The debt hawks are to economics as the creationists are to biology. They, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.

Ireland is not Monetarily Sovereign. It cannot pay its bills. The following illustrates what happens to governments that are not Monetarily Sovereign. It also is the prescription the debt hawk have for the United States, despite the fact that we are Monetarily Sovereign, and never can be unable to pay our bills:

11/24/10, Associated Press
Ireland Winces As It Unveils Historic Budget Cuts

“Ireland unveiled the harshest budget measures in its history Wednesday, a four-year plan to slash deficits by $20 billion so it can get a massive bailout from the European Union and the International Monetary Fund.”

Unfortunately, IMF bailouts are in the form of loans. How lending money, i.e. adding debt,, to a nation that is unable to service its current debts, is a mystery.

“The plan seeks to cut $13.3 billion from spending and raise $6.7 billion in extra taxes from 2011 to 2014. It axes thousands of state jobs, welfare benefits, and pension payments while raising university fees and taxes, forcing even Prime Minister Brian Cowen to concede it will hurt the living standard of everyone in the nation.”

It is identical with imposing a depression on Ireland.

“‘This is a road map back to the Stone Age,’ said Jack O’Connor, president of Ireland’s largest union, SIPTU. He noted that Ireland had already suffered nearly euro15 billion in cuts and tax hikes since 2008, gutting economic growth and helping to double unemployment to 13.6 percent.
[…]
Ireland’s 140-page National Recovery Plan proposes to introduce property and water taxes, raise the sales tax from its current rate of 21 percent to 22 percent in 2013 and to 23 percent in 2014, and cut the minimum wage by $10.20. Ireland’s bloated civil service will be particularly hard hit — seeing about 24,750 state jobs lost. Income tax bands will be widened so more lower-paid workers pay taxes, and middle-class workers will see annual taxes rise more than $4,000. A raft of welfare payments will be gradually reduced. Young and old alike face higher bills and less income. University fees will rise, as will the charges on state-funded pensions. But monthly pension payouts will fall up to 12 percent. “

Raise existing taxes. Impose new taxes. More fees. Cut jobs. Reduce welfare. Less income. Ireland is doomed, and all because they voluntarily surrendered their monetary sovereignty. Ireland is on what amounts to a gold standard, except this is a euro standard. The euro limits Ireland’s ability to create money. As taxes increase and income decreases, the money supply will drop precipitously. Businesses will fail. Unemployment will grow. So tax receipts actually will begin to fall and welfare needs will increase. Ireland will be like a dog chasing its tail, never catching up with the desire to balance its budget.

“Ireland’s legendary tax-free existence for authors, musicians and artists is facing a major cutback so that only the first $53,000 of income will avoid tax.

“Left untouched, to the irritation of other EU nations, is Ireland’s exceptionally low 12.5 percent tax rate on business profits. That rate is less than half the EU average and has helped to lure about 1,000 high-tech multinationals to Ireland, far more proportionally than any other European country.”

By lowering taxes on business, Ireland encouraged business. The EU did not like the idea of encouraging business. The EU wants higher, business-discouraging taxes. If business is the horse that carries the economy, the EU wants to tie the legs of the horse.

So there you have it. Ireland gave up its monetary sovereignty, so it is doomed. Portugal and Spain may be next. Eventually all EU nations (except those that remained monetarily sovereign: the UK, Norway and Denmark) will fail.

American politicians, media writers and even many mainstream economists, simply do not understand the difference between monetary sovereignty and monetary non-sovereignty. So under the misguided banner of “fiscal prudence,” they campaign to apply to America the medicine that is meant for Ireland, thereby guaranteeing a long extension of slow or non-existent growth.

Ireland is the model of what the debt-hawks wish for us. And all because of ignorance.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”