The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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Rumor has it the Fed soon will announce approximately $500 billion in Treasury bond purchases, with possibly more purchases in the future. The effect of the Fed buying government bonds will be to add dollars to the economy.
This is in recognition of two realities:
1. The economy has been starved for dollars by the economically suicidal, debt-hawk mantra of “lower federal deficits and less federal debt.” Bernanke and the Fed now will officially have acknowledged the economy needs more dollars and the federal government has to supply them.
2. Congress and the President either are ignorant of this economic fact or, more likely, are too afraid of the debt hawks to add dollars to the economy via deficit spending, and instead have passed that hot potato to the Fed.
The question now is whether adding $500 billion is sufficient to pull us out of this economic funk. I suspect it is not, and that something north of $1-2 trillion in actual spending will be needed.
Rather than relying on the indirect effect of bond purchases by the Fed, and hoping that somehow the dollars will find their way into the hands of business and consumers, Congress and the President should use a direct approach. They should reduce all tax rates and specifically eliminate FICA. That would provide both an immediate and long-lasting economic stimulus, resulting in stronger business and more jobs.
Yes, that would add to the dreaded and much maligned federal deficit and the debt, which is exactly what a growing economy needs. It also might bring the debt hawks to their senses, and finally we could stop, for instance, cutting Medicare payments to doctors and reducing Social Security benefits.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind one of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”
#Monetary Sovereignty - Mitchell 
How is this different than the quantitative easing program?
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Essentially the same effect, depending on the seller. QE usually refers to bond purchases from the public, which does not affect federal “debt.” In the upcoming case, the Fed may purchase from the Treasury, which would require the Treasury to create T-bonds, adding to the debt.
We’ll have to see the announcement, but do you see how phony the debt figures are?
Rodger Malcolm Mitchell
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On second thought, they’re the same.
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Shouldn’t the Fed buy state and municipal bonds? Those gov’ts really need help.
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No, helping the states borrow more is not the solution. They already are over-borrowed. The federal government should give money to the states on a per-capita basis.
Depending on what other spending the federal government is doing, this could range from $500 per person $10,000 per person.
Rodger Malcolm Mitchell
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Give a refundable tax credit of 25,000 to each taxpayer[any citizen who files a tax form] make this taxable by the state,then let the states compete for citizens by their tax rate vs services,increase the standard deduction to 25,000,so effectually the first 50,000 of income is tax free.the next 50,000 is taxed at 10%,progressive up til the top .01 percent pay 50-65% estate taxes on 0ver 500,000. per inheritor. dividend income at 10% for the first 25,000,25% over.
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Rodger, I just read something online that the Fed buying Treasury bonds is a risky and not proven way to do things. The tone of the article made it sound like the economist wasn’t agreeing that it would be a good idea. I can’t remember where I saw it and who the economist was that they were quoting–but it made me think that everytime someone suggests a way to inject money into the anemic economy, there is always someone who says it isn’t a proven way to fix things. I’m wondering just what the “fix” is. Nobody has the answer. I’m frightened of what will, or won’t, happen in Congress if the Republicans get control because they sure aren’t going to help the president fix things–they are only going to make things worse. So frustrating!
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kkken530,
I like raising the standard deduction, and have made this suggestion repeatedly. I would raise it every year, until some time in the future, no one except Bill Gates would pay any tax.
I do not believe “let the states compete for citizens by their tax rate vs services” is realistic. If it were, no one would live in Illinois, with its high taxes, and especially no one would live in Cook County, Illinois, which has the nations highest sales tax rate.
People live where they live for many reasons, and taxes are not at the top of the list. (I suspect resistance to change, job availability and weather come pretty high. Also family and friends location.)
Also taxing estates of $500K — relatively small by today’s standards — 50%-65% seems confiscatory, and never would be approved by the voters.
But, by reducing overall taxes, you’d be on the right track.
Rodger Malcolm Mitchell
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Sidnee, for every opinion there are counter-opinions. You have to listen to both sides and make your own decision.
The vast majority of people are debt-hawks. They believe the federal deficit and debt are too high. They also believe taxes pay for federal spending.
The majority is wrong, as is so often the case. The debt hawks do not understand Monetary Sovereignty .
So, rather than Congress cutting taxes and increasing spending, as it should, the politicians hope the Fed will save the economy.
Rodger Malcolm Mitchell
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“William Dudley, president of the Federal Reserve Bank of New York, estimates that a $500 billion purchase program would provide about as much stimulus as a cut of one-half to three-quarters of a point in the Fed’s main interest-rate lever. That’s the federal funds rate.”
One small problem. Contrary to popular myth, low interest rates do not stimulate the economy. In fact, the opposite is true. See: INTEREST .
Rodger Malcolm Mitchell
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