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. Austerity breeds austerity and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Here is what President Obama said regarding the federal deficit:
Mon, 11/14/2011 – Associated Press
“It feels as if people continue to try to stick with their rigid positions rather than solve the problem,” Obama said of the 12 members of the bipartisan deficit committee. . .
“My hope is that over the next several days, the congressional leadership on the supercommittee go ahead and bite the bullet and do what needs to be done, because the math won’t change. There’s no magic formula. There are no magic beans that you can toss on the ground and suddenly a bunch of money grows on trees. We got to just go ahead and do the responsible thing.”
Obama spoke as lawmakers on the specially created committee appeared deadlocked with a Nov. 23 deadline fast approaching to find more than $1 trillion in deficit cuts or trigger harsh spending cuts across federal programs including the Pentagon.
Has greater ignorance of economics ever been expressed by a President than, ”There are no magic beans that you can toss on the ground and suddenly a bunch of money grows on trees”? Where does Mr. Obama think dollars come from? Is he really saying the federal government is not Monetarily Sovereign and does not have the unlimited ability to pay its bills? Is he really saying federal finances are limited as are personal finances?
I simply cannot believe that a Harvard graduate, a seemingly otherwise intelligent human being, surrounded by the best minds in America, could be so unremittingly ignorant about the most important subject of his administration. And because I can’t believe it, I think there is an underlying cause, and that cause is crass politics.
As I see it, he probably understands the foolishness of his comment, but is trying to appeal to his audience, which repeatedly has been told the deficit is too high and the rich should be taxed. Mr. Obama displays neither the courage or the honesty to tell them the truth, lest they not vote for him. He would much prefer to make the nation suffer than risk his election loss – at least, that’s my take on it. What else could it possibly be?
As I’ve said previously, a person who would injure America for his own personal benefit – that’s the definition of a traitor. So I award President Obama 1 traitor symbol:
Anyway, in the unlikely event he and/or his followers one day might read this post with minds open to learning, along with spirits open to lifting their fellow Americans, here is a simple formula they might understand, accept or reveal to the world:
A= B + C
For those who know basic algebra (I assume President Obama is one of them), it means whatever you do to the right side of the “equals” sign, also is done to the left side. So, if you decrease B without increasing C equally, A will decrease. Basic algebra.
Turning to our economy, how do you know whether it is shrinking or growing, and by how much? The most often used measure of economic growth is GDP or Gross Domestic Product. It measures the dollar value of all final goods and services produced in a country, usually for a 12-month period. One formula for GDP is:
GDP = private consumption + government spending + gross investment + net exports
Again, whatever you do to the right side of the formula, automatically happens to the left. Government spending is one of the four parts of GDP. As in the A = B + C formula, if we decrease government spending, GDP will fall (i.e. the economy will shrink), unless we also increase gross investment, private consumption or net exports by an equal amount.
President Obama seemingly has no plan for how to would increase gross investment, private consumption or net exports. He speaks only of his desire to reduce government spending, which taken alone must decrease GDP. Further, I know of no mechanism by which a reduction in federal spending will increase investment or consumption.
In fact, federal spending reductions tend to reduce investment and consumption. A feedback mechanism multiplies the effect of federal spending changes. See the graph, below.
Looking incrementally, as you did in “Want to stimulate the economy” you can see that the peaks and valleys of the blue line (federal deficit spending) correspond with or precede the peaks and valleys of the red line (private investment) and the green line (personal consumption) by 1-2 years.
Going back to President Obama’s statement, what he really has said is: “We got to just go ahead and do the responsible thing: Reduce GDP, reduce our economy, have a nice big ‘responsible’ depression.’” If he succeeds, a depression is exactly what we will have.
I award President Obama three dunce caps, the 1078th dunce caps I’ve awarded. (He actually deserves more than three, but do you think dunce caps grow on trees?)
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