Balanced Federal Budget, Federal Deficit Solution
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Balanced Federal Budget
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Complexity: Economics and Weather
Why cause and effect may not be obvious in our economy.

           A large economy has, and must have, a greater supply of money than does a small economy. Therefore, a growing economy requires a growing supply of money.

           Federal debt is one part of Total debt, which also includes consumer debt, business debt and state and local debt. Total Debt can grow, while Federal Debt declines. Any part of Total Debt can grow or decline, while Total Debt grows or declines.
          Every form of money is a form of debt. There is no money that is not debt. Therefore a growing economy requires a growing supply of debt.
          This is the fundamental, though counter-intuitive, tenet of FREE MONEY. The majority view is: The Federal dept is too high; it weighs on the economy; a reduction in Federal debt would benefit the economy. To overcome the majority view for any idea, one needs powerful evidence, and indeed such evidence exists in the book FREE MONEY and on the pages of this web site.
           Nevertheless, those who doubt the Free Money tenet point to times when a growing debt supply percentage has not corresponded with a GDP growth percentage. Such times do exist. See the chart, below:

           The red bar shows Total debt (money supply) annual percentage growth. The green bar shows GDP annual percentage growth. As you can see, the two bars are generally parallel. But they are not perfectly parallel.
           In 1980, 1986 and 1993 they seem to move in opposite directions. In 1980, money supply growth increased, while GDP growth decreased. In the other two years, the opposite happened.
          This leaves the question, "If a growing economy requires a growing supply of money, why are there times when money supply growth and GDP growth are not parallel? That is the question this page attempts to answer, in part by presenting an analog to weather.
           While history does indicate that a growing economy requires a growing supply of money, the U.S. economy is quite complex, and is affected by many factors. Energy prices and availabilities, the economies of other nations, technological, environmental and political changes, the location and direction of money (domestic vs. international) all can affect the course of our economy.
           In this sense, our economy can be compared with the weather. The single most important determinant of temperature is the amount of sunlight hitting any specific place on earth. In Chicago, the amount of sunlight (length of day and angle of the sun's rays) increases from late December through late June.)
           If there were perfect correlation between sunlight and temperature, every day in March would be warmer than the preceding day. Obviously, that is not true, because of other factors, such as wind, clouds, fronts, precipitation, air pollution, etc. Despite the unpredictability of daily temperature, no one denies that sunlight is the primary factor affecting temperature.
           What if we were to chart a very long period -- 1872 through 2006 -- to test whether sunlight really does determine temperature.

           This chart shows the average daily temperature range, the high temperature and the low temperature, for 134 consecutive years in Chicago. That is a long time -- surely long enough to reveal whether more sunlight does cause higher temperature. And, in fact, we do see a tendency for late March to be warmer than early March.
           But we also see the lack of a smooth curve, even with a data base of 134 years. Contrary to expectations, the coldest day occured on March 5th, not March 1st.
           Although the average warmest day was March 31st, as expected, the second average warmest day was March 24th, a full week earlier. Despite receiving less sunlight for 134 years, the six days, March 25th through March 30th, were on average, cooler than March 24th.
           Does this prove sunlight does not determine temperature? Of course not. It proves only that despite the obvious trend, other factors affect temperature in specific years and even over many years. Even with the noted exceptions, the above chart demonstrates the relationship between sunlight and temperature.
           This is similar to the pattern we saw when when we charted Total debt and GDP growth.
           Does this prove that a growing economy requires a growing supply of money? Absolutely not. It merely demonstrates than in a complex interaction, affected by many variables, the lack of perfect correlation between two variables does not prove there is no correlation between the variables.
           What the illustration, FREE MONEY and this web site do seem to show is: When all other variables are held contant, a growing GDP corresponds with a growing money supply.
The Interest Rate Fallacy | Social Security Solutions | Medicare Solutions | Economic Solutions | Recession | Federal Debt of the U.S. | Federal Budget Deficit | Stagflation | National Debt Letters | Federal Deficit Solution | Balanced Federal Budget | Federal Deficit Problem | Federal Government Budget | US National Debt | National Debt Solution | A Child In Arms | Glossary of Economic Terms Debt, Money, Deficit, Spend, Owe | US National Debt Clock | Inflation and Stagflation | Pseudoeconomics   | Money supply and the weather | The Relationship Between Gold and Money | Social Security Reform | Does Federal Debt Cause Inflation? | The 5 Myths That Damage Our Economy | 10 Reasons to Eliminate FICA | Rodger M. Mitchell -- Ideas |