This was a great article sent to me by Warren Mosler. It was written by NY Fed president, Beardsley Ruml back in 1946. He clearly understands the distinction between a sovereign currency issuing nation that's not on a gold standard and one that is. Too bad all of academic economics and current policy makers at the highest level DO NOT UNDERSTAND!!
The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements.
The first of these changes is the gaining of vast new experience in the management of central banks.
The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold.
The United States is a national state which has a central banking system, the Federal Reserve System, and whose currency, for domestic purposes, is not convertible into any commodity. It follows that our Federal Government has final freedom from the money market in meeting its financial requirements. Accordingly, the inevitable social and economic consequences of any and all taxes have now become the prime consideration in the imposition of taxes. In general, it may be said that since all taxes have consequences of a social and economic character, the government should look to these consequences in formulating its tax policy. All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.
Very enlightening. Read the full article here and send it to your representatives in Congress!!
Let it be known...Bill Gross, Larry Kudlow, Larry Summers, Tim Geithner, all of the financial media and every economist on Wall Street...DO NOT UNDERSTAND THIS BASIC CONCEPT!!!