Thursday, May 22, 2014

What is a Federal budget for?

Excerpts from an excellent article just published - read the full article here - it's concise and right to the point.

For a currency-issuing nation, what is more important? Whether our real resources are fully utilized and society has its real needs met, or how many bank reserves and bonds we have? If you care about your country and your children & grandchildren, seek to understand this incredibly important concept as it's not what you learn in school, from the media, or from your political party. We have become so hung up over false notions of debt and inflation - vestiges of our gold standard days - that we can't see our way forward anymore. Let's solve our real needs and the money stuff will take care of itself. Our nation's best days can still lie ahead. 

Both political parties are dominated by the false view that the federal budget must be balanced. The only difference is that conservatives think the government has a spending problem and liberals think it is a revenue problem. Both are wrong and it is hurting America’s competitive global advantages.
In the modern world of fiat currency the federal government must focus on real resources (available materials, factories, infrastructure, labor, knowledge) instead of financial resources (money and bonds) in managing the economy. Money is the vehicle that allows the smooth movement of goods and services from sellers to buyers in the economy. The federal government as the sole issuer of the U.S. dollar can issue all the money it needs to move any resources of the nation.
The Congressional budget exercise should not be about achieving a balanced federal budget. The budget should be developed to assure that all available resources of the nation are put to good use. There is plenty of work to be done, and we can avoid high unemployment. The federal government can employ all the resources not employed by private industry. If unemployment is high, as it is now, federal deficits are too small.
Many will denounce deficits as causing inflation or adding to a gigantic national debt. They forget to mention that inflation is the result of demand greater than our productive capacity. But, government purchases of either goods or services from labor, which are readily available because of high unemployment, increase total production along with demand, and that benefits businesses. Such purchases are not inflationary.
They also fail to mention that the huge national debt is in reality a huge private asset. The national debt is nothing more than government bonds that individuals, banks, and pension funds hold in their accounts as secure savings instruments.