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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Here is an article from the Washington Post, demonstrating how ignorance of Monetary Sovereignty is destroying our economy.
Recession-bruised states’ revenue sank 30 percent in 2009, Census Bureau reports
By Michael A. Fletcher, Washington Post Staff Writer , Wednesday, January 5, 2011; 11:09 PMThe recession blew a huge hole in the already shaky finances of state governments, causing them to lose nearly one-third of their revenue in 2009, according to a Census Bureau report released Wednesday. . .
At the same time, states are grappling with swollen social service caseloads, underfunded pension funds and flat revenue – a situation that will worsen as federal stimulus aid comes to a halt in the coming months.
Future federal help is considered highly unlikely, as Congress and President Obama have put a greater emphasis on reducing spending and trimming the huge federal budget deficit.
The new census report adds to the bleak portrait that has emerged from other studies documenting the damage caused by the economic downturn, while making plain that states are likely to continue struggling fiscally for years.
“This report paints a fairly compelling picture of the impact of the recession on states,” said Susan K. Urahn, managing director of the Pew Center on the States. “There are many states predicting that they’re not going to return to pre-recession levels of revenue until 2014.”
Our Monetarily Sovereign, federal government, which has the unlimited ability to create money and pay bills of any size, refuses to give the states the support they need. Meanwhile the monetarily non-sovereign states, which do not have money-creating ability, suffer, and more importantly, we citizens suffer from reduced services and increased taxes.
Education, police and fire protection, roads and bridges, medical services, pensions and on and on, all reduced while our federal government sits on its unlimited pile of cash. Our federal leaders believe they are being fiscally prudent, while in fact, they are destroying America.
Their ignorance hurts us all.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me 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 
From Moneynews.com: “Some Republicans appear willing to slash military and other domestic security budgets in an effort to lower the country’s debt burden despite earlier calls to keep such expenditures exempt from cuts.”
Of course, the country does not have a “debt burden.” The word “debt” is a synonym for “net money created.” This is why whenever federal debt is decreased we have a recession or a depression. And there is no “burden,” because our Monetarily Sovereign government has the unlimited ability to pay its bills.
I can’t tell whether this action by the Republicans represents ignorance or spitefulness. Either way, the citizens of America will suffer.
Rodger Malcolm Mitchell
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From Warren Mosler:
Debt ceiling dynamics
My best guess is there will be little or no fight over the debt ceiling extension.
I think the President will agree to pretty much whatever the Republicans want, and get more than enough Democrats to join him.
Best I can tell, the entire Congress agrees the deficit is a long term problem that absolutely must be addressed. The only arguments against ‘fiscal consolidation’ that I’ve see are the ‘bleeding heart’ arguments which don’t cut it when they all believe Greek type insolvency looms.
Also, the ball is in the Republican’s court, as they can’t just be against raising the debt ceiling.
So it will be up to them to take the lead and offer terms and conditions for their votes, after which enough Democrats will pretty much agree to it all, including cuts in Social Security and Medicare expenses, of one type or another, current and future.
All of which dooms the US economy to suffer from a severe lack of aggregate demand for the foreseeable future.
The one very faint glimmers hope are the Senators from CT- Joe Lieberman and Richard Blumenthal, only because they alone know better.
Both have read my book, the 7 Deadly Innocent Frauds of Economic Policy, and have engaged me in thorough discussion, and both know as a fact of monetary operations that:
1. The federal govt can’t run out of money.
2. Paying off China is nothing more than debiting their Fed securities account and crediting their Fed reserve account, with no grand children writing any checks.
3. The Social Security issue, therefore, can’t be about solvency, only potential inflation.
4. For a given size of the federal govt there is always a level of taxation that corresponds to full employment
5. The trade deficit is an enormous benefit, and we can set taxes at a level where we have enough spending power to support both domestic full employment and the purchase of anything the rest of the world wants to sell us.
However, it is highly unlikely they will even attempt to be heard, because, based on their history, they don’t act with specific regard to public purpose. They are more micro oriented, acting solely for political gain from their immediate constituents. So on this issue they will likely play along with what think is their voter’s understanding of these issues, and make no effort to educate them for the public good.
The words that come to mind when that happens are ‘intellectually dishonest.’
But I do hope I’m wrong and that at least one of them comes through for all of us.
There are also others outside of Congress who could come through and save the day. Current and senior Fed officials in the Department of Monetary Affairs are more than well versed in monetary operations, and know for a fact that operationally, federal spending is in no case revenue dependent. And much of the CBO, including former heads, know as a fact of accounting federal deficit spending equals and is in fact the only source of net savings of financial assets for the rest of us. But it’s highly doubtful any of them will come forth to save the day.
Bottom line- believing we could be the next Greece continues to keep us on the path of becoming the next Japan.From Warren Mosler:
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Note from Sandy Breitner:
Dear Mr. Mitchell,
I’ve been reading in your blog and in your friend’s writings–Mr. Mosler.
Everything makes perfect sense, but I just have one doubt, which I hope you can clear-up for me.
It seems the only disagreement between you and Mr. Mosler concerns taxes. You both agree that Fed. taxes are unnecessary, and that state taxes would be enough. But, you say that in reality no taxes at all would be best. Is that right?
If so, then what would make people accept the currency? And how would government fund public works? As I understand it, taxes are what make a non-convertible fiat currency “work.”
I tried finding where you might have explained your full position as regards your difference with Mr. Mosler, but I can’t find it. If you’ve already explained this, kindly direct me to where to locate it.
Thanks for your writings, which it is a shame people can’t accept.
Sandy Breitner
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Neither Warren nor I has proof. There is no data. So take this as opinion on both sides.
I do not accept the notion that taxes are solely responsible for money demand. People accept dollars because:
-They are handier than barter.
-Everyone else accepts them.
-The government has made dollars legal tender in payment of all bills.
-There is no other governmentally authorized form of money.
-If you sell a product or service to the government, it will pay you in dollars.
-If you receive Social Security, Medicare, Medicaid or any other federal benefit, you and your service providers will receive payment in dollars.
-If you receive food stamps, your grocer will be paid in dollars
-Your army pay will be in dollars
-Federal stimulus payments, to cure recessions, will be in dollars
-In 2010, the federal government spend $3.7 trillion, all in dollars. The state governments spent trillions more, also in dollars.
Then there are non-tax payments to the government:
*Fines and Fees (for instance, in court)
*Fees (for instance, garbage pickup)
*Licenses (hunting, fishing, driving)
*Services (real estate registration)
*Tolls
(*Admittedly, these could be eliminated by a Monetarily Sovereign government and could be considered taxes)
Millions of people in America did not pay taxes last year, but they accept dollars.
Under all of the above circumstances, I do not see how it would be possible for Americans not to accept dollars.
I should mention there is an entire school of thought — the neo-chartalists — that says Warren is right and I am wrong. I did manage to convince them that federal taxes are unnecessary, which was a big change for them, but they hold on to state and local taxes.
Maybe you should ask Warren for his opinion, too.
By the way, taxes are not going to disappear, so in practical essence the question is moot. Warren and I disagree on something far more important: the prevention and cure for inflation. But that’s another story.
Rodger Malcolm Mitchell
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Thank you very much. You’ve really clarified this for me. At root, it seems like the chicken and egg question. You start a country and then ask what is the first step. How would the government get money to buy labor and goods for public works? Taxes is certainly an obvious one, for which you probably need guns, to make sure of compliance. No one is going to give up their home gladly.
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Sandy, not really chicken and egg. The first step must be for the federal government to distribute money. Otherwise, there would be no money to pay taxes.
And since the first step is to distribute money, without levying taxes, it also can be the 2nd step and every step, thereafter. The federal government has no need for tax money, since it has the unlimited ability to issue money.
Taxes, in fact, destroy money. They are not used by the federal government. Your federal tax money is not stored in some bank. It is destroyed upon receipt.
State and local taxes, however, are stored in banks. Completely different scenario.
Rodger Malcolm Mitchell
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Well that is a good point! But are the state taxes necessary? I guess they are for states, since that is the only way they can get revenue?
So the next question–theoretical, of course–is, are states necessary? Why not have the Federal government just issue money to the state governments, or better, just to local governments, close to the people? That would get rid of all taxes. The question would then be to determine the basis for determining how much money a given political entity would receive. Based on some measure of its production of goods and services? Per capita of working people?
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Sandy, good point.
I have recommended that each state immediately receive $1,000 per resident. I also have recommended that state taxes slowly be eliminated, with the federal support increasing beyond that $1,000.
Rodger Malcolm Mitchell
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Thanks very much, Rodger. This has been very enlightening!
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