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.”
#Monetary Sovereignty - Mitchell 
Not to worry. Foreign investors will eventually come in and save Ireland. By buying it up. For a few Euros more. 😉
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Right, selling assets could provide a temporary reprieve, and would be a far better solution than what has been proposed. Sadly, the nominal values of most assets has fallen. It would be a “fire sale.”
Ironically, all this agony has come in the name of “monetary stability.”
Rodger Malcolm Mitchell
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Sorry if I wasn’t clear, Rodger. I didn’t really mean “save”. More like “destroy”.
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Yes, Ireland is lucky. It was wise to entrust itself to benevolent European statemen, banks & investors. They plan to save it by a time-tested, well-considered asset sale plan for economic recovery.
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I might have made some mistakes on Euro usage before. It shows how badly things are usually explained that the basic facts aren’t highlighted everywhere.
The UK, Sweden and Denmark (pegged, referendum planned) are the core EU states not using it. Norway isn’t even in the EU, so it can’t enjoy the blessings of the Euro. 🙂 Sweden is in the EU, but has managed to stay off the Euro. See Currencies of the European Union, Enlargement of the eurozone.
A bunch of recently added Eastern European states aren’t on it yet either, but are planning to or obliged to join and are drafting their suicide notes.
Thank God the US constitution is hard to amend, or a balanced budget amendment could really happen here.
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Right, I get confused about the Scandinavian countries, too.
The saddest story may yet be the UK, which endured a great deal of controversy with its decision to retain Monetary Sovereignty, only to begin acting as though it were not monetarily sovereign. All that effort for naught.
Rodger Malcolm Mitchell
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Your post https://rodgermmitchell.wordpress.com/2010/11/21/recession-redux-the-eu-bailouts-digging-the-hole-deeper-lending-to-deadbeats/ brings to mind the interesting question, which monetarily sovereign countries realize they are monetarily sovereign? Not the US & UK any more. Definitely China. Probably Norway, but as a big exporter, it doesn’t need to rely on its monetary sovereignty much now. Not Switzerland, which passed some kind of balanced budget amendment. Japan & Australia seem schizophrenic, on balance no. Iceland, in some ways, but they are applying to join the EU. I think the list of definite yeses in advanced or large economies is pretty short.
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If China knows it’s monetarily sovereign, why does it still issue bonds? Why does it still collect taxes? Why does it still provide the least social safety net among G20 nations? Why does the U.S. own China? ?
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Good questions. No nation seems to have emerged fully from the gold standard mentality.
Rodger Malcolm Mitchell
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To me, knowing you are monetarily sovereign means – not being crazy, to be able to talk about economic policies in terms with some relation to reality, to get the biggest things right. Taxes are necessary to drive demand for money. Bonds can be used for interest rate and savings management. China’s export strategy and poor safety net are government choices. I agree they are making non-optimal choices, and probably tainted with neoliberal or whatever you want to call it pretend-economics, but the policies have or had some defensible reason behind it. China is & was a poor developing country, exporting to get dollars may have made sense a while ago, but they took it too far. But when push came to shove, it had the world’s biggest stimulus to keep its economy going. They know they aren’t going to run out of renminbi. There’s no use to defining “knowingly monetarily sovereign” so strictly that nobody is.
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Good analysis, Calgacus.
The real question, a question that is asked of me all the time: “If you understand it, and if it’s so simple and obvious, how could economists, politicians and the media not understand it?” I wish I could answer.
The facts supporting Monetary Sovereignty are in plain sight and overwhelming. And no facts support the debt-hawk, balanced budget philosophy. Clearly, there are none so blind as those who will not see.
Perhaps the psychologists could tell us why intuition is more powerful than observation and logic. It might be that intuition has the evolutionary advantage of being faster than reason.
Rodger Malcolm Mitchell
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According to this , the ECB is willing to save Spain. Why don’t they save Ireland now?
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I can’t speak for the thinking of the EU, which caused the crisis so many nations now face. Although the EU has the unlimited power to create euros, the ECB says it “. . . may not even have enough money to cover a bailout of Spain.”
In this way, the EU reminds me of the U.S., which tells us that Social Security could run out of money, despite the fact that it is impossible for the U.S. ever to run out of dollars.
Though Monetary Sovereignty is a simple and straightforward concept, it has yet to be understood by the economic mainstream. This is a continuing source of wonderment for me.
Rodger Malcolm Mitchell
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Just as I predicted 5 years ago, in a speech at the University of Missouri, Kansas City: SPEECH, when I said, “The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the Euro.”
Spain, Portugal, Ireland and Greece are monetarily non-sovereign. They do not have the power to create the money to pay their debts. In this, they are like California and Illinois.
So-called “bailouts” in the form of loans, do these nations no good. Loans just put them deeper into debt.
Germany, which also in monetarily non-sovereign, is stronger because its massive exports provide money from outside, which all monetarily non-sovereign governments need.
Rodger Malcolm Mitchell
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its acutally kind of scary thing that ireland and well that america are on the same parallels the US has a ton of debt and we are not even making a dent in it .. and politicians all they want to do is spend, spend, spend.. Santa Maria Real Estate
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