net exists to automatically inject federal money into the economy to preserve those vital supply chains when the private sector business cycle downturns, not only to reduce the suffering of unemployment.
If spending is all new money creation and taxes destroy money (both true), then the debt is nothing more than an accurate accounting for dollars created by Congress but not yet used to pay a federal tax obligation. It “IS” our national savings, not a mortgage we must repay, unless the dolts in Congress think removing all ability to store value and retire private sector bank debt is how we create a good economy. The term “debt” here refers to tax credits (which is what money is to the issuing government), that the government “owes” us in return for the goods and services the private sector has traded for currency to provision its government.
A balanced budget, the holy grail of politicians and deficit fear mongers, is theft of those goods and services from the private sector that leaves no store of value in the economy, canceling that share of productivity by clawing back all payments via spending with taxation. The red ink of the government is the only net source of black ink the private sector has. You can bet the ruling class that makes their money with money understands this very well and only uses our limited understanding to create propaganda that causes enough instability to pit “takers” against “makers” and disempower workers who end up cheering for their own financial demise in thinking “they” fund the government with their taxes, when it is the government that funds both taxes and borrowing when it spends.
Get it now?
