“It’s not tax money. We simply use the computer to mark up the size of the account.”

Ask the “man in the street” where money comes from, and he will describe a “circular economy”:

1. We pay taxes to the federal government to fund federal spending.
2. When there are not enough tax dollars, the federal government borrows dollars via Treasury bills, notes, and bonds.
3. As employees of businesses, we receive payment, part of which goes to the federal government in taxes to fund government spending.

And around and around she goes: Federal spending — > federal taxing and borrowing —> more federal spending.

It’s widely believed, even by some economists, and may be what you were taught in school. But it is wrong.

The federal government creates dollars. It does not use tax dollars. It destroys tax dollars. And the federal government does not borrow dollars. Not ever.

Here are some facts to ponder: In 1940, the total M2 money supply  (M1 plus savings deposits, small-denomination time deposits, and other near-money assets like money market funds) was approximately $49.27 billion. 

As of December 2024, M2 was $21.53 trillion. 

Huh? If the entire U.S. economy had only $49 billion in 1940, how could it lend or pay taxes of $22 trillion in 2024?

Where did the additional $21 trillion come from?

Clearly, that amount couldn’t come from you and your taxes, and you surely would not be able to lend that amount to the government. It would be like asking an impoverished child to give or lend you a few trillion dollars.

You can’t get blood from a turnip, and you can’t get trillions and trillions from the American public that had $49 billion.

The answer, very simply, is that the money came from thin air, or more correctly, from federal money creation via deficit spending.

The federal government merely pressed a few computer keys, and the dollars came into existence.

Fed Chairman Alan Greenspan: “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”

Fed Chairman Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. It’s not tax money… We simply use the computer to mark up the size of the account.”

Fed Chairman Jerome Powell: “As a central bank, we have the ability to create money digitally.”

The St. Louis Fed: “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.”

“Not dependent on credit markets” is Fedspeak for “We don’t borrow money.”

Would you borrow money if you could create as much as you needed simply by pressing computer keys? Of course not.

And if you borrowed money, you’d have to pay it back, which would reduce your spending ability

So why would anyone think the federal government would borrow dollars and then pay them back? Yes, the government can do some stupid things, but not that stupid.

• When anyone lends money, they create temporary money that increases the money supply. However, this borrowed money is destroyed when loans are paid back, resulting in no long-term increase in the money supply.

• Long-term growth in the economy is driven by federal deficit spending. When the government spends more than it collects in taxes, it injects additional money into the economy. This spending is financed by creating new money — not by taxing or borrowing — which leads to a permanent increase in the money supply.

• Rather than providing funds for federal spending, taxing destroys dollars and hinders economic growth.

In short, the U.S. economy cannot create the money for its economic growth, much less support the federal government’s growth. The economy relies on the federal government’s money creation ability to grow.

Think about that the next time you hear or read someone complaining about the federal deficit. Without federal deficit spending, the economy would be incapable of growth. The federal deficit and debt are not too high; they are too low.

Federal Tax Dollars Are Destroyed

Here is how federal tax dollars are destroyed: When individuals and businesses pay taxes, they use M2 money (which includes savings deposits and other near-money assets). Once these taxes are collected, they are credited to the Treasury’s account. Since the U.S. government issues its own currency, it doesn’t need to hold a finite amount of money.

Instead, it can create money as needed. Therefore, the concept of the government “having” a certain amount of money becomes irrelevant. The federal government has infinite dollars.

When tax dollars are collected, they are removed from the private sector, reducing the money supply (M2) in circulation. This aligns with the idea that these dollars are effectively “destroyed” in they are no longer part of any money supply.

Federal taxes do not fund government spending; rather, they ensure demand for the dollar and help the Fed control the economy. This is achieved by taxing activities that the government wants to discourage and providing tax breaks for those it wishes to reward.

The Federal Government Does Not Borrow

Federal Treasury accounts (T-bills, T-notes, and T-bonds) have names that sound like borrowing. That’s why the so-called federal “debt” confuses people into wrongly believing the federal government borrows dollars. It should be called “Treasury deposits,”not debt or borrowing.

Those Treasury accounts are similar to bank safe deposit boxes. The bank doesn’t owe those deposits; it never takes ownership of them. Similarly, the federal government never takes ownership of the T-security deposits. It takes possession but not ownership.

A loan requires a transfer of ownership. When you borrow dollars, you can spend them as you please. It never uses the funds in T-security accounts. It just holds them for safekeeping.

If it were a borrower, it would take ownership. Therefore, T-securities do not represent borrowing. They represent “holding.” Further, for every dollar the federal government would borrow, it would have to pay back a dollar plus interest. So how would borrowing ever finance federal spending. The math doesn’t work.

If you had a weak-willed friend who said, “I don’t want to go into this casino with so much money in my pocket, so would you hold this $500 for me?” that would not be lending or borrowing. It would just be “holding,” and is what a T-security is.

SUMMARY

1 The federal government cannot run short of dollars. It has the infinite ability to create dollars.

2 Federal taxes do not fund federal spending. The purpose of taxes is to assure demand for the dollar and to control the economy by taxing what is to be discouraged and by giving tax breaks to what is to be rewarded. All federal taxes are destroyed upon receipt by the Treasury.

3 No agency of the federal government is funded by taxes. FICA does not fund Social Security or Medicare. All federal agencies are funded by federal money creation. No agency of the federal government can run short of dollars unless that is what the government wishes.

4 Federal taxes destroy dollars by removing them from the economy, so rather than funding economic growth, federal taxes hinder growth.

5 The federal government never borrows dollars. The purpose of T-securities is to provide a safe storage place for unused dollars —safer than any bank. That is why China, for example, would not trust any bank with billions of U.S. dollars, but it trusts the U.S. Treasury.

5 Any borrowing creates temporary dollars. Loans must be repaid, which destroys dollars. Permanent growth dollars are created by federal deficit spending. The economy can grow only when the federal government deficit spends. To grow the economy, the federal deficit must be increased.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

Search #monetarysovereignty

Facebook: Rodger Malcolm Mitchell;

MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;

https://www.academia.edu/

……………………………………………………………………..

The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY

Source: https://mythfighter.com/2025/02/01/its-not-tax-money-we-simply-use-the-computer-to-mark-up-the-size-of-the-account/