By John Hemington
Every day some politician or some media talking head tells us that we can’t have the social programs or infrastructure improvements we need “because there isn’t enough money;” “the federal government is on the verge of going bankrupt,” or some other spine chilling tale, though there always seems to be enough for wars and bank bailouts. This is no more than an urban myth. The United States is not going bankrupt – nor can it.
For at least the last 47 years the U.S., among other nations, has operated with what is known as a sovereign fiat money system. It doesn’t rely on gold or some other commodity to back the money it creates either through the Federal Reserve System or the banking system. In as much as the U.S. can create as much as it chooses, it cannot run out of money. The fact that it does not do this is a matter of policy.
It follows that the United States can always pay any debt it incurs as long as the debt is denominated in dollars. This includes Social Security, Medicare for All, Medicaid, any and all infrastructure projects necessary to keep the nation operating – even debt held by the Chinese.
Another key part of the myth is that the federal government requires tax receipts from which to pay its debts. This is false, because all U.S. money is a creation of the federal government. It only stands to reason that for taxpayers to have the money needed to pay their taxes they must first obtain the funds that the government inserts into the economy through wages or other forms of earnings. Spending precedes taxes, not the other way around. As Alan Greenspan pointed out in testimony to Congress, the federal government cannot run out of money.
The corollary is, if the federal government fails to insert sufficient money into the economy through spending , there will be a shortage of money in the private economy for businesses, states, municipalities and citizens to purchase the things necessary to function. Therefore it is necessary for the federal government to engage in ‘deficit spending’ and maintain a national debt which has never and should never be paid – though it could be paid by keying in a sufficiently large number in the Fed’s money creating computer.
The reason for the persistence of this myth of debt devastation is the failure to recognize the end of the gold standard. The dollar has not been backed by gold since 1971. The fear mongers always claim that too much money creation will lead to inflation or even hyperinflation. While hyperinflation is almost impossible in this system, regular inflation, should it occur, can always be contained by raising taxes or, possibly by raising interest rates. Note that, even though the government has inserted trillions of dollars into the economy to rescue the banks and fight its endless wars, we have had almost no overall inflation for a decade.
Because the myth of limited monetary resources is used to enforce neoliberal austerity programs (i.e., social programs = bad; war and corporate subsidies = good), it is incredibly important for people to come to understand this fallacy about how money works at the federal level. In truth, all of the current limitations on federal spending are creations of Congress. They are laws passed over the years to constrain social progress – sometimes well-meaning, but usually in the interest of banks and corporations. And anything Congress has created Congress can dismantle, including restrictions on how much money can be spent.
This does not mean that Congress can create infinite amounts of money. There are some realistic limits, but they are not the ones usually used by neoliberal policy makers. They are based on available resources which can be purchased, and we are not anywhere close to running out of resources (goods and services) available for purchase. This situation can not arise until such time as the nation is operating on a stage of real living wage full employment.
We must wake up and realize that for the nation to prosper we need to force the politicians in Congress to acknowledge the reality of how money should be used to work for us – not against us. We need to get angry, organized and act to make money work for all of us, not just the privileged few. We CAN DO it! We MUST DO it NOW!
John Hemington is retired. He practiced law before working as Director of Information Technology for a private special needs school system in the Pittsburgh area.