Sunday, June 12, 2011

Budgets, yours and the government's

(Prime Directive) The government can't go broke.

The country went off the gold standard in 1971!!!! And what is strange is everyone acts as if we are still on that standard. The mind set, certainly in the general population, remains fixed on the idea that a federal budget and home budget work the same way.

They do not. In fact many of the concepts that we have for home, corporate, or state budgets either don't apply or are reversed for a government running on a fiat currency.

For example: Your budget requires obtaining something of value to trade for products or services you want. You need to get cash to spend. The government, on the other hand, needs to create something of value to provide for an economy and to control the economy. That control is supposed to be for the overall benefit of the citizens for whom the government (presumably) works. The government must create a currency and, somehow, give that currency value. If the government has the power to tax and define the currency that tax must be paid in, it must use that power to give its currency value. In fact that is the only way the government has to give value to its currency.

This, of course, leads to the first difference in your budget and the government's; you must earn, borrow, or somehow acquire money to pay your taxes. But the government must spend money (and run a deficit) in order for there to be money to tax. But note well!!! The government does not have to borrow any money; not a farthing, nothing. The government neither has nor doesn't have money.

What about the tax money it gets? An entry is made that you paid your taxes - and that's it. It doesn't go into a tin box somewhere, it simply disappears. The government doesn't require any taxes to pay for a government purchase of goods or services. It doesn't even have to bother printing currency most of the time, it simply makes entries in its score card, its spread sheet.

If there is too much money and too little goods and services, i.e. more demand that supply, then raising the taxes will drain the excess and lower the demand. The government can control where growth is simply by where it spends (where we tell it to?) and what it taxes. Tax automobiles by weight, say 10 cents a pound per year. No complicated fuel consumption rules. Just that alone will drop fuel consumption in this country dramatically. Tax income above, say $300,000, at 90% and down $200,000 at 10%. How much of the population (and industry) would benefit?

There is a lot of fine structure that is built from this concept, but the sad thing is that a grasp of just this simple model is all the is really necessary to conclude that the public is being badly served. Whether it is through ignorance or chicanery is hard to tell, but if the general public should ever figure this out and realize that the economy can easily be configured to provide a descent life for everyone but has been structured to enrich a few on the backs of the general population, there should be hell to pay.

Notice, I did suggest the government didn't need to borrow anything. A little secret (shhhhh: It never has to). Why it does will be discussed during news at eleven. (I mean in another blog.) It makes sense but not to acquire money.


egb said...

"The government, on the other hand, needs to create something of value to provide for an economy and to control the economy."
Where did you get that idea? I can't find it in the constitution or Bill of Rights.

egb said...

"But the government must spend money (and run a deficit) in order for there to be money to tax"
I think you have cause and effect confused. There was lots of money in America before Government spent big bucks. Before Income Tax, America's economy grew faster than any nation in history.

egb said...

" It makes sense but not to acquire money."
Does that mean people should not save or the Government should not save?