Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.

●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●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.


In the previous post, “Congress makes astounding discovery: Reducing deficits (aka austerity) causes recessions,” we saw how Congress and the President “discovered” that if taxes were increased and spending reduced, we would fall over the “fiscal cliff.”

We also noted that Congress and the President still want to reduce the deficit, though this would require the very spending cuts and tax reductions that would lead to the “fiscal cliff.”

Finally, we showed that deficit reduction would cause the “fiscal cliff,” because it would reduce money supply growth. GDP = Federal spending + Private Spending and Investment + Net Exports. Reduced federal spending reduces GDP. Increased taxes reduce Private Spending and Investment.

Mathematically, increased deficits are necessary to grow the economy.

When I called this to the attention of my favorite editor, Bruce Dold of the Chicago Tribune, he wrote back: “The big picture here is that while we need spending cuts and revenue hikes — in a ratio of 3-to-1 or 4-to-1, we think — losing all of this liquidity at once would torpedo the economy.”

Incredibly, he says losing liquidity is a good thing for the economy (Yikes!), so long as it’s done slowly. He’s bothered only by the “at once” aspect. But he also said, “We had hopes for yet another plan, which didn’t get much ink: a Go-Big bipartisan proposal to reduce expected deficits by more than $4 trillion over 10 years.”

I guess losing $4 trillion of liquidity in 10 years is slow enough for him. You just can’t make this stuff up.

In that vein, Congress still wants to increase taxes, but not by increasing taxes, overtly. Rather they want to cut “loopholes.”

New York Times Tax Loopholes Block Efforts to Close Gaping U.S. Deficit
Published: July 20, 2012

WASHINGTON —On Capitol Hill, lawmakers casually point to closing “loopholes” as the answer to much that ails the country. Negotiations to avoid automatic military spending cuts in January, to enact sweeping deficit reduction and to lower corporate and personal income tax rates all hinge on closing unidentified loopholes.

Translation: “. . . avoid military spending cuts. . . ” increases the deficit. “. . . lower corporate and personal income tax rates . . . ” also increases the deficit. But Congress wants to do these things while it . . .”enacts sweeping deficit reduction. . .” Got it?

Federal tax receipts are reduced by more than $1 trillion a year by various tax deductions and credits, known as tax expenditures, often tied to a policy aim. Ending them would nearly eliminate the federal deficit, which is projected to be $1.2 trillion in the current fiscal year.

Translation: “We know that raising taxes hurts the economy. And we don’t want to be seen as the guys who pushed the economy over the “fiscal cliff.” So we need a sneaky way to raise taxes, and we have found one. We have made everyone believe tax “loopholes” are bad. So we’ll eliminate loopholes, which will raise taxes, and no one will object. Smart, huh?”

But the three largest (loopholes) are as popular as they are expensive: the mortgage interest deduction has cost about $75 billion a year recently, the employer deduction for health care has cost $120 billion a year, and the charitable-giving deduction has cost $38 billion a year, according to the bipartisan Joint Committee on Taxation.

Translation: Oops. We hope the public doesn’t wise up to the fact that one man’s “loophole” is another man’s “legitimate deduction. Nah, why worry? The public never wises up.

Senator Richard J. Durbin, Democrat of Illinois, who is participating in deficit talks, said: “We have to invite the American people to be part of a conversation about how to rationalize this tax code, reduce its complexity, try to bring rates down in a reasonable way and still reduce the deficit.”

So here is my esteemed Senator who carefully walks both sides of the issue. He wants to reduce taxes, while not reducing taxes, and increase spending, while not increasing spending. Yes, he wants to cut the deficit, while not cutting the deficit, because everyone knows that cutting the deficit will send us over the fiscal cliff.

And that is why Durbin has been in Congress for thirty (!) years. He’s not ignorant. The voters are ignorant. He’s a fox.

Rodger Malcolm Mitchell
Monetary Sovereignty

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