Common sense tells us that the United States federal budget can be balanced by an infinite variation of taxes and spending. So, why does the Congress and President not balance the budget? Do they know something that we do not know?

Two ways of balancing the budget are to cut spending to match taxes or raising taxes to match spending.

One, cuts in government spending, whether by reduction of purchases or reduction of personnel, result in unemployment. reduced purchasing would force government suppliers to lay off people. Lay-off of government workers likewise increases unemployment, obviously. More unemployment means less incomes to tax and more demands for government services such as unemployment compensation, food stamps, medicaid, etc. Cutting welfare spending likewise reduces sales for food, medical service, rent, etc. Politicians risk re-election by visiting such hurt on the people.

Two, the political unpopularity of raising taxes is self-evident. However,the economic effects of raising taxes may be less evident. Increased taxation, particularly federal taxes, takes money from local communities. Government economists may argue that the government spends the money back into the economy so there is not a net loss in the general economy. At least two things mitigate against economists' theories. One is that money spent to maintain the huge federal establishment in Washington, D. C. does not circulate back to local communities. Another is that the theory contains no time factor for how long it takes for the money to return, if, indeed, it can be shown to return at all. Sending taxes to Washington and expecting them back is like giving oneself a blood transfusion from the right arm to the left and spilling half of it on the floor. No credible argument can be made that federal taxes are not a burden on individuals and local communities.

The two extremes of budget balancing strategy covers the whole range of possibilities. Balancing the budget by either method, or any combination, would result in hardship on the people. The endless, mind numbing arguments about what to tax and what to cut do not address the simple, demonstrated reasons for neither method or combination being satisfactory alternatives.

How can this be?

Is it possible that unbalanced budgets are a symptom of a more insidious problem that is not being addressed? Yes, as will be shown.

Let us be clear that this tract is not intended to advocate either a balanced or unbalanced federal budget. It is intended to show that neither are acceptable alternatives.

The first government of the United States under the Articles of Confederation did not have full monetary and taxation authority. The government found it difficult to sustain itself. A convention called to rectify the situation turned into the Constitutional Convention which drastically re-organized the federal government. The new Constitution bestowed full monetary power and somewhat limited taxation power on the Congress.

Two Constitutional clauses relevant to money are Article I, Section 8, clauses 2 and 5. Clause two endows Congress with the power to borrow money. Clause 5 endows Congress with the power to coin money. The two clauses seem somewhat contradictory. Why would the Congress need the power to borrow money when it has the power to coin money? Or why would Congress need to tax to raise money as endowed by other Constitutional sections? The Constitution is unequivocal in its content whether the cited clauses appear to mitigate against each other. Congress has all three powers. The power to borrow, the power to coin money, and the power to tax. The Congress has complete monetary power to serve the needs of all the people.

The new Constitutional government inherited a debt of about $75 million. The Congress chartered a bank in 1791 to monetize the debt. Monetizing debt is modern vernacular, but that is what they did. They did not coin money to pay the debt. They did not tax to pay the debt. They sold the debt to rich investors and taxed to pay the interest. This specious policy has been maintained to the present day with some minor exceptions such as greenbacks and some nearly insignificant coinage.

Today the debt accumulated by the Treasury is more than $5 trillion. Additional debt issued by other federal government agencies increases the total federal debt to more than $6 trillion.

Consistently, the federal government defaulted to banks the de facto power to create the nations money supply until 1913. In 1913 the Federal Reserve Banking System was created and assigned monetary policy authority de jure. Since 1913, the Congress has continued to give more authority and control of the money supply to a private banking monopoly which it mislabeled Federal Reserve. This is why private bankers have power over and control of the economy.

The major problem with giving monetary policy authority to private bankers is that banks create money as debt at interest. Banks do not create money to pay interest, so banks create more debt than money. Since there is never enough money to pay the debt, money is chronically scarce. The result is exponentially increasing debt throughout the entire U. S. economy caused by necessary additional borrowing to pay interest. One measure of economy-wide debt is Total Credit Market Debt that exceeds $20 trillion through the first quarter of 1997. Historical research of Credit Market Debt will show the exponential growth of debt. Historical research of Flow of Funds Liabilities will show exponential growth, also. As will historical research of the money supply. These statistics are available in various governmental publications including Statistical Abstract of the United States. Files are in pdf format.

The major fallacy of conventional economic belief is that the economy can be expanded to compensate for the exponential growth of debt. The fallacy is best shown by the fact that there is no limit to numbers while there is a finite limit to the planet and its resources.

Politicians keep promising more jobs, a balanced budget, and more welfare. All three are mutually exclusive in a debt money system.

The economy during the administration of Ronald Reagan is a good lesson in the practical effects of the fallacy applied. Credit Market Debt expanded at nearly 15% annually at the height of the Reagan folly. The rich got richer, the poor got poorer. None of the social pathologies such as poverty, crime, homelessness, illegal drug business, family disintegration, etc.,were improved.

When Alan Greenspan took over as Chairman of the Federal Reserve Board of Governors, he announced he was going to slow down the economy. He called it a "soft landing." Alan Greenspan's soft landing was the 1990 recession. He slowed Credit Market Debt growth to under 6%. Social pathologies were not improved by that action, either; and debt continued to grow.

As shown, neither rapid debt expansion by deficit spending nor slowing growth of debt are acceptable alternatives.

The Federal Reserve creates money by buying federal debt. If the government stopped selling debt by balancing the budget, the Federal Reserve would be severely restricted in creating money. If the government tried to pay off debt, the money supply would be destroyed. As we saw above, rapid increase in debt during the Reagan administration did not solve social, financial, political and environmental problems. When Alan Greenspan reduced debt growth, the economy went into recession.

Since WWII there have been eight balanced budgets in five time periods. A recession accompanied each of those balanced budget periods.

Because of the exponential increase of debt in a debt money system, an increase in deficits, which is another way of saying that debt must increase, is necessary. The possibility of a balanced budget becomes more and more remote as the consequences to the economy become more and more severe.

Beyond the intellectual fallacy can be seen the social, financial, political, and environmental chaos created by a system in which the rich get richer and the poor get poorer.

At the present time there is technology and energy available to serve human needs with minimum human labor. At the same time both mothers and fathers are abandoning their children to daycare and public schools so they can spend their time and energy "working" to get money. Exhausted by their efforts outside the home, they have no time, opportunity, or energy to properly raise their own children. So they "work harder" to get money to afford daycare and education which results in further isolation and depletion of energy. Since most of their earnings will be spent on taxes and interest, they attempt to "work harder" yet.

The chronic shortage of money and competition for scarce money is a major contributor to careless plundering of natural resources and pollution.

The stress of poverty is a known contributor to crime rates.

The chronic shortage of money prevents medical research for cancer and AIDS. It also prevents universal medical care.

The chronic shortage of money prevents other scientific research and construction of a linear accelerator.

Economic competition is a root cause of war.

What's wrong with the above picture? The answer is so short it is banal. It is the debt money system.

It is the debt money system of bankers that is the problem.

The vacuous confrontational arguments of liberals versus conservatives do not address the problem. Throughout history humans have tended to argue obsolete ideas. Liberals and conservatives are not different. Both are trying to back into the future.

Politicians who promise to balance the budget within the debt money system as a way out of social, financial, political, and environmental chaos are uninformed, misinformed, self-deceived, or lying.

Part of the disengenuity of current political rhetoric is the misuse of the word deficit. Deficit as used in current political rhetoric is a fictional number created by smoke and mirror bookkeeping. Deficit by strict definition would be the difference between expense and revenue when expense exceeds revenue. It should represent the annual increase in government debt, but the current rhetorical claim that the budget is balanced is contradicted by the growth of debt. The Clinton administration has not only continued the plundering of so-called trust funds such as Social Security as practiced by previous administrations, but the Secretary of the Treasury has changed capital accounting procedures. Based on smoke and mirror bookkeeping the budget will not be balanced as it is now, October 1998, claimed to be balanced.

The growth of debt has been slowed; and as in other periods when government growth of debt was reduced, the economy is going into recession. As of October of 1998, the Fed has already made two symbolic reductions in interest rates.

The debt money system must be reformed before there is a possibility of solving money dependent problems.

Perhaps money is an obsolete idea.

Wisdom and Freedom produced by WORLD NEWSSTAND
Copyright © 2000. ALL RIGHTS RESERVED
page image by Windy

In Association with

Freedom School is not affiliated with the links on this page - unless otherwise stated.

Freedom School information served for educational purposes only, no liability assumed for use.
The information you obtain at this site is not, nor is it intended to be, legal advice.
Freedom School does not consent to unlawful action. Freedom School advocates and encourages one and all to adhere to, support and defend all law which is particularly applicable.

Copyright© 2003, 2018
All Rights Reserved