–Politics vs. people

Mitchell’s laws:
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The more federal budgets are cut and taxes increased, the weaker an economy becomes. .
Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
●The single most important problem in economics is
the gap between rich and poor.
●Austerity is the government’s method for widening
the gap between rich and poor.
●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.
●Everything in economics devolves to motive,
and the motive is the Gap.

=========================================================================================================================================================================================================================

Today’s headline: “Fears grow as millions lose jobless benefits
Body copy: Senate Republican leader, Mitch McConnell of Kentucky, said: “The fastest-growing parts of this Democrat economy aren’t jobs — they’re the crushing burden of the national debt and the size of the federal government.

The “crushing burden” is not national debt, which crushes no one. The crushing burden is the false belief the national debt is a crushing burden.

As a result of this false belief, millions will lose jobless benefits, taxes will be increased, Medicare doctors will receive less than they should, Social Security payments will begin later, Medicaid payments will be cut, defense spending will be reduced, federal funding of K-12 education and school breakfast programs will be cut, mass transit funding will be cut and federal assistance to the states will be reduced — all because of a myth with no factual support.

So you, dear reader, will suffer a significantly degraded life style, all because the debt hawks say the federal debt is a crushing burden and the debt causes inflation, neither of which is supported by any data.

Go to any debt hawk web site and ask them for data proving the U.S. federal debt is unsustainable or causes inflation. If they answer you at all (unlikely), they merely will give you statistics regarding the size of the debt, but no evidence it has a negative effect on America.

Here are a couple debt hawk sites you can visit:
Concord Coalition
The Cato Insitute
The Heritage Foundation
The Manhattan Institute
The Hoover Institution

Go ahead. Contact any of them. Despite impressive doctoral credentials, and oodles of statistics, they have no evidence to back their claims. Why? No such evidence exists, though massive evidence shows the misnamed “debt” (should be called “net money created”) is necessary for economic growth.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity

10 thoughts on “–Politics vs. people

  1. I think you can be even more aggresive by talking hard numbers, I looked at relation between deficits and CPI: CPIAUCNS vs FDHBPIN, the correlation in period 1971-2010 is 5% (for all purposes: none), in 1971-1984, an era of high deficits, it is MINUS 28%! In the period when we went from surplus to deficit, 1996-2010 it is -34%.

    You can ask any flat-earther: “do you have an explanation for that?”

    One could do the same in GDP growth vs deficit.

    People can always wiggle out, but not when you ask them point blank: “so, why is it -34%?”

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  2. Thanks Piotrek,

    The wriggle-out has been, “Well, not in the same year. It caused inflation 2 (or 3, 4, 5 or 10) years later.”

    Anyway, there are so many facts I present, but it’s like arguing religion. They just know in their gut that deficits are bad, facts be damned. The basic reason is at Anthropomorphic economics.

    But don’t get discouraged. We need to keep pounding them with facts.

    “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” Arthur Schopenhauer

    Rodger Malcolm Mitchell

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    1. No, problem, we can calculate lagged correlation. For 1971-1984, the biggest correlation is with 4.5year lag: +15%, with 1996-2010 with lag of 2.2 years: +25%, these are also very low correlations, the confidence intervals for measuring low correlations are so wide that they are consistent with zero.

      Of course, I know it is a religion. The numbers involved are so huge, they sure look scary 😉

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      1. Thanks. You never will see an attempt at correlation on any debt hawk site. All you ever will see is how big then numbers are, along with the words “unsustainable” and “ticking time bomb”.

        It’s good to have a math wizard on the team!

        Rodger Malcolm Mitchell

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  3. What data do you need to understand the relationship of the national debt to inflation?

    1. Our money is created through government spending.
    2. Government spending is funded with debt.
    3. Debt incurs interest.
    4. Interest payments require money.
    5. Tax revenues allow the government to pay interest (note: the principal is never paid, only the interest).
    6. US citizens pay taxes with the money created through government spending (#1).
    7. ***THIS IS KEY*** The interest that is owed on the national debt is IN ADDITION to the original principal. Since the original principal IS money, the amount of money that must be repaid always exceeds the amount of money in the system.
    8. In order to come up with the extra money (#7) needed to pay the interest, the government must create NEW money through spending (#1).
    9. Additional spending requires additional debt which requires additional interest which requires new money which requires additional spending… you get the point.
    10. Since the principal of the national debt is never repaid (#5) it grows a) continuously, due to increased spending (#8 & 9); and b) exponentially, due to compound interest.

    Inflation is caused by the continuous, exponential growth of the money supply. As more money is created, more money is available to purchase the same goods and services. More money for the same goods means higher prices (basic supply and demand).

    Inflation is accelerated by a sort of “Catch-22” because salaries and wages must keep up with inflation. As companies adjust wages to keep up with inflation, the increased costs of those wage increases are passed on to the consumer through higher prices. Higher prices (i.e. inflation) means workers’ wages must again be increased to keep up… etc.

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  4. Thanks Erik,

    To begin, federal government spending is not funded with debt or taxes or any other form of income (though state and local spending is funded with debt and taxes). The federal government does not need to borrow, and no longer should borrow. It spends merely by crediting the bank accounts of its creditors, which it could do endlessly. Borrowing is a relic of the gold standard, which ended in 1971.

    If federal spending caused inflation, we should expect to see more inflation when there was more spending and less inflation when there was less spending. True?

    But that has not happened. See: THE CAUSE OF INFLATION

    Rodger Malcolm Mitchell

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    1. I have to disagree with the idea that government spending is not funded with debt or taxes. Here’s an example of how money is spent (sorry for a second numbered list..):

      1. Congress votes to increase the Federal debt limit by $1 billion. It instructs the U.S. Treasury to write interest-bearing bonds (i.e. debt) for $1 billion.

      2. The Treasury offers the bonds (debt) to the Fed against the taxpayer’s ability to pay.

      3. The Fed buys the bonds (debt) by creating a bookkeeping entry for $1 billion to the credit of the government’s checking account.

      4. The Treasury can now write $1 billion worth of checks against the newly created credit (debt).

      5. These checks are dispersed throughout the country, endorced by the recipients, and deposited into banks as money that can be spent freely.

      Many people are under the FALSE impression that the Federal Reserve is actually a federal agency. The government does not run the Fed (if I’m wrong, can you tell me what branch of government is it under?), and certainly does not credit anyone’s bank account, which is done by the Fed. The government can only spend up to the total value of the bonds it is able to sell (i.e. up to the amount that creditors are willing to lend).

      There is no direct correlation between government spending and inflation because inflation occurs when the money supply grows faster than real goods and services. When the money supply contracts it creates an over-supply of those goods and services, which causes deflation. By regulating the money supply to ensure it does not grow too fast relative to goods and services, you can control inflation. The Fed does this by changing interest rates. If the government spends like mad, inflation will not occur if a) the money supply is simultaniously contracting (as we are currently experiencing, which is why we are not seeing hyper-inflation); or b) the production of goods and services is growing as fast or faster than the money supply.

      There is however an indirect correlation between inflation and government spending. Because the production of goods and services is inherently limited by finite resources, there is a limit on how fast production of goods and services can grow. However, the governement can spend (i.e. borrow) far more and at a much faster rate relative to the production of goods. Since the rate at which we must spend (borrow) to sustain the current system is exponential (see my original post), the growth of goods and services must also be exponential if inflation is to remain at sustainable levels. Exponential growth based on finite resources is obviously impossible, so the only alternative is to contract the money supply, or endure hyper-inflation.

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  5. Erik,
    You said, “The government can only spend up to the total value of the bonds it is able to sell.”

    This is not correct. Visualize a brand new country. The government cannot sell bonds, because there is yet no money in this new country. The first thing the government must do is create money, which it does by deficit spending.

    The spending of a monetarily sovereign nation is not constrained by any form of income, whether it be taxes or borrowing. This is in contrast to EU nations, which are not monetarily sovereign, and so are constrained by income.

    For a good explanation, please see: 7 Deadly Innocent Frauds by Warren Mosler.

    Also see: Conclusions

    Rodger Malcolm Mitchell

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