by Wallace Garneau, America Outloud:
Joe Biden’s basic economic philosophy is that the Federal Government issues new currency and can always issue new currency to pay its debt and other obligations. As such, the Federal Government can never go bankrupt.
This lesson is one of the premises of Joe Biden’s economic philosophy, and technically the lesson is accurate – the Federal Government cannot go bankrupt. People, myself included, sometimes say that the government is bankrupt, but strictly speaking that is impossible. Our Federal Government can always pay its bills by simply printing more money as the bills become due.
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This leads us to a second economics lesson, almost as simple as the first:
While it is true that a Federal Government that issues its own currency can never go bankrupt, what it can do is bankrupt all of the people living under it.
You are bankrupt. I am bankrupt. Your neighbor is bankrupt. Your friends and family – unless they are a part of the privileged elite representing 0.1% of the public, they are bankrupt.
When I say that the Federal Government is bankrupt, what I really mean is that the Federal Government has put itself into a position where it cannot pay its long term obligations without bankrupting ‘we the people.’
Anyone paid in US dollars who is not rich enough to survive the complete collapse of the US dollar and the complete collapse of the US economy is bankrupt.
Allow me to illustrate my point with a true historic event.
There was an old shopkeeper in the Weimar Republic of Germany (between the end of WWI and the rise of Hitler). This shopkeeper spent his entire career living and running his shop frugally so that he could have a nice retirement and could leave a nice nest egg to his children.
The shopkeeper, over time, ended up with a fortune in the bank, and his retirement felt secure.
We all know how inflation became a crippling problem for the Weimar Republic but only rarely do we hear how it impacted specific people. In this case, the shopkeeper got a call one day from the bank asking him to come in and collect his money, as it was no longer enough to hold an account open. “We would mail a check,” the bank said, “but the entirety of your holdings are no longer enough to pay for a postage stamp.”
It did not take months or years for inflation to wipe out the savings of the German people. It only took days.
This was not an extreme example, either. This exact thing happened to millions upon millions of people in the Weimar Republic, when it found that it could only pay its bills by printing more money.
The Weimar Republic did not go bankrupt, but it did bankrupt the people of Germany.
Similarly, our government is not bankrupting itself, but it is bankrupting the people of the United States.
Here is the Federal Budget of the United States in 2007. The largest item was the combination of Medicare and Medicaid, at 22.18% of the Federal Budget. The next highest item was Social Security, at 21.41% of the Federal Budget. Interest on the National Debt ran at 9.10% of the Federal Budget – an amount that, at the time, we viewed as potentially problematic, but times seemed good, so for the most part, we did not worry.
In this year, Federal Receipts (all revenues collected) came in at $2.568 Trillion, and expenses came in at $2.8 Trillion – a shortfall of over $200 Billion Dollars.
George W. Bush, we were told, was running reckless deficits which hurt him with Republican voters and helped Barack Obama win the next year’s Presidential Election.
Here is Joe Biden’s proposed spending proposal for this year:
This graph assumes a lower rate of inflation than we are seeing. The cost of paying interest on the National Debt will not be $789 Billion, but $870 Billion (according to the CBO), bringing total Federal expenditures to just over $7 Trillion dollars. Revenues will come out at $4.9 Trillion.
If I count all mandatory spending (this does NOT include ANY defense spending), I get a little over $5 trillion. In other words, if we pay all mandatory spending, no revenues are left for national defense, for schools, for infrastructure, or for anything else.
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