Fiscal-America
Our goal is to keep America financially sound!
The war on terror, the 2008 Financial Crisis, and Covid 19, failing infra-structure, and over-burdened Social Security programs have combined into the perfect storm that created our National Debt Crisis
In the last 20 years we have seen the National Debt rise to an incredible excess of 28 trillion Dollars. In fact, if we balanced the budget, which has only happened 14 times since 1929, and paid back the National Debt with $50 billion Dollars a year, it would take 540 years to eliminate. (Updated Sen Lankford Factoid)
The National Debt is the accumulation of all previous years of The Yearly National Deficit. For the last 50 years, The Yearly Deficit has averaged about 3% of Gross Domestic Product (GDP), according to The Congressional Budget Office, #, and it projects it will increase from 5 percent of gross domestic product (GDP) in 2030 to 13 percent by 2050
Balancing America’s Budget by adding The Yearly Deficit to The National Debt has become unacceptable!
There is a solution!
Direct Deficit Reduction by
Treasury Monetization or No Interest Deficit Loans
This would end the interest payments in 30 years
Legalizing The Treasury to pay The Yearly Deficit or requesting The Federal Reserve to issue No Interest loans would be that solution. Either option would be a way to stop the additional debt, without having to drastically and unrealistically reduce overspending to zero each year, giving Congress time to control overspending
Legalized Direct Deficit Reduction by The Treasury, instead of Congress raising The Debt Ceiling can also control the crisis enough to avoid shutdowns as a short-term solution. Utilized as a long-term solution, in 30 years when the last bond matured there would be no more interest payments, and the debt spiral could at least be contained.
If The Federal Reserve issued No Interest loans for The Deficit, for 30 years, it would have the same end result, but Congress presently has no authority to request, or require said loans. They presently have no authority to request or require Treasury Monetization of The Deficit either. New laws would be needed to invoke either solution.
Economist and monetary policies intended the use of federal debt rather than Treasury monetization to discourage overspending, and to control interest rates. In the last 20 years circumstances have changed. Overspending escalated even more from an already unending cycle of over budget deficits, creating the present scenario. A more current monetary policy is necessary.
The Federal Reserve using Open Market Operations (OMO) # such as Treasury Notes, Bonds, or Quantitive Easing, are what creates the debt, while The US Treasury directly crediting accounts without Federal Reserve Deposits, is the monetization. Most of us learned as a teenager to use our checkbook, not the credit card. The National Debt is a self-inflicted crisis, and can be reversed, through a single change in monetary policy, Direct Deficit Reduction of The Yearly Deficit.
Many economists will say this leads to inflation, but let's examine 5 major facts to show just the opposite can be true!
The First Fact:
Our economy typically operates at about 80% productive capacity. Therefore, Stimulus can utilize the unused 20% capacity without causing inflation. 20% of yearly GDP is about $4 trillion dollars
The Second Fact:
In 2008 The Fed introduced $1.5 trillion dollars into the economy, yet The Consumer Price Index fell from over 5% to 0% as shown in the above Consumer Price Index Table. That is a fact. It was a reduction of 5% in just one year, and illustrates that adding money to the economy under the proper circumstances can actually accompany a period of lower inflation.
Also, inflating the economy can simply mean increasing the money supply, not increasing The Consumer Price Index.
Here is an example: The Fed increased the money supply in the economy inflating it by nearly $4 trillion dollars, but inflation (The Consumer Price Index) dropped from 2.8% to 1.7% over a 9 year period, as illustrated above.
The Third Fact:
Lowering interest rates by adding to the money supply influences growth, but it doesn't directly harness growth.
People and businesses must first take out loans, to add to the economy. One side effect of The Federal Reserve's Quantitative easing (QE) program was that banks held onto much of that money as excess reserves. Banks used the funds to triple their stock prices through dividends and stock buybacks. In 2009, they had their most profitable year ever. # This was not the intended result.
If The US Treasury directly funded spending for The Yearly Deficit, or if The Federal Reserve issued No Interest Deficit Loans, it would put the money directly into the economy, rather than onto Member Banks balance sheets, where they may or may not be able to facilitate eventual loans.
The Fourth Fact:
The amount of money needed to compensate for any particular years Deficit is a fixed amount. If The Federal Reserve loans money, or if the Treasury uses Direct Deficit Reduction, it is the same amount of money. This is a fact. Since they are identical, the amount of inflation they cause is also identical. What possible advantage could be gained by adding debt, and trillions in 540 years’ worth of interest payments?
The Fifth Fact:
Most importantly, Direct Deficit Reduction would remove the yearly additional debt from the equation, saving trillions of dollars in interest payments over the following years! In fact, in 30 years, when the last Bond Matures, interest payments would be eliminated!
Why add to debt? Debt solves nothing
Direct Deficit Reduction would remove The Yearly Deficit's addition to The National Debt. It can do this without causing a rise in The Consumer Price Index, if it doesn't exceed productive capacity and more importantly, Taxpayers would not have to foot trillions in interest
Congress needs policies that can ensure growth, rather than just hope for it. Direct Deficit Reduction is one of those policies.
The economy needs money growth to expand. In 1950 our Gross Domestic Product was about $280 Billion Dollars. In 2020 it was just shy of $21.5 Trillion Dollars. That’s a lot of growth! At a continued level of 3% growth, GPD in 2045, would be $42.4 Trillion Dollars, doubling in just 25 years. We need to ensure, harness and use that growth in a more effective manner.
Over the 9 years between 2008 until 2017, the economy added about $544 Billion Dollars a year, on average, according to Trading Economics Magazine #. If it isn’t overdone, new money creates demand, and allows industry to add supply, without increasing inflation (The Consumer Price Index).
It accomplishes this by allowing the economy to utilize unused productive capability, which is more efficient for industry, and allows lower price per unit through higher volume. Industry can increase production without spending more on equipment, they can just add a third shift for example. Here is supporting empirical data: In the same 9 year period mentioned above from 2008 to 2017 inflation (The Consumer Price Index) dropped from 2.8% to 1.7% according to The US Inflation Calculator #.
Of the $554 billion in yearly growth over the 9 years between 2008 until 2017, $433 billion a year could be attributed to The US Central Bank's policy of "Quantitative Easing" (Quantitative easing (QE) is when a central bank buys long-term securities from its member banks), which injected $3.9 trillion dollars into the economy during that time frame, according to CNN Money #
Without the additional money from "Quantitative Easing" , yearly growth, an increase in Gross Domestic Product (GDP), would not have been assured, according to the Fed #
In 2008, the United States was deep into a financial crisis. GDP growth was contracting at the fastest rate in 50 years, and the economy was losing hundreds of thousands of jobs each month. Between 2008 and 2015, the Fed’s balance sheet, its total assets, ballooned from $900 billion to $4.5 trillion. Fed officials contend their unconventional policy actions saved the U.S. from a crisis worse than the Great Depression.# according to CNBC
" Government can create money without increasing inflation (A rise in The Consumer Price Index) as long as the money supply does not exceed the productive capacity of the economy ": as stated by Goeff Crocker #, a well-known economist. Direct Deficit Reduction would fall under this category. Since last year’s Deficit has already occurred, it's definitely within the productive capacity of the economy.
Therefore, by using Direct Deficit Reduction on each years previous Deficit, increased inflation (a rise in The Consumer Price Index) can be avoided for two reasons:
1) It's inflation is identical to that caused by using debt
2) It's within the productive capacity of the economy
Summary
Paying for the Deficit by adding to National Debt expands the money supply by the identical amount that paying for the Deficit with Direct Deficit Reduction does. Therefore, the amount of inflation, both the increase in money supply, and any change in The Consumer Index, up or down, is identical. However, Direct Deficit Reduction does not add to debt, and incurs no interest payments.
The money supply must expand to facilitate a rise in Gross National Product (GNP). If this amount of monetary growth does not exceed productive capacity, it will not cause a rise in The Consumer Price Index.
Direct Deficit Reduction would also put the money directly into the economy, rather than onto Member Banks balance sheets, where they may or may not be able to facilitate eventual loans.
Therefore, Direct Deficit Reduction payments eliminates additional National Debt, stimulates the economy directly, rather than indirectly, has identical effects on The Consumer Price Index, and doesn't burden the Taxpayer.
It accomplishes all this with a single change in monetary policy!
Direct Deficit Reduction can Balance The Budget, without raising The National Debt ceiling, with identical risk of inflation, all with one change in policy!
What possible advantage is there to Debt vs Direct Deficit Reduction?
We have witnessed what Congress can accomplish in one year, if there is a need. Our government can accomplish so much, when it pulls together.
Congress writes 4000 new laws a year.
Direct Deficit Reduction
requires one new law.
No billion-dollar investments required! No 20 years of change to the infra-structure! Just one new law!
Capacity utilization in the United States averaged 80.32 percent from 1967 until 2017 according to Trading Economics Magazine # That means approximately 20% of the productive capacity in the US is an unused resource. If we stimulate the economy, we could induce demand, and tap into a vast reservoir of growth.
GDP in 2020 was almost $21.5 Trillion Dollars. 20% of that is over $4 Trillion dollars. This is the unused productive capacity of our economy. It is the arbitrary amount of money that could be added without causing inflation, because if there were more demand, it could be met by supply.
We have one of the strongest nations in the world, with so many admirable qualities, and so many industries that can provide jobs and economic prosperity. Let’s consider economic policy as a financial tool. It can be shaped, molded and modified, just like any other machine.
The first engine had a few horsepower, but over time it became what it is today. Our economic policies are the same as an engine. They have changed over time, and with each modification it gets stronger. We have an engine, but The National Debt needs a new policy to keep the engine running smoothly.
A Policy of Direct Deficit Reduction can accomplish this now, not in 50 years. It can also do this without replacing the whole engine, but rather just one part.
This approach should at least be brought to the attention of law makers, so they may consider the advantages and disadvantages. It could begin a debate about Direct Deficit Reduction, which presently has never even been considered.
As a Senator, you are in a position to circulate an idea to your colleges that would propose a scenario that could contain The National Debt in 30 years, and we hope you would try to do so.
Thank you for your time.
Please feel free to contact us!
Fiscal-America.com
contact@fiscal-america.com
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