Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Richard Koo is chief economist for the Nomura Research Institute. He is one of the very few prominent economists, not with the University of Missouri, Kansas City, who understands Monetary Sovereignty. Recently, he was interviewed by MONEY magazine senior editor, Kim Clark. The interview ran in the October 11th issue. I urge you to read it.
According to Clark, Koo says:
“Government spending is the key to getting the economy back on track — and that 2009’s massive stimulus package didn’t go far enough.”
Actually, I predicted back in an April 9, 2008 letter to the Chicago Tribuen, that the various stimulus plans were too little, too late.
Here are some excerpts from the Koo interview:
Clark: Some people look at Japan and say the government spent huge sums on public projects and there was no real growth, so spending didn’t really cure the economy.
Koo: The early ’90’s recession in Japan was far worse than people realize. Commercial real estate prices nationwide in Japan fell 87% from the peak. Imagine U.S. housing prices down 87%. The fact that the Japanese government halted what could have been an enormous drop in GDP in the early ’90’s speaks to the success of its economic policies.
Clark: But Japan did suffer a major recession again in 1997.
Koo: The Japanese made a horrendous mistake in 1997. The Organization for Economic Cooperation and Development and the International Monetary Fund said to Japan, “You are running a huge fiscal deficit with an aging population. You’d better reduce your deficit.” When the government cut spending and raised taxes, the whole economy came crashing down. I see exactly the same pattern in the U.S. today. If the government acts to cut the deficit while people are continuing to pay down their debts, then we could have a second leg of decline that could be very, very ugly.
Sound familiar? Japan cut its deficit and a major recession resulted. This is why I have predicted a major U.S. recession or depression for 2012.
Clark: So are you saying that the stimulus package didn’t go far enough?
Koo: Obama kept the economy from falling into a Great Depression. . . The economy is still struggling, so people say that money must have been wasted. Not true. The expiration of the package is behind the economy’s weakness now. Yes, the Bush tax cuts were extended . . but tax cuts are the least efficient way to support the economy . . .because . . . a large portion will be . . . used to pay down consumer debt. Government spending is much more effective.
Clark: Congress recently committed to slash our defict by $2.5 trillion . . .
Koo: (In Japan), the cutback caused a second recession. Think about the Great Depression; war spending is what finally pulled the economy out. The Japanese government didn’t do enough spending in the early 1990s and added another 10 years to the problem. If the U.S. avoids that mistake, maybe in a couple of years you will be out of this mess.
Here we have Japan, a Monetarily Sovereign nation just like the U.S., that went through exactly what we are going through, and made exactly the same mistakes we are making. What have our politicians, media and old-line economists learned from Japan’s experience. Apparently, nothing.
Are you angry enough to write to your political leaders and your favorite media? If not, when?
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