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Imposing a budget ceiling or debt limit on the federal government is irrational and unrealistic. Progressive economists know that government "debt" or "spending" is actually an investment in the national economy. Government investments grow the economy and provide for the welfare of its citizens. Conservatives act as if the federal government must follow the budgeting practices of a household, business, city or state; i.e., obtain money before they can spend it. The government, however, is the creator of the money that these other entities must budget.

Because our federal government creates money for its citizens to use, it follows that there should be no arbitrary limit on the government's money-issuing capacity. The needs of the nation and its citizens are dynamic. The notion of debt limits arises from thinking from the obsolete gold-standard era. With a national government wedded to stockpiles of gold as the basis of its money, it's obvious that the nation will reach a point where its needs will outpace its supply of gold. The gold stockpile is static; there is a limited amount of gold in the world, while the needs of people are unlimited.

Why are human needs dynamic? Because the population constantly grows in size, and its needs grow faster than its size. For each human, more agricultural space is needed, more housing space, more educational facilities, more consumer goods. The relation between population and "human infrastructure" requirements is nonlinear. Also, the need for more environmental damage mitigation grows rapidly.

In addition, times of disasters such as severe storms or earthquakes require unexpected expenditures of money to replace destroyed infrastructure and care for injured people.

Human needs are dynamic also because humans are living, growing beings whose needs increase with time: as they grow, their food needs increase, as usually do their health and medicinal needs.
Not all their needs can be provided by the private sector; governments at all levels need to step in with support that cannot be operated at a profit for businesses. And support must be ongoing and keyed to expansion as needs increase. And it cannot be frivolously withdrawn or downgraded at the whims of private operators.

Because human needs are fluid, are dynamic, a static means of representing them such as budget limits or gold standard limits is inappropriate and will result in gradual degradation of human living conditions, dissatisfaction, societal deterioration and revolution. To draw an analogy, the situation is like a runner on a course, a dynamic being, who is about to pass his assistant waiting to hand him a bottle of water. He grabs the bottle on the run, but his treacherous assistant has instead handed him a bottle chained to the ground. He is instantly jerked off balance, falls and is injured. He may arise and try to continue running, but his efforts are severely set back.

The curtailment of the runner’s actions is like the Congress putting a limit on government spending. In practice, the limit is eventually raised until it is reached again and there is another disruption of needed government spending, so there is a stop-and-go quality to it that interrupts the steady flow of vital activity such as research into life-saving or Earth-preserving projects or distribution of relief to the needy.

The US and much of the world have been using fiat money for many years. With the fiat money system, a government can actually create as many acknowledgments of social relationships [aka units of money] as it needs to, while under the gold standard a government's spending must be limited to the value of gold in its coffers. It should be obvious that the gold-standard arrangement is irrational for various reasons including that it doesn't permit expansion of an economy to accommodate an ever-growing population.

To those who hold to a limiting gold standard type of economy, other beliefs arise from their unworkable paradigm:  1) if the world’s money is limited in quantity, all of the world’s money is owned already by people and by other entities such as corporations and governments. 2) No new money should be created unless new backup sources of precious metals are discovered. 3) If new money without new backup were created, the value of all money would lessen because there would be relatively less backup to support the greater money supply. 4) If all the world’s money were spread around equally to every living person, each person would have only a small amount, and my wealth would decrease and the opportunity for me to become wealthier would be greatly diminished. 5) In order for me to become wealthier, some other person or persons must become poorer. 6) There is no cure for poverty—there will always be poor people—because an equal distribution of all the world’s money is impractical.

The banksters, corporatists and other controllers of the world’s money are not stupid, but what they possess in intelligence may be short-circuited by their greed and lack of empathy with the common man. They likely know the facts of fiat money but they continue to display a gold-standard, limited-money attitude that results in maintaining and fostering wealth inequality. By misrepresenting the nature of money and the mechanics of money distribution, they clutch onto power, ownership and control of the world’s economic system.

The psychology of these manipulators and the nature of their operations are complex and would require at least several diaries to address. For now, the main point of this diary is to call attention to the disparity between our static, mathematicalized money system that lends itself to perversion and fraud, and the dynamic nature of human needs.

A first step in addressing these ills is to understand the nature of money. Fiat money exists because the essence of money is the acknowledgment of a social relationship between a buyer and a seller, between a money creator and a money user. Such relationships can happen to an infinite extent, while a supposed metallic basis for money creates an artificial limit which stymies the welfare and progress of the human race.

Originally posted to Money and Public Purpose on Tue Nov 12, 2013 at 09:00 AM PST.

Also republished by Community Spotlight.

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