Mitchell’s laws: To survive, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Reduced money growth cannot increase economic growth. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
The Great Depression actually began in 1920, though we didn’t know it then. In the next ten years, the U. S. Federal Debt was reduced 36%, causing a series of recessions, and finally the Depression officially began in 1929. It continued to worsen through 1932. Here is why:
Annual Message to Congress, Herbert H. Hoover, December, 1931
I must at this time call attention to the magnitude of the deficits which have developed and the resulting necessity for determined and courageous policies. These deficits arise in the main from the heavy decrease in tax receipts due to the depression and to the increase in expenditure on construction in aid to unemployment, aids to agriculture, and upon services to veterans….
We must have insistent and determined reduction in government expenses. We must face a temporary increase in taxes. Such increase should not cover the whole of these deficits or it will retard recovery. We must partially finance the deficit by borrowing. It is my view that the amount of taxation should be fixed so as to balance the Budget for 1933 except for the statutory debt retirement. Such government receipts would assure the balance of the following year’s budget including debt retirement.
Even with increased taxation, the government will reach the utmost safe limit of its borrowing capacity by the expenditures for which we are already obligated and the recommendations here proposed.
We must avoid burdens upon the government which will create more unemployment in private industry than can be gained by further expansion of employment by the Federal Government. We can now stimulate employment and agriculture more effectually and speedily through the voluntary measures in progress, through the thawing out of credit, through the building up of stability abroad, through the home loan discount banks, through an emergency finance corporation and the rehabilitation of the railways and other such directions.
I am opposed to any direct or indirect government role.
And a year later, having learned nothing, while the Depression continued to worsen, President Hoover said:
Annual Message to Congress, Herbert H. Hoover, December, 1932
The first (suggested) action is the continuing reduction of all government expenditures, whether national, state, or local. The difficulties of the country demand undiminished efforts toward economy in government in every direction.
Embraced in this problem is the unquestioned balancing of the Federal Budget. That is the first necessity of national stability and is the foundation of further recovery. It must be balanced in an absolutely safe and sure manner if full confidence is to be inspired.
In the Budget there is included only the completion of the Federal public works projects already undertaken or under contract. Speeding up of Federal public works during the past four years as an aid to employment has advanced many types of such improvements to the point where further expansion can not be justified in their usefulness to the government or the people.
As an aid to unemployment we should beyond the normal constructive programs substitute reproductive or so-called self-liquidating works. Loans for such purposes have been provided for through the Reconstruction Finance Corporation. This change in character of projects directly relieves the taxpayer and is capable of expansion into a larger field than the direct Federal works.
The reproductive works constitute an addition to national wealth and to future employment, whereas further undue expansion of Federal public works is but a burden upon the future.
Many of the economies recommended in the Budget were presented at the last session of the Congress but failed of adoption. If the Economy and Appropriations Committees of the Congress in canvassing these proposed expenditures shall find further reductions which can be made without impairing essential government services, it will be welcomed both by the country and by myself. But under no circumstances do I feel that the Congress should fail to uphold the total of reductions recommended.
The time has come when, if the government is to have an adequate basis of revenue to assure a balanced budget, this system of special manufacturers’ excise taxes should be extended to cover practically all manufactures at a uniform rate, except necessary food and possibly some grades of clothing.
It is today a matter of satisfaction that the rate of bank failures, of hoarding, and the demands upon Reconstruction Corporation have greatly lessened. The acute phases of the crisis have obviously passed and the time has now come when this national danger and this failure to respond to national necessities must be ended and the measures to end them can be safely undertaken.
In 1935, New Deal federal spending programs such as the Works Progress Administration (WPA) were begun. By June 1937, the economy had begun to recover. Industrial production was greater than in 1929. However, President Roosevelt, himself having learned nothing from history, increased taxes and cut spending in yet another attempt to balance the federal budget. And predictably, the economy again crashed (The “2nd Depression”).
Now comes President Barack Obama, who has learned nothing from the the lessons of the past 80 years:
At certain times -– particularly during war or recession -– our nation has had to borrow money to pay for some of our priorities. And as most families understand, a little credit card debt isn’t going to hurt if it’s temporary.
But as far back as the 1980s, America started amassing debt at more alarming levels, and our leaders began to realize that a larger challenge was on the horizon. They knew that eventually, the Baby Boom generation would retire, which meant a much bigger portion of our citizens would be relying on programs like Medicare, Social Security, and possibly Medicaid. Like parents with young children who know they have to start saving for the college years, America had to start borrowing less and saving more to prepare for the retirement of an entire generation.
To meet this challenge, our leaders came together three times during the 1990s to reduce our nation’s deficit — three times. . . As a result of these bipartisan efforts, America’s finances were in great shape by the year 2000. We went from deficit to surplus. America was actually on track to becoming completely debt free, and we were prepared for the retirement of the Baby Boomers.
Yes, America’s finances were in such great shape we had a recession that began the end of 2000. And of course, if America were debt-free it also would be money-free.
But after Democrats and Republicans committed to fiscal discipline during the 1990s, we lost our way in the decade that followed. We increased spending dramatically for two wars and an expensive prescription drug program -– but we didn’t pay for any of this new spending. Instead, we made the problem worse with trillions of dollars in unpaid-for tax cuts -– tax cuts that went to every millionaire and billionaire in the country; tax cuts that will force us to borrow an average of $500 billion every year over the next decade.
The 1990’s marked one of the longest recession-free periods in U.S. history.
To give you an idea of how much damage this caused to our nation’s checkbook, consider this: In the last decade, if we had simply found a way to pay for the tax cuts and the prescription drug benefit, our deficit would currently be at low historical levels in the coming years.
But that’s not what happened. And so, by the time I took office, we once again found ourselves deeply in debt and unprepared for a Baby Boom retirement that is now starting to take place. When I took office, our projected deficit, annually, was more than $1 trillion. On top of that, we faced a terrible financial crisis and a recession that, like most recessions, led us to temporarily borrow even more.
In this case, we took a series of emergency steps that saved millions of jobs, kept credit flowing, and provided working families extra money in their pocket. It was absolutely the right thing to do, but these steps were expensive, and added to our deficits in the short term.
Hmmm . . . Let’s see. When times are bad, we increase the deficit, which cures the recession. Then when times are good, we cut the deficit, which causes the recession. Could there be a hint buried in that history?
So that’s how our fiscal challenge was created. That’s how we got here. And now that our economic recovery is gaining strength, Democrats and Republicans must come together and restore the fiscal responsibility that served us so well in the 1990s. We have to live within our means. We have to reduce our deficit, and we have to get back on a path that will allow us to pay down our debt.
What more can one say? More than 80 years of doing the same things and seeing the same results, and still our leaders haven’t learned a thing. How is it that the least competent and least knowledgeable seem to rise to positions of power?
That is the great human mystery.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings