An alternative to popular faith
Sun May 30, 10:20 am ET, PARIS (Reuters) – “France’s Budget Minister Francois Baroin said on Sunday the objective of keeping the country’s AAA rating was ‘a stretch’ and had an impact on economic policy decisions related to cutting the deficit.
“[…] talks are taking place on pension reform — a key part of the plan to cut the deficit — and France has frozen central government spending barring pensions and interest payments between 2011 and 2013. . . Talks are taking place on — a key part of the plan to cut the deficit — and France has frozen central government spending barring pensions and interest payments between 2011 and 2013. . . France is also considering introducing a constitutional amendment that would set binding budget deficit limits.
“Baroin added: ‘We must maintain our AAA rating, reduce our debt to avoid being too dependent on the markets, and we must do this for the long-term.’
“Fitch Ratings said on Friday the recently stepped-up dialogue in France was an important first step in addressing France’s fiscal deficit. France has forecast its deficit will come in at 8 percent of GDP this year, and aims to bring it down to within the European Union’s 3 percent limit by 2013.”
To summarize:
1. Since economic growth requires money growth, France’s economy will continue to be limited by EU rules, which restrict French money creation.
2. Worse yet, France’s economy will be sent into recession by a constitutional amendment further restricting money creation. This is quite serious. The EU has the ability to change its rules quickly, but constitutional amendments are slow to pass and slow to undo.
3. Thousands of people who depend on pensions, interest payments and other government cash will receive less spending money, a situation that not only will punish them, but will punish then entire French economy, leading to an economic disaster.
And this is the damage the debt hawk mythology can wreak.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity
#Monetary Sovereignty - Mitchell 
“The ruined monetary system continues in ruins. The broken central bank franchise model continues in wreckage. The discredited sovereign debt continues to be rejected. The entire globe seeks a solution, but the buffoons in charge can only reach for the same liquor that turned the brains of monetary leaders into vinegar and rotted the body economic. They have ordered $1 trillion more liquor for distribution, totally ignorant of its ineffectiveness. Worse, they are unaware how the destructive effect of continued monetary excess kills capital formation and leads to enduring recessions that morph to depression.” Jim Willie – “Financial Sense”
Oh, what ongoing garbage you spew, Roger.
Mike
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Have you read Warren Mosler on the Euro? I assume since you’re an MMT advocate you have. He foresaw the whole thing when the EMU was established. http://moslereconomics.com/2010/05/03/my-euro-essay-from-2001/
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Yes, Warren and I correspond on a regular basis. I too predicted the euro disaster. In a SPEECH on June 5, 2005, at the University of Missouri, Kansas City, I said, “. . .because of the Euro, no European nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the Euro.”
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I just wonder what the ECB’s plan at the outset was in terms of money creation. Did they figure Europe had enough in 1999 and would never need more?
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Mike, the world changed in 1971. Those economists who did not revise their thinking after that date have become today’s debt hawks.
Unfortunately, Mr. Willie believes that federal deficits (what he calls “monetary excess” but really should be called “money creation”) kill capital formation, though he provides no evidence.
I would be interested to see data showing that money creation kills capital formation. But debt hawks never provide evidence. (See: LETTERS TO DEBT HAWKS), while I always am glad to provide evidence to support my hypotheses. You can find evidence in many posts on this site, beginning with SUMMARY
In my many years as an economist, I never have seen evidence that deficits create any negative economic effects, and massive evidence that deficits are necessary for economic growth. By contrast, debt hawks begin with the conclusion that debt is bad, and feel no need to prove it.
In addition, I’ve yet to meet the debt hawk who understood the difference between a monetarily sovereign nation and a nation that was not monetarily sovereign. Perhaps you will be the first.
Rodger Malcolm Mitchell
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Rodger,
It would seem rather strange that you would not have encountered a debt hawk, not a single one, of which I am not necessarily putting myself into that class, who knew the difference in a country which had the unlimited ability to create money and one which does not. But, if you say so. I would tend to believe that your statement here is like many more of your statements. Without much basis in truth, but that which is embedded in your mind.
The collapse in the debt market which has placed the world economy on the verge of collapse, and most likely will actually result in that, is a direct result of the unlimited ability to create money, without any consideration of a productive basis, in an attempt to show an ongoing economic expansion, and thereby wealth creation, has been caused by your idea of money without basis.
The only reason the world is scrambling for gold and pushing the price of gold into new territory is because of the demise in the value of the fiat currencies. Anyone who fails to see the obviousness of this fact alone is working with blinders. If you are actually an economist, you can not deny the fact of deminishing value. Since money is debt and debt has collapsed into itself, there is no value in producing more of a commodity that has deminishing returns, if any returns at all. Except to promote the continuance of the lie.
Mike
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Mike, that’s true. Not a single debt hawk. I’m pleased to hear you aren’t one of them.
What evidence do you have for anything in your 2nd paragraph, much of which I must confess, I didn’t understand. Perhaps too many clauses. Historically, too little money creation has caused most recessions and depressions. See: SUMMARY
You said, “The only reason the world is scrambling for gold and pushing the price of gold into new territory is because of the demise in the value of the fiat currencies.” The so-called demise in the value of the fiat currencies would by necessity manifest itself in inflation, since that is exactly what inflation means. Where is the inflation now that we have had the two largest deficits in our history?
There is no modern (post-1971) relationship between debt/money creation and inflation (i.e. diminishing returns). See: CAUSE OF INFLATION
You said,” . . .there is no value in producing more of a commodity that has diminishing returns, if any returns at all.” Is your sole evidence for diminishing returns on money creation, the price of gold?” Do you really believe we could emerge from this recession without federal deficit spending? We never have in the past.
Rodger Malcolm Mitchell
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Earl, your question is perfect. Amazing that they have not learned from failure.
My question is, aside from the minor convenience of trade, what is the purpose of the euro?
Rodger Malcolm Mitchell
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Rodger,
You da man wid da data. The internet is full of data. The WWW is profuse with tremendous information substantiating the move of the world banking and governmental leaders to establish a one world government. Start with Kissinger and work your way forward. In fact, with banking, start with the establishment of the FED in 1913 and work your way forward. The data (facts) is readily available if you choose to look and do a little reading about something other than your persistant deficit spending diatribe.
Mike
Mike
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Rodger Malcolm Mitchell says:
June 16, 2010 at 3:10 pm (Edit)
6/16/10: By Matthew Saltmarsh: “The French government . . . announced it would raise the retirement age by two years and increase income taxes on the rich to help rein in its budget deficit . . . In addition, companies would have to pay higher social charges to cover medical and unemployment coverage for employees; some tax loopholes would be closed; a tax on home sales will edge up; higher taxes will be applied on stock options and dividends; and taxes on capital gains and investment income will rise slightly.”
“The Spanish decree is designed to reduce the cost of firing workers on permanent contracts by reducing their severance pay. . . ”
Slip slidin’ away; slip slidin’ away. The EU goes slip slidin’ away. And to think, all they need do is pump money into those economies.
Rodger Malcolm Mitchell
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Rodger,
Why should I waste my time in re-quoting your data in a counter argument to your suppositions from the said data. You are an intelligent individual who knows data can be skewed to show counter positions in any argument. Take your Fact 4 for example. The same data can be shown to prove that recessions come after an increase in spending to counter the effects of a recession. An increase in spending to recover from a recession then results in another recession a few years later. As an economist you know that recessions are not immediately responsive to any spending stimulus or lack thereof. And, to state the obvious, how can you say there is no data to substantiate the fact that there was tremendous deficit spending leading up to the current recession? And, is it not quite obvious that the current deficit spending throughout the economies of the earth is unquestionably the most egregious in history? Rodger, you quite amaze me with your arguments against the obvious. Nuff said!!
Mike
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Every recession and depression in our history has ended when deficit spending has increased. But, you claim to have evidence to show that deficit spending causes recessions “a few years later.” A few years later??
What would have been your plan to get us out of the most recent recession? Reduced federal spending or increased taxes?
Rodger Malcolm Mitchell
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