Prosperity Through Keystrokes: Understanding Federal Spending

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Above photo: From CNN Money.

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Progressives Trigger warning: Compassion required. When is the last time you heard Greens, Berniecrats or Indie voters not acknowledge the distinct and pressing need for election reform, campaign finance reform, voting reform? More to the point, when haven’t they mentioned unleashing third parties from the fringe of irrelevancy and up on to the debate stage?

That is mostly what is talked about, simply because it is low hanging fruit.

It has long been known that our electoral system and methods of voting are corrupt, untrustworthy, and easily manipulated by less than savvy politicians, state actors, and hackers alike. The answers to many of these issues is the same answer that we would need to push for any progressive reforms to take place in the United States: namely, we need enlightened, fiery, peaceful, and committed activists to propel a movement and ensure that the people rise, face their oppressors, and unify to demand that their needs be met.

What is not as well-known, however, is how a movement, the government, and taxes work together to bring about massive changes in programs, new spending, and the always scary “National Debt” (should be “National Assets”, but I will speak to that later). In fact, this subject is so poorly understood by many well-meaning people on all sides of the aisle that these issues are the most important we face as a nation. Until we understand them and have the confidence and precision necessary to destroy the myths and legends we have substituted in the absence of truth and knowledge, it must remain front and center to the movement.

Progressives, like most people in the U.S., are almost religiously attached to the terms “the tax payer dollar,” and the idea that their “hard earned tax dollars” are being misappropriated. Often, the most difficult pill for people to swallow is the concept that our Federal Government is self-funding and creates the very money it “spends”. It isn’t spending your tax dollars at all. To demonstrate this, consider this simplified flow chart:


These truths bring on even more hand wringing, because to the average voter they raise the issue of where taxes, tax revenue, government borrowing, and the misleading idea of the “National Debt” (which is nothing more than the sum of every single not yet taxed federal high-powered dollar in existence) fit into the federal spending picture. The answer is that they really don’t.

A terrible deception has been perpetrated on the people. We have been led to believe that the U.S. borrows its own currency from foreign nations, that the money gathered from borrowing and collected from taxing funds federal spending. We have also been led to believe that gold is somehow the only real currency, that somehow our nation is broke because we don’t own much gold compared to the money we create, and that we are on the precipice of some massive collapse, etc. because of that shortage of gold.

People in the United States have been taught single entry accounting instead of Generally Accepted Accounting Practices, or GAAP-approved double entry accounting, where every single asset has a corresponding liability; which means that every single dollar has a corresponding legal commitment. Every single dollar by accounting identity is nothing more than a tax credit waiting to be extinguished.  Sadly, many only see the government, the actual dollar creator, as having debt; that it has liabilities, not that we the people have assets; assets that we need more and more of as time goes on, to achieve any semblance of personal freedom and relative security from harm.

In other words, at the Federal level it is neither your tax dollars nor the dollars collected from sales of Treasury debt instruments that are spent. Every single dollar the Federal Government spends is new money.

Every dollar is keystroked into existence. Every single one of them. Which brings up the next question: “Where do our hard-earned tax dollars and borrowed dollars go if, in fact, they do not pay for spending on roads, schools, bombs and propaganda?” We already know the answer. They are destroyed by the Federal Reserve when they mark down the Treasury’s accounts.

In Professor Stephanie Kelton’s article in the LA Times “Congress can give every American a pony (if it breeds enough ponies).” She states quite plainly:

“Whoa, cowboy! Are you telling me that the government can just make money appear out of nowhere, like magic? Absolutely. Congress has special powers: It’s the patent-holder on the U.S. dollar. No one else is legally allowed to create it. This means that Congress can always afford the pony because it can always create the money to pay for it.”

That alone should raise eye brows and cause you to reconsider a great many things you may have once thought. It will possibly cause you to fall back to old, neoclassical text book understandings as well, which she deftly anticipates and answers with:

“Now, that doesn’t mean the government can buy absolutely anything it wants in absolutely any quantity at absolutely any speed. (Say, a pony for each of the 320 million men, women and children in the United States, by tomorrow.) That’s because our economy has internal limits. If the government tries to buy too much of something, it will drive up prices as the economy struggles to keep up with the demand. Inflation can spiral out of control. There are plenty of ways for the government to get a handle on inflation, though. For example, it can take money out of the economy through taxation.”

And there it is. The limitation everyone is wondering about. Where is the spending limit?

When we run out of real resources. Not pieces of paper or keystrokes. Real resources.

To compound your bewilderment, would it stretch your credulity too much to say that the birth of a dollar is congressional spending and the death of a dollar is when it is received as a tax payment, or in return for a Treasury debt instrument, and deleted? Would that make your head explode? Let the explosions begin, because that is exactly what happens.

Money is a temporary thing. Even in the old days we heard so many wax poetically about how they took wheel barrows of government — and bank – printed IOUs to the burn pile, and set the dollar funeral pyre ablaze.

In the same LA Times piece, Professor Kelton goes on to say:

“Since none of us learned any differently, most of us accept the idea that taxes and borrowing precede spending – TABS. And because the government has to ‘find the money’ before it can spend in this sequence, everyone wants to know who’s picking up the tab.

There’s just one catch. The big secret in Washington is that the federal government abandoned TABS back when it dropped the gold standard. Here’s how things really work:

1. Congress approves the spending and the money gets spent (S)

2. Government collects some of that money in the form of taxes (T)

3. If 1 > 2, Treasury allows the difference to be swapped for government bonds (B)

In other words, the government spends money and then collects some money back as people pay their taxes and buy bonds. Spending precedes taxing and borrowing – STAB. It takes votes and vocal interest groups, not tax revenue, to start the ball rolling.”

Let’s be clear, we are not talking about the Hobbit or Lord of the Rings. We are not talking about Gandalf the Grey or Bilbo Baggins. We are not referencing “my precious!”. It’s not gold, or some other commodity people like to hold, taste and smell. It is simply a tally. Yet somehow, we have convinced ourselves that there is a scarcity of dollars, when it is the resources that are scarce. We have created what Attorney Steven Larchuk calls a “Dollar Famine”.

To quote Warren Mosler in his must-read book “The 7 Deadly Innocent Frauds of Economic Policy” (you can download a free copy right here), he states:

“Next question: “So how does government spend when they never actually have anything to spend?”

Good question! Let’s now take a look at the process of how government spends.

Imagine you are expecting your $1,000 social security payment to hit your bank account which already has $500 in it, and you are watching your account on your computer screen. You are about to see how government spends without having anything to spend.

Presto! Suddenly your account statement that read $500 now reads $1,500. What did the government do to give you that money? It simply changed the number in your bank account from 500 to 1,500. It added a ‘1’ and a comma. That’s all.”

Keystrokes. Is it becoming clearer? Let’s go further for good measure. Mosler continues:

“It didn’t take a gold coin and hammer it into its computer. All it did was change a number in your bank account. It does this by making entries into its own spread sheet which is connected to the banking systems spread sheets.

Government spending is all done by data entry on its own spread sheet we can call ‘The US dollar monetary system’.

There is no such thing as having to ‘get’ taxes or borrow to make a spread sheet entry that we call ‘spending’. Computer data doesn’t come from anywhere. Everyone knows that!”

So why do we allow people to tell us otherwise? Maybe it is too abstract. And on cue, Mosler explains this phenomenon via a sports analogy for those who are not comfortable with the straight economic narrative:

“Where else do we see this happen? Your team kicks a field goal and on the scoreboard the score changes from, say, 7 point to 10 points. Does anyone wonder where the stadium got those three points? Of course not! Or you knock down 5 pins at the bowling alley and your score goes from 10 to 15. Do you worry about where the bowling alley got those points? Do you think all bowling alleys and football stadiums should have a ‘reserve of points’ in a ‘lock box’ to make sure you can get the points you have scored? Of course not! And if the bowling alley discovers you ‘foot faulted’ and takes your score back down by 5 points does the bowling alley now have more score to give out? Of course not!

We all know how ‘data entry’ works, but somehow this has gotten all turned around backwards by our politicians, media, and most all of the prominent main stream economists.”

Ouch! Mosler pointed out the obvious, the propaganda machine has polluted our understanding. So how is this done in economic language? Let’s let Warren finish the thought:

“When the federal government spends the funds don’t ‘come from’ anywhere any more than the points ‘come from’ somewhere at the football stadium or the bowling alley.

Nor does collecting taxes (or borrowing) somehow increase the government’s ‘hoard of funds’ available for spending.

In fact, the people at the U.S. Treasury, who actually spend the money (by changing numbers on bank accounts up), don’t even have the phone numbers of the people at the IRS who collect taxes (they change the numbers on bank accounts down), or the other people at the U.S. Treasury who do the ‘borrowing’ (issue the Treasury securities). If it mattered at all how much was taxed or borrowed to be able to spend, you’d think they’d at least know each other’s phone numbers! Clearly, it doesn’t matter for their purposes.”

So why do progressives allow the narrative that the nation has run out of points deter us from demanding we leverage our resources to gain points, to win the game of life, and have a robust New Deal: Green Energy, Infrastructure, free college, student debt eradication, healthcare as a right, a federal job guarantee for those who want work and expanded social security for those who do not want to or cannot work?

How has a movement so full of “revolutionaries” proved to be so “full of it” believing that we must take points away from the 99% to achieve that which the federal government creates readily, when people do something compensable? Why does the narrative that the nation is “broke” resonate with progressives? Why do they allow this narrative to sideline the entire movement?

I believe it is because progressives are beaten down. Many have forgotten what prosperity for all looks like or sounds like. Many are so financially broke and spiritually broken that the idea of hope seems like gas lighting. It feels like abuse. It crosses the realm of incredulity and forces people into that safe space of defeatism.

If they firmly reject hope, then they can at least predict failure, be correct and feel victorious in self-defeating apathy. If the system is rigged; if the politicians are all bought off; if the voting machines are hacked; if the deep state controls everything; then we think we are too weak to unite and stand up and demand economic justice, equality, a clean environment, a guaranteed job, healthcare and security and then we have a bad guy to blame.

Then we can sit at our computers, toss negative comments around social media, express our uninformed and uninspired defeatism about the system, and proclaim it is truth by ensuring it is a self-fulfilling prophecy about which we can be self-congratulatory in our 20/20 foresight as we perform the “progressive give-up strategy”. Or, if we want to achieve a Green New Deal, then in a radical departure from the norm we can own our power; we can embrace macroeconomic reality through the lens of a monetarily sovereign nation with a free floating, non-convertible fiat currency and truly achieve the progressive prosperity we all deserve.

The choice is ours. It is in our hands.

  • nyc girl

    Right on, Steve!

  • DHFabian

    Part of the problem might be that of communication. For example, what is a “progressive?” Progressive politics had long referred to an ideology rooted in building a better society/nation from the bottom up, ensuring legitimate poverty relief at one end and restraints on corporate and financial powers at the other. We have nothing like that today.

    Looking back on successful movements of the 20th Century, while a full range of issues were addressed (civil rights, anti-war, anti-poverty, women’s rights, etc.), all were driven with a focus on the “common good.” We have nothing like that today, either. What we have seen since the 1990s is various factions that have only deepened divisions. For example, we call for improving wages for low wage workers to the exclusion of addressing joblessness — those who can’t work, and those for whom no jobs are available.

  • Aquifer

    “Then we can sit at our computers, toss negative comments around social media, express our uninformed and uninspired defeatism about the system, and proclaim it is truth by ensuring it is a self-fulfilling prophecy about which we can be self-congratulatory in our 20/20 foresight as we perform the ‘progressive give-up strategy’ ”
    Hey – this guy knows you!

  • Howard

    Argh talk about a propaganda machine. This is piece is full of misdirects and misinformation and Steve dishes out more negative comments than any one I know of. LOL

  • Common Cents

    Unbelievably misleading. Of course the government spends by keystrokes – we all do nowadays. The catch of course is that the government must be authorized by the budget process to spend either by having enough tax revenue anticipated or by balancing the shortfall with borrowing. Sorry, there may be a silver bullet out there, but the one described above is a lead balloon.

  • joebhed

    Anybody that believes anything in this posting is faulted not for ignorance (there is no accredited degree program at any college or university in this country …. or ANY county on the monetary system), but for being ‘hopefully gullible’.

    That ‘hope’ is driven by what economic potential COULD be realized IF the government had not privatized our money system and turned it over to international bankers via the Federal Reserve Act of 1913.

    Since Congress actually DID pass that Act, we NEED another Act to restore the public’s money-issuance powers, and the authors here ‘pretend’ that the Treasury does not NEED to have money in its account before it can spend anything. Please review the Treasury department’s Annual Report and Annual Fiscal Reports to see where the other side of the budget comes in. The revenue side. Let me know if you NEED the links.

    This paltry series of lies here posted makes believe that there is no ‘revenue’ side required in order to adopt a national Budget; that the government just spends at will. It does NOT . It can NOT.
    Total BS.
    THAT is how the bankers control us all.

    Here is prog. Congr. Dennis Kucinich’s 2011 proposed reform that would take back the money system to the Commons. It’s the NEED Act.

    If passed, then the government WOULD be in the position to budget for the revenue gained by its sovereign issuance powers. And pay our Bills for Medicare for All (Jill, Bernie)

    For the Money System Common

  • joebhed

    Actually, correct.
    Not Left-On, that’s for sure.
    Throughout history, progressive party platforms have all called for NEEDed reforms that would put the money system back in the hands of the people, like “Steve!” pretends we can do now.
    Your hero asks that YOU pay no attention to the international financialista cartel that owns and controls the world’s money systems and then rents it back to us, as a debt.
    Learn some stuff, girl.


  • Ken

    The current law says that must happen at some arbitrary debt limit, but until that limit is reached, money is spent as needed, not as taxed. The limit is artificial – the public debt is just the money spent by government that hasn’t been taxed yet, it’s not a moral failing. Money is created by government spending or borrowing, and destroyed by taxation. Not the other way around. Where do you think US dollars come from? Note: they are “U.S.” dollars.

  • Ken

    Modern Money Theory is HARD. It may be easy for Mosler now – he spent his life figuring it out while working in finance and developing many of the key ideas currently used in arbitrage trading. But for the rest of us, there are tons of false assumptions to discard, like the one that the government needs taxes to get U.S. dollars… well duh, they’re not called “U.S.” dollars for nothing – the government creates them in the first place.

  • nyc girl

    I will give your opinion all the respect it deserves.

  • joe bongiovanni

    Please explain WHY there is a change to the ‘keystroking’ phenom – at the debt limit. Funny thing today. No?

    IF we had actual monetary autonomy at the government level and Congress could authorize creating new money BY spending it into existence, THEN there would be no NEED to borrow in the first place, and any authorized level of creating new money would have zero impact on the debt. It’s a wholesale fallacy.

    Were it not so, the MMT cadre could be national heroes indeed, running through Congress RIGHT NOW to tell the ignorant Members present “Not to Worry boys and girls”, because we can just create money by spending it into existence – keyboarded economic stability. Open up the Government again.

    If you want to know where “money comes from”, ask the Fed.
    Read their publication on “Modern Money Mechanics”, where they say it comes from commercial banks creating loans that are denominated in that $US currency unit.
    And, if you care to understand the chicanery involved, also read Silas W. Adams’ book, “The Legalized Crime of Banking”.

    The bankers, not the government, have ‘the money power’.

  • joe bongiovanni

    If true.

  • edj11

    Thanks for the article, it inspired the following:

    Does anyone ever wonder where the NFL get’s the points?

    Is there some limited point supply?

    I agree that if they ran out of points, it would be catastrophic for the NFL.
    I also agree that just handing points to all the teams in unlimited quantities would ruin the game.

    Notice though, by suggesting the point supply is not limited, I did nothing to advocate ruining the game by handing out points undeserved. I am not advocating “helicopter points”

    I am also not saying that the total point supply doesn’t matter. Clearly it matters.

    I am also not advocating getting rid of the point supply. To even imagine such a thing is nuts. Why would we want to go remove all the points? I believe those who earned those points would have a problem with having them removed from their possession.

    Why is it so hard to show people, especially the experts, why the US government can actually afford to invest in the people?