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posted on 29 December 2017

Federal Reserve Bank Of St. Louis Admits Federal "Debt" Is Not A Real Problem

by Rodger Malcolm Mitchell,

The Committee for a Responsible Federal Budget (CRFB), that notorious disseminator of economic fabrication, published yet another “Henny Penny, sky is falling" article about the federal debt.

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But this time, they inadvertently referenced an article by the St. Louis Federal Reserve Bank that revealed the truth. (Oops!)

First, let’s introduce the Big Lies, after which we’ll get to the Federal Reserve Bank of St. Louis admits federal “debt" is not a real problem admission.

The CRFB article is titled: “Marc Goldwein: Debt Matters Even More After Tax Bill’s Passage, DEC 20, 2017

(Marc Goldwein is the Senior Vice President and Senior Policy Director for the Committee for a Responsible Federal Budget.)

His article is filled with charts and graphs “proving" what no one is arguing about: The so-called federal “debt" and the federal deficit are increasing.

Why should we be concerned? Here’s what Goldwein says:

With an aging population and rising health costs, debt is already rising unsustainably.

“Unsustainable" is the CRFB’s favorite word. You’ll see it in most of their articles.

Yet despite my frequent requests for clarification, no one at the CRFB will say what exactly is “unsustainable" about the so-called “debt" (which actually is the total of deposits in T-security accounts, similar to bank savings accounts.)

In 1940, the “debt" was $40 Billion. Then, and continuously since, it has been described as a ticking time bomb,“ (i.e. unsustainable.) Today, that “unsustainable" debt has risen to $14 TRILLION - a gigantic 36,000% (that’s thirty-six thousand percent) increase, and that old time bomb still is a’tickin’, and the CRFB still is handwringing about its “unsustainability."

“High and rising levels of debt slow economic growth . . ."

As always, with CRFB statements, there is zero evidence that rising levels of debt “slow economic growth." Quite the opposite, in fact.

U.S. depressions tend to 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.

Recessions tend to come on the heels of reductions in federal debt/money growth (See graph, below), while debt/money growth has increased when recessions were resolving.

Reductions in federal debt growth lead to inflation

Recessions repeatedly come on the heels of deficit growth reductions, and are cured with deficit growth increases. That’s what took us out of the “Great Depression" and the “Great Recession."

“High and rising levels of debt reduce fiscal space . . ."

We think by “fiscal space," Goldwein means that the U.S. government can run short of its own sovereign currency, the U.S. dollar. This is so patently false that he should be ashamed, but I suppose his salary soothes any shame.

That 35,000% growth of the debt is ample proof that the “fiscal space" claim is a fraud.

“High and rising levels of debt erode generational equality."

High and rising levels of debt are what pay for Social Security, Medicare, Medicaid, aids to education, anti-poverty efforts and all the other social programs that narrow the Gap between the rich and the rest.

It’s the debt Henny Pennys who foster generational inequality.

“High and rising levels of debt prevent thoughtful policymaking."

No, actually, its the CRFB’s nonsense that prevents thoughtful policymaking.

“And debt cannot sustainably grow faster than the economy, meaning any tax cuts or spending hikes allocated to today’s votes will ultimately be paid for by younger and future generations."

Now that the debt has grown 35,000% and reached $14 trillion, we continue to wait for younger generations to pay for it.

That never will happen, because the so-called debt (deposits) are not paid for by taxes.

O.K., now that we have slogged once again, through the CRFB’s nonsense, we can look at how the Federal Reserve Bank of St. Louis admits federal “debt" is not a real problem.

The admission came in an article titled, What Is the Outlook for the Federal Budget?

Tuesday, October 10, 2017, published by the St. Louis Federal Reserve Bank, and written by Senior Economist, Fernando Martin.

Fernando M. Martin

Fernando Martin

After a series of graphs and statements about the horrid dangers of rising debt, Martin provides us with a tiny paragraph of truth, almost unnoticeable ending his the thicket of statistics:

“However," he added that if another big adverse shock hits the U.S. economy, this outlook might change for the worse.

“Even in this case, the U.S. has the advantage of issuing debt in its own currency, so outright default (as in Greece) is not a likely outcome, though inflation might be (as was the case during and immediately after World War II)."

Get it? The U.S., being Monetarily Sovereign, has the advantage of issuing debt in its own currency, so it cannot run short of dollars.


What are the implications of issuing debt in your own currency, so not running short of dollars? Contrary to the CRFB’s scare articles:

  1. No amount of debt is “unsustainable." (We already have proved that with our 35,000% debt increase, that easily has been sustained.)
  2. High and rising levels of debt slow cannot “slow economic growth." On the contrary, increasing debt is the federal government’s method for stimulating the economy.
  3. High and rising levels of debt do not “reduce fiscal space." Fiscal space is the ability to spend. The federal government has the unlimited ability to spend as Martin acknowledged.
  4. High and rising levels of debt do not “erode generational equality." Quite the opposite. Cutting debt results in cuts to benefits for the middle- and lower-income groups.
  5. Federal debt can sustainably grow faster than the economy and has been doing that for many years.
  6. High and rising levels of debt are the result of thoughtful policymaking.

And so the entire Henny Penny handwringing is all about inflation, the inflation that “high and rising levels of debt are sure to cause" - except for one minor truth: For the past ten years of extraordinary debt increases, the inflation has averaged below, the Fed’s target of about 2.5%.

Being Monetarily Sovereign, the U.S. government has the unlimited power to fight inflation (i.e increase the value of the dollar) at will.

In Summary:

Even the St. Louis Federal Reserve Bank has admitted (though reluctantly, because they too spread the “unsustainable debt lie) that federal debt is not a problem - not a problem for the government, not a problem for the economy, and not a problem for taxpayers.

On the contrary, federal deficit spending adds spending dollars to the economy, and so, is necessary for economic growth.

An economy cannot grow without a growing money supply.

GDP = Federal Spending + Non-federal Spending + Net Exports.

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