If America needs to spend $1Trillion on infrastructure and that investment will make it more productive for future generations it has no need to “get” the money first. As the monopoly patent holder on the US dollar, it should be considered reticent for not having spent the money into existence already. It can “afford” anything that is physically possible without obtaining money from any entity as long as the spending doesn’t create competition with the private sector for resources.
The reality of our monetary system is far simpler than most imagine. The government is the only “net” source of its currency and its interactions with that currency can be summarized down to either creation or destruction. There are no other choices, including such concepts as dedicated taxation. The government can issue new dollars to fund anything it wishes in the private sector and it can tax any of those dollars back from the private sector, but it physically cannot transfer dollars collected to spend for any purpose.
Because our entire monetary/banking system was designed around defending a now non-existent gold reserve the government never has or doesn’t have “money”. It holds debt in the form of IOUs for tax credit, but never money, even if a tax is “dedicated” to some purpose. The clearing bank for the US Treasury, the Federal Reserve, holds money and the Treasury holds debt. Any money transferred from the Fed to the Treasury is immediately destroyed by the debt that created it. Destroyed money cannot then go on to be spent by Congress, so “ALL” appropriations are funded with new currency creation at the Federal Reserve.
When viewed in this proper context of sectoral balances, Treasury bonds and taxation become currency drains, not revenue for the government that has no need for revenue. Dedicating a tax to a specific purpose is only an accounting function, not an actual transfer of money. This reality also makes our national debt nothing more than an accurate accounting of all net currency in circulation/savings after private sector debt is settled. Paying off that number via actual surplus budgets, if it were even possible, would leave no currency to retire private debt or act as a store of value (savings) and would quickly destroy the US economy.
A paper written in ’45 by Beardsley Ruml, former chair of the NY Fed, verifies this and can be found here.
Additional verification by Dr. Stephanie Kelton, professor at Stony Brook University, former advisor to the US Senate and current advisor to Sen, Sanders can be found here.
