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 = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
One wonders what Ben Bernanke’s motives are. Of all people on earth, he should understand Monetary Sovereignty, and often he shows signs of getting it. Then he comes out with the most blatant, ridiculous stories, and I can’t imagine why.
Here’s an example in yesterday’s CNBC on-line article:
Rising Deficits Pose Major Threat to Economy: Bernanke
Thursday, 2 Feb 2012, By: Jeff Cox, CNBC.com Senior Writer
Rising federal budget deficits are posing a significant threat to the U.S. economy and are likely to cause a crisis if not brought under control, Federal Reserve Chairman Ben Bernanke told Congress Thursday.
Calling the situation “unsustainable,” the central bank leader pointed out that surging health-care costs, along with the high level of government spending used to pull the economy out of recession, are creating fiscal hazard.
“Having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences,” Bernanke told the House Budget Committee. “Over the longer term, the current trajectory of federal debt threatens to crowd out private capital formation and thus reduce productivity growth.”
This is wrong to the extreme. Tellingly, he doesn’t say exactly what the “significant threat,” “financial hazard” or “serious economic consequences” would be.
Will the U.S. be unable to service its debt? No, being Monetarily Sovereign, the U.S. has the unlimited ability to service any debt of any size.
Is he worried about inflation? No, in fact he has promised to keep interest rates near zero, which is a signal he is more worried about deflation.
He never says what the threat, hazard or consequences will be, because there are none. He simply is lying.
And so far as “federal debt threatening to crowd out private capital formation,” this is lie #2. Federal deficits add dollars to the economy, and these added dollars facilitate private capital formation. There is no known mechanism for federal spending to crowd out private capital formation.
At the same time, he also warned Congress not to pull the reins too tightly so as to threaten growth.
That covers his butt on both sides of the question. No matter what Congress does, and what the outcome is, Bernanke always can say, “See, I told you so. You spent too much” (or “You pulled the reins too tightly.”)
The Fed’s balance sheet stands at $2.9 trillion, swelled by purchases of assets such as Treasurys and mortgage-backed securities. The goal of quantitative easing has been to bring down interest rates and encourage investors away from low-yielding fixed-income vehicles and into higher risk such as stocks and real estate.
The Fed always has set interest rates by fiat. It doesn’t need QE for that purpose. Instead, the Fed’s purpose was to add dollars to the economy, the very thing Bernanke warns Congress not to do. And can you imagine Bernanke now telling the nation to invest in higher risk securities, encouraging the speculation he previously has blamed for the recession? It’s beyond belief.
Bernanke has begun, more and more, to channel his predecessor, Alan Greenspan, by speaking in tongues, so that no one can understand what he’s saying. Unfortunately, like Greenspan, he is doing the nation a major disservice by not telling the truth.
The Fed gets far too much credit and far to much blame for the economy. It is only a bit player to the real stars of the the show: Congress and the President. Congress loves to cover its own butt by ragging on the Fed for Congress’s own errors, and Bernanke is a handy whipping boy. But the Fed does have the power to educate with authority, and if only Bernanke would, at long last, come out and speak the truth. Ah, if only.
One wonders, what are his motives for lying? Is he so fearful for his job, he will say whatever his bosses expect?
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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports