Debunking the Conservative Meme on Federal Spending, Debt, and Debt Ceiling25 min read

Introduction

A conservative family member quite a while ago (Oct 2021) posted the below meme and I need to explain why this meme is completely wrong and devastating to 99% of the people within this country (U.S.), the peasant class. I feel bad about how long this has taken me finish this, at least 2 years, but, in my defense, I have 90+ posts in various forms of draft and I keep starting new ones each year, so… =O The struggle is real. =(

This rather brilliantly cuts through all the political double- speak we get. It puts it into a much better perspective…

Lesson # 1:

• U.S. Tax revenue: $2,170,000,000,000
• Fed budget: 3,820,000,000,000
• New debt: 1,650,000,000,000
• National debt: 29,271,000,000,000
• Recent budget cuts: $38,500,000,000

Let’s now remove “8 zeros” each time, and pretend it’s a household budget:

• Annual family income: $21,700
• Money the family spent: $38,200
• New debt on the credit card: $16,500
• Outstanding balance on the credit card: $292,710
• Total budget cuts so far: $385

Got It OK now…

Lesson # 2:

Here’s another way to look at the debt ceiling:
Let’s say, You come home from work and find there has been a sewer backup in your neighborhood….and your home has sewage all the way up to your ceilings. What do you think you should do…. Raise the ceilings, or pump out the crap?

Your choice is coming November 2022.

I. Lesson 1 – Federal Government is NOT a Household

Introduction

The first massive correction here is the fallacious notion that a National Government is like a household when it comes to spending. This section will explain why this is completely incorrect in the following sections:

1. Conversational Prerequisites
2. Power of the Purse
3. Federal Spending
4. Real Congressional Spending Limits
5. Federal Taxation
6. See How It All Fits Together

Note: We will use National, Federal, Congressional, and Government spending as interchangeable terms within the context of this post. This post only applies to Federal spending.

A. Conversational Prerequisites

I won’t get too deep into these, but within this post what we will talk about is only true within the context of a country like the United States which has:

1. a Federal Reserve Banking system (1913 under President Woodrow Wilson, the year before WWI broke out)
2. a Fiat Based Currency (money which is NOT backed by gold, silver, etc) (1971 under President Nixon)
3. their own sovereign national currency (US Dollars).

This is just something that you should note, because what we talk about here was NOT always necessarily true (prior to 1971). If you want to learn more about this you can check my page here which will get into the basics of how federal fiscal policy works.

B. Power of the Purse

The first and most important lesson is that a National Government is NEVER ever like a household. Why is that? Because the Federal Government has the power of the purse, the ability to create money (which is granted by the constitution – Article 1 Section 8 Clause 5); whereas a household like yours and mine cannot ever create money otherwise we will have an FBI hit squad breakdown the doors to our houses and then we go to jail for counterfeiting, right?

C. Federal Spending

How does Federal Spending work? It is actually very simple and it is only 3 steps This process is shown within the infographic titled Congressional Spending Flow Chart.

1. Congress passes a bill which has spending in it.
2. A bunch of zeros is added to the appropriate Congressional spending bank account.
3. Congress spends this money into the public sector as: business subsidies, tax credits, grants, loans, federal contracts, etc.

There. That’s it. Really.

D. Real Congressional Spending Limits

Then, technically, what keeps government from creating and spending unlimited money? That is a very important question that we do need to answer. A National Government can freely spend money into the economy within the real limits of main 1 thing:

1. real resources

“Really? Is that it? You have to be kidding me, right?”
I am not kidding at all. That is it.

The reason for this is: If the Federal Government over spends in any industry or service, or in any resource than is available then that can create inflation. There are other things that can cause inflation, such as corporate greed, but within the context of this discussion, overspending is the only issue that matters. Inflation is the only real limit for Federal spending.

E. Federal Taxation

1. Federal Taxation is NOT Income or Revenue for the Federal Government

Since the moment we have added a Federal Reserve (1913) AND shifted to a floating Fiat Based Currency (1971), Congressional spending has NEVER been limited by taxation, and it is completely false to describe federal taxes as “income” or “revenue”.

Wait! Wait! I know I just shattered your world. No freaking out just yet!
Keep breathing. Keep reading and then, hopefully, you will understand.

Only other levels of government such as: State, County, and City are limited by taxation. Why is that? Because these other levels of government do NOT have the power of the purse, they cannot create money through passing bills like Congress can. They can only raise money for operation through taxation or loans, etc. For these other levels of government, taxation IS revenue and income. The state and local levels of government ARE limited by taxation or taking out loans or using municipal bonds for spending just like the rest of us are. Within these local levels of government the household analogy or the word budget is useful, but these metaphors are NEVER useful when thinking about Federal Government spending because the federal government controls the money supply.

“So, where does all of our Federal tax money go to then?!?!?” you may excitedly ask.

Federal tax money goes:

1. from your wallet
2. to the Federal Government
3. then it disappears into a black hole never to be seen again.

…as I show in the associated infographic titled Federal Taxation Flow Chart. Federal tax money is literally just deleted from existence by a computer.

2. Useful Quotes

Like Levar Burton from Reading Rainbow would say “But, you do not have to take my word for it.”. Here are some important quotes from some very important people who really know that this is really true – a LOT of Federal Reserve Board members:

a. Beardsley Ruml, Chairman of the New York Federal Reserve (1946)

The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government.

Beardsley Ruml, Chairman of the New York Federal Reserve (Taxes for Revenue are Obsolete, pg 35 in American Affairs, Jan 1946)

b. Paul Samuelson, economist, Nobel Prize Winner (1995)

The reaction to our post on the nine myths also reminded me of an interview Nobel winner Paul Samuelson gave to Mark Blaug (in his film on Keynes, ‘John Maynard Keynes: Life/Ideas/Legacy 1995‘). There Samuelson said:

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say “uh, oh what you have done” and James Buchanan argues in those terms. I have to say that I see merit in that view.

Paul Samuelson (1995) from Paul Samuelson on Deficit Myths

c. Alan Greenspan, Federal Reserve Chairman (1997)

… a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.

Alan Greenspan At the Catholic University Leuven, Leuven, Belgium
January 14, 1997

d. Alan Greenspan, Federal Reserve Chairman (2005)

In 2005, in testimony to the US House Committee on the “budget”, former Fed Chairman Alan Greenspan was asked by then US Rep. Paul Ryan about the “solvency” of the Social Security system, which Americans rely on for retirement payments. Many Americans worry that Social Security will become insolvent before they retire. Greenspan told him:

I wouldn’t say pay-as-you-go benefits are insecure in the sense that there’s nothing to prevent the federal government creating as much money as it wants in payment to somebody.

Alan Greenspan (2005)

He went on to explain that the real problem is whether there will be enough resources or assets in existence to support all the purchases the extra cash would demand, which is the real resources-inflation problem I talked about above. You can see a video of the exchange here.

e. Ben Bernanke, Federal Reserve Chairman (2009)

It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. So, it’s much more akin to printing money than it is to borrowing.

Ben Bernanke (Federal Reserve Chairman, 60 Minutes interview in Mar 2009)

• Full Interview on 60 Minutes (Part I, Part II)
• Interview summary @ Real Clear Politics

f. St. Louis Federal Reserve (2011)

As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets (by virtue of never facing insolvency and paying interest rates over the inflation rate, e.g., TIPS (Treasury Inflation-Protected Securities).

Why Health Care Matters and the Current Debt Does Not (St. Louis Federal Reserve, 2011)

3. What the Hell are Federal Taxes for Then???

Just to reiterate, money received through federal taxes are NEVER actually spent to pay for Federal Government expenses. They disappear into a black hole never to be seen again. Then you may be asking “What the hell are federal taxes for then!?!!?!?!”.

Federal Taxation has a few uses:

1. Taxation is Used to Get the Public to do Things – Because people and businesses need the currency in order to pay taxes, and the government needs things done, then the need for government’s currency provides the driving force to create the public services and infrastructure for the government and for society at large.
2. Taxation is Inflation Control – Governments tax as a method to the reduce money available to purchase things and services, and therefore helps to control prices which then acts as a primary control for inflation.
3. Taxation as Inequality Control – Taxes are a primary method used to reduce inequality and excess concentration of wealth which is directly also a very powerful form of price control. Obviously, this only possible when the Federal Government actually does it, which the U.S. government does not really do. My economic polices are a great example of this in action, as would be the tax polices of the Nordic countries or other heavily socialized countries.
4. Behavior Adjustment
   1. Disincentives – “Sin taxes” used to adjust behavior such as a cigarette tax, tax on financial speculation, carbon tax, etc.
   2. Incentives – create a rebates, subsidies, grants, etc… to encourage certain behaviors.

F. See How It All Fits Together

Here, is the complete infographic so that you can see it all working together.

The difference between Federal Spending and Federal Taxation results in a Surplus, Balance, or a Deficit.

Reagan proved that deficits don’t matter.

Dick Cheney (January 9, 2004)

Deficit – If Federal Spending is more than Federal Taxation (spending more than taxation) then this results in a Deficit, which means money is left in the public sector in the form of savings, services, and investments which is good for the long-term resilience and expansion of the economy. A “deficit” for the federal government is a “surplus” in the public sector (for you and me).

Balance or Surplus – If Federal Spending is near to or less than Federal Taxation (taxing more than they spend) then we can have a balanced fiscal policy or a surplus, which means people are pulling money out of savings or investments, or are taking out loans or payday loans, and using credit cards to pay their bills and other obligations. This dramatically increases the instability of the economy and eventually results in recession and depression, which is of course devastating to the economy and the peasant class. The resulting instability may force those who were already struggling prior to the Balance/Surplus (living paycheck-to-paycheck) possibly now casting them into poverty. I will talk about this phenomenon a little more below. A “surplus” for the federal government is a “deficit” in the public sector (for you and me).

Each time the US has paid a significant amount of its debt/deficit down through “budget balancing” and surpluses a depression followed. The following table has 9 rows and 3 columns. The headers on the x axis (top) for the 3 columns are (left to right): Years When Debt/Deficit was Paid Down, % Decline in Debt/Deficit, and Year Depression Began. You may check the year range in the first column, then in the second column see the % decline in debt/deficit, and in the 3rd column you find the year that the depression began.

Years When Debt/Deficit was Paid Down	% Decline in Debt/Deficit	Year Depression Began
1817 to 1821	29%	1819
1823 to 1836	100%	1837
1852 to 1857	59%	1857
1867 to 1873	27%	1873
1880 to 1893	57%	1893
1920 to 1930	36%	1929
1998 to 2001	9%	2001
2004 to 2008	40%	2008

II. Lesson 2 – Debt Ceiling

A. A Quick History of the Debt Ceiling

Here is a brief quote from Wikipedia on the creation of the Debt Ceiling:

In 1917, during World War I, Congress created the debt ceiling with the Second Liberty Bond Act of 1917, which allowed the Treasury to issue bonds and take on other debt without specific Congressional approval, as long as the total debt fell under the statutory debt ceiling. The 1917 legislation set limits on the aggregate amount of debt that could be accumulated through individual categories of debt (such as bonds and bills).

History of the United States debt ceiling (Wikipedia)

The Debt Ceiling is a hold over from a different economic time when we had a specie backed currency which is a a gold or silver backed currency which had real supply limits (there is only so much gold and silver in existence), in which a Debt Ceiling had some actual use. But, now that we have a Federal Reserve Bank (1913) and, perhaps more germane to this discussion, we have a Fiat Based Currency (1971), the Debt Ceiling has no real use within the last 50+ based on how the monetary system of today actually works which is heavily reinforced by the plethora of quotes from Federal Reserve Board Chairmen from above. The Debt Ceiling is a vestige of an economic time that no longer exists and is now tool of destruction, harm, and manipulation.

B. Why is “Debt Ceiling” Harmful and Deceptive?

1. The U.S. Federal Government Does NOT have “Debt”

First, the U.S. Federal Government (for the last 50+ years) has NOT ever borrowed money and it does NOT ever need to because the Federal Government has the power of the purse, to spend money into being. Debt is a useful construct for politicians to manipulate the masses, because it is a simple (though completely incorrect) concept that that people understand and is something that they are afraid of in their own lives. If you can can create fear (trigger an emotional response) in the masses, then their critical thinking skills turn off, and then you can convince them to agree to horrible things such as inflicting austerity and impoverishment on the 99% (rugged individualism for the peasants) while greatly enriching the already rich and the corporations (socialism for the rich). With their brains turned off they do not know any better and they blindly trust that the politicians are telling the truth (because they should be telling the truth, right?). I talk a lot out this manipulative method that both parties use all throughout my post Lesser of the Two-Evils Voting is Antithetical to Democracy if you want to read more.

We should NOT call it debt, because it is not debt in the classic sense. There are no loans to the federal government, not even to China. We should call it Net Money Supply. Treasury Bonds (which makes up the fallaciously described “national debt”) has NEVER paid for any government spending. Only Congress can do that directly through legislation (as mentioned above). Treasury Bonds take money out of circulation NOW with the promise to be paid back with interest at a later date, and therefore are a tool for inflationary control. In other words, Treasury Bonds removes money from circulation NOW to prevent over spending (inflation) and then releases it slowly back into the economy after the bond’s maturation date (later). As a note: treasury bonds have a maturation period of 20 or 30 years, and pay interest every 6 months, so you can see the time spans we are looking at here for how long money is removed from circulation. When the time comes to pay the treasury bills, because it is a federal program, the money is just there and their owners just get paid.

2. The Continuous and Brutal Deception of the “Debt Clock”

Here are some quotes by economist Stephanie Kelton that talk about the ever so politically popular and manipulative “Debt Clock”:

The debt clock on West 43rd Street simply displays a historical record of how many dollars the federal government has added to the public’s pockets without subtracting (taxing) them away. Those dollars are being saved in the form of US Treasuries. If you’re lucky enough to own some, congratulations! They’re part of your wealth. While others may refer to it as a debt clock, it’s really a US Dollar Savings Clock. But you won’t hear that from Congress.

Stephanie Kelton (Economist, Stonybrook University)

By persuading voters that something must be done about these big scary numbers, politicians can push for cuts to popular programs like Social Security and Medicare. Winning support for an agenda that calls for painful cuts requires sustaining public outrage over our national finances. These are programs that benefit enormous constituencies. People will fight tooth and nail to protect them. Unless, of course, they can be convinced that there is no alternative. That we must act to “fix the debt’ before it’s too late.”.

Stephanie Kelton (Economist, Stonybrook University)

III. The Revamped Meme

A. The Brutally Honest Version of the Meme

This rather brilliantly takes advantage of the political double-speak we get from both Democrats and Republicans. It ensures anyone who is ill educated enough on federal spending will blindly believe this because it will make you angry and/or afraid and turn off your critical thinking skills.

Lesson # 1:

• U.S. Tax revenue: $2,170,000,000,000
• Fed Fiscal Policy: $3,820,000,000,000
• Spending Increase : $1,650,000,000,000
• Public Spending : $29,271,000,000,000
• Recent budget cuts: $38,500,000,000

Let’s now remove “8 zeros” each time, and pretend it’s a household budget:

• Annual family income: $21,700
• Money the family spent: $38,200
• New debt on the credit card: $16,500
• Outstanding balance on the credit card: $292,710
• Total budget cuts so far: $385

Got It! OK now…

Here’s another way to completely misrepresent the deficit, debt ceiling, and federal fiscal policy a second time using a metaphor you will understand and will be afraid of so we can manipulate you better:

Lesson # 2:

Let’s say, You come home from work and find there has been a sewer backup in your neighborhood….and your home has sewage all the way up to your ceilings. What do you think you should do …… Raise the ceilings, or pump out the crap?

Your choice is coming November 2022.

1% Corporatocracy Meme Breaker @ FreeXenon.com

B. The Correct and Honest Version of the Meme

This meme rather brilliantly cuts through all the political double-speak we get from both the Democrats and Republicans, and puts the federal fiscal policy and the debt ceiling into a fiscally correct perspective.

Lesson # 1 (based on 2020 U.S. Federal Fiscal Policy):

• Federal Spending: 6,600,000,000,000
• Federal Taxation Received : 3,400,000,000,000
• Public Sector Savings and Investment: 2,200,000,000

Lesson # 2:

Here’s another way to look at the debt ceiling:

The Debt Ceiling is a vestige of a monetary policy era that has long since past (50 years ago). It is currently used as a scare tactic by politicians on both sides of the aisle to get you to be ok with giving more money to their corporate owners (socialism for the rich), while manipulating The People to fearfully beg for Congress to inflict austerity on ourselves (rugged individualism for the peasants) when there is NO reason for it beyond abject cruelty by the psychopaths in charge. Do not support any politician who does not work towards ending the Debt Ceiling, PayGo, and the Byrd Rule. Poverty and suffering of the masses is a policy choice. Our politicians should always choose The People over their profit and corporate owners.

Your choice is coming November 2024.

1% Corporatocracy Meme Breaker @ FreeXenon.com

C. All Three Memes Together

Conclusion – Why They Want You to Believe that this Meme is True?

Congress continues to use this severely outdate terminology (debt and deficit) and outdated Congressional fiscal tools (debt ceiling in addition to PayGo and the Byrd Rule) in order to sell manipulate the people into believing this harmful story which is used as a powerful form of social control because they are talking in terms that you can easily understand and scare you with. Their-fear based rhetoric also also ensures that we keep voting for perpetual and self-inflicted austerity, impoverishment, and debt enslavement, while also making the rich even richer, and all the while Congress continues to receive their lobbyists’ paychecks and their corporate payday during and following their time in office.

This whole destructive process radically increases inequality which harms us all no matter where you are on the economic ladder, rich or poor. This prevents societal progress and doing good things for the people and the country at-large. We are manipulated into reinforcing the corrupt system’s call for socialism for the rich and rugged individualism for the 99%.

Another way to put this into some perspective is the following two thoughts. No one in Congress asks how are we gonna pay for tax breaks for the rich or to bomb a new country in the Global South or the Middle East. There is always enough money for socialism for the rich, but there is never enough money for anything that will benefit the 99% such as universal health care, ending student debt, or housing as a human right, etc.

When the moment comes that the people understand how much members of Congress have made themselves rich from serving their corporate masters by knowingly and willingly bold-faced lying to us in order to manipulate us into begging them to inflict austerity and impoverishment upon ourselves, and that this impoverishment is completely a policy choice, then there will be riots in the street.

It is easier to fool people than it is to convince them that they are being fooled.

If you want to see Economic policies that work to stop all of this you can check them out on my policy site Interstellar New Deal.