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●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which ultimately leads to civil disorder.
●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.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive, and the motive is the gap.
Laurence J. Kotlikoff is a professor of economics at Boston University and the co-author of “The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy.”
Here are excerpts from an article he published on August 1, 2014:
HOUSEHOLDS can’t spend, on a continuing basis, more than they earn. Countries can’t either, at least not over the long run. But countries can certainly leave the bill for their current spending to the young and to future generations.
In just three short sentences, this economics professor demonstrates everything that is wrong with the teaching of economics in America:
1. His first sentence is correct. Households, being monetarily non-sovereign, can’t spend more than they earn, long-term. They can’t create money at will.
2. His second sentence is wrong for two reasons: First, he doesn’t differentiate between Monetarily Sovereign countries (U.S., Canada, UK, Japan, Australia, China et al), which have their own sovereign currency vs. monetarily non-sovereign entities (all euro nations, cities, counties and states, individuals and businesses) which don’t have their own sovereign currency.
A Monetarily Sovereign nation creates its sovereign currency from thin air, by passing laws that make that currency possible. The laws are under the total control of the nation, which has the unlimited ability to change those laws and to create its currency, at any time it wishes. A Monetarily Sovereign nation cannot run short of its own sovereign currency.
Monetarily non-sovereign entities, like you and me and Kotlikoff, don’t have a sovereign currency and so, cannot create money at will. We can run short of money.
3. His third sentence compounds the ignorance by assuming Monetarily Sovereign governments need to borrow or tax in order to pay their bills. They don’t. Why would they? They have the unlimited ability to create their own sovereign currency.
But the ignorance gets worse:
Official borrowing is the old-fashioned way to do this: Sell Treasury bonds, and other securities, and spend the proceeds. But borrowing in broad daylight has a drawback: The more you do it, the more lenders worry about repayment, and the more interest they charge for their loans.
The federal government sells Treasury bonds but it doesn’t “spend the proceeds.”
When you buy a Treasury bond, dollars are transferred from your personal checking account to your personal T-bond account, at the Federal Reserve Bank, where the money stay nice and safe. To “pay you back,” the Federal Reserve Bank merely transfers those dollars back from your Treasury Bond account to your checking account. No new dollars needed.
So lenders (you and I who buy those T-bonds) don’t worry about being paid back. And we don’t determine how much interest to charge. The Fed does that. Really, look around you. Have you seen T-bond interest rates going up, despite massive sales of T-bonds?
But incredibly, the ignorance gets even worse:
Social Security . . . takes in money, via payroll taxes, while promising hefty retirement benefits in return. Dig deep into the appendix of the most recent Social Security Trustees Report, and you’ll find that the program’s unfunded obligation is $24.9 trillion “through the infinite horizon” (or a mere $10.6 trillion, as calculated through 2088). That’s nearly twice the $12.6 trillion in public debt held by the United States government.
Ooooh! How scary! Two unrelated numbers (Social Security “debt” and federal “debt”) and one is bigger than the other. Oooooh!
A Monetarily Sovereign government, owing its own sovereign currency, has zero “unfunded obligations.” All its obligations are paid for (“funded”), ad hoc. When the U.S. government pays a bill, it sends instructions (not dollars) to the creditor’s bank, telling the bank to increase the numbers in the creditor’s checking account.
At the moment the bank does as it is instructed, dollars are created. Sending instructions is the way the U.S. government funds all its obligations. The government never can run short of instructions, so all federal debt is funded.
Oh, but the ignorance continues:
The prospect of formal default by the United States is remote. Informal default via the inflationary, easy-money policies of the Federal Reserve since 2007, is more likely. (Social Security is pegged to inflation, so while inflation would help with our official debts to creditors, like China, it is far from a panacea.)
First, those “easy money policies” have resulted in low inflation rates, below the 2.5% – 3% Fed target rate
And second, and more important, inflation does not help with our official debts to creditors, like China. Two reasons:
First, we “pay off” China’s “debt” (i.e. T-bonds), simply by transferring China’s money, that is in China’s T-bond account at the Federal Reserve Bank, to China’s checking account, also at the Federal Reserve Bank. It’s just a transfer of existing funds.
Second, U.S. debts are paid with dollars. The value of those dollars (i.e. inflation) is irrelevant. If the U.S. owes someone a thousand dollars, it makes no difference whether those thousand dollars can buy a car or a loaf of bread. The U.S. simply sends instructions to the creditor’s bank, telling the bank to increase the number in the creditor’s checking account by one thousand.
And the beat goes on:
The fiscal gap — the difference between our government’s projected financial obligations and the present value of all projected future tax and other receipts — is, effectively, our nation’s credit card bill. Eliminating it, would require an immediate, permanent 59 percent increase in federal tax revenue.
Or, professor, we simply could continue as we have for the past 240 years, and pay our bills by sending instructions to banks. Better yet, we could cut federal taxes, thereby enriching the private sector and assuring we never again would have a recession. (Federal Deficit = Private Sector Income)
And now for the truly scary part:
Even if we do nothing, we should at least be transparent about our insolvency. A bill introduced last year . . . would require the Congressional Budget Office, the Government Accountability Office and the Office of Management and Budget to conduct such “generational accounting.”
Former government officials from both parties, and more than 1,200 economists, including 17 Nobel laureates, have endorsed the legislation, known as the Inform Act. It would keep our government honest, and sound an alarm.
OMG! Is it possible for all these “experts” to be completely ignorant of Monetary Sovereignty? Are they descendants of the people who insisted the earth is the center of the universe?
Or have they been bribed by the rich, to widen the gap between the rich and the rest? (Cutting federal spending hurts the lower income groups more than the upper income groups, thus widening the gap.)
We know the politicians are bribed via campaign contributions and promises of lucrative employment, later. We know the university professors do what the big contributors tell them to do. And of course, the media are owned by the rich.
The nonsense Kotlikoff spreads is what a person who has zero understanding of economics believes. It’s the belief government finances are the same as personal finances.
I seriously doubt Kotlikoff is that ignorant. I believe he knows that what he is saying is a pack of lies (aka the Big Lie).
So really, Professor Kotlikoff, have you no sense of pride?
Why are you doing this to our children?
Rodger Malcolm Mitchell
Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here)
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
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:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports
THE RECESSION CLOCK
Vertical gray bars mark recessions.
As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.