Fiscal Conservatism Has It's Place - Just Not at the Federal Level

RE:  The Deficit Myth


You and I, our local city and county governments, and our state governments all need to operate, as fiscal conservatives, within a budget. Our expenses all need to be covered by some form of income like wages, tips, selling a product, issuing bonds, or collecting taxes. The main reason for balancing income and expenses is because individuals, businesses, cities, states have no authorization for creating money. We all need income, government created money, to pay expenses.

The federal government’s power to create money gives it unique power to focus on balancing the national economy instead of its budget. It can add money to the economy to make it grow or remove money, taxes, from the economy to slow it down. Keeping the national economy balanced between jobs and inflation is the responsibility of the federal government and it using the money, only it creates, to do that.
Keeping the economy balanced may require deficit spending. As long as the additional money results in a growing economy, more jobs, and the deficit remains small relative to the nation's total economic output, or gross domestic product (GDP), i.e. low inflation, the additional spending is responsible and the economy remains in balance.
This responsibility to balance the economy with deficit spending is not what most of us consider fiscally conservative. However, it is within the power of the federal government to do so when needed.


This federal power can be used to fix national economic catastrophes as it did in the Great Recession of 2008/9. Quite suddenly the national economy, via risky banking activities, was coming up vastly short of cash. Only the federal government had the power to replace what was lost. It created hundreds of billions of dollars to replace the cash shortage when the bottom fell out of the artificially bloated/securitized home mortgage market.
Thankfully, there was no federal balanced budget, fiscal conservatism, requirement to prevent this federal action. The federal government was thus able to log into a federal bank computer terminal, enter the primary account number for each bank that needed rescue and key in the billions each bank had lost to make them whole again. They also bought ownership in the auto industry from the same computer terminals by purchasing company stocks with more money created out of thin air.
This same kind of federal money magic happens each time Republicans increase our military spending while also reducing federal income with massive tax breaks for billionaires and corporations. However, this kind of deficit spending has negligible impact on balancing the national economy. There is no real job growth or better wages for workers to spend and grow the economy. Economic growth is anemic. The magic money just keeps the existing defense industry running to replace equipment used for fighting our unnecessary wars. Our GDP is little changed from all the new money given to defense contractors who reward their executives like Dick Cheney with bonuses. It becomes money chasing money and some is used by company board of directors to buy back company shares and artificially inflate share value. The market looks great, but the national economy isn’t browing.
Obviously, there has been no fiscal conservatism at the federal level for some time, nor should there be. The question is, if the federal government can create money to solve national problems like the Great Recession and the Great Depression, how can new money be better used such that there is actual growth in the GDP and real problem solving from creating jobs with living wages?
Most Republican deficits protect and empower the wealthy. They believe only those at the top of their imaginary social hierarchy deserve government welfare. These deficits don’t create jobs, don’t grow the nations’s GDP, and tend to boost the stock market that is 80% owned by the one percent.
A better way to use the government’s magic money is to fund programs that grow the nation’s GDP. How about an initiative to reverse our growing climate crisis? The federal government could buy controlling interests of dirty energy companies, as they did the auto industries, and change the industry goal from fossil fuel extraction to expanding clean energy sources.
In addition, let’s stop increasing defense spending and reverse tax breaks for the wealthy and corporations. This may not be good for the stock markets, but who is mostly impacted by this? The wealthy and don’t they have far too much wealth to start with?
If the federal government were forced into fiscal conservatism and had to balance its budget instead of balancing the economy, our economy could not be rescued or protected from another financial crisis nor could it help solve national problems like it did after other Great Recessions, or needs to do now to minimize the Sixth Great Extinction.

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  • Charles Hailey
    commented 2020-03-13 13:34:54 -0500
    Bankruptcy: Personal/Corporate Far More Likely Than Federal

    Imagine what bankruptcy would mean for you personally:

    - No job
    - No income
    - No wealthy parents to pay your bills
    - Bank accounts with $0.00 balances and checks bouncing
    - 401K totally depleted
    - Unpaid Bills piling up
    - Utilities about to be cut off
    - Phones stop working
    - Car repossessed after loan default
    - Mortgage interest growing as payments missed

    Bottom line is you owe a lot and have no income of value. You have no choice other than to declare bankruptcy and maybe you get to keep your home.

    Now imagine that you are the Federal government.

    You don’t really need an income because you create the money you need to pay bills or grow the economy. Nothing the government needs is “cut off” or “repossessed.” Bills are paid and jobs are created with new federal contracts, like paying for going to the moon within a decade or ending the Sixth Great Extinction.

    When the federal government collects taxes, that’s not income in the normal sense. The federal government is primarily shrinking the economy by reducing the money available to the rest of us for buying stuff – thus controlling inflation.

    As long as the federally created currency remains trusted and has a stable value based on a balanced economy, there is little chance of Federal bankruptcy where the currency value becomes zero.

    The responsibility of the Federal Government is to balance the economy. The money created out of thin air and the money removed from the economy by taxes have to be balanced by creating jobs and keeping inflation low. Bankruptcy is almost impossible while the economy is balanced.

    Our personal bankruptcy means we have no money, with value, to pay bills. Getting there is easy when our health care system won’t pay the bills.

    Federal bankruptcy means an economy extremely out of balance such that the national currency has no value and then no one’s bills can be paid. This extreme situation is far less likely than a bankruptcy from a greedy health care system.

    “Medical bills are reported to be the number one cause of U.S. bankruptcies. One study has claimed that 62% of bankruptcies were caused by medical issues. Another claims that over 2 million people are adversely affected by their medical expenses.”
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