–What federal budget cuts will mean to you, your kids and your grandchildren

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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As a readers of this blog you probably have learned about Monetary Sovereignty. You know that the federal government has the unlimited ability to create dollars, limited only by inflation. You also know that neither taxes nor taxpayers nor borrowing pay for federal spending. In fact if taxes and borrowing were eliminated, this would not reduce by even one dollar, the federal government’s ability to spend. So long as inflation can be controlled, federal spending is stimulative to the economy. This all is absolute fact, not opinion or hypothesis.

On point, here is an article by Lori Montgomery and Shailagh Murray, Washington Post Staff Writers, Wednesday, February 9, 2011. I’ll quote from it, then translate.

Republican leaders unveiled a list of proposed cuts in government spending Wednesday that would strike hardest at priorities of the Obama administration, such as high-speed rail, scientific innovation and a wide array of clean energy programs.

Translation: Despite the fact that these initiatives would take not one dime from you taxpayers’ pockets, we have decided your children and grandchildren do not need high-speed rail, scientific innovation and clean energy.

“Never before has Congress undertaken a task of this magnitude,” House Appropriations Committee Chairman Harold Rogers (R-Ky.) told Republican lawmakers at a caucus meeting Wednesday morning. “You will be voting on the largest set of spending cuts in the history of our nation.”

Translation: Although federal spending is proven stimulative, we in Congress wish to starve the economy of money, so we have decided to do so, big time.

House conservatives were unappeased, however, and vowed to offer a plan to cut spending by at least $10 billion when the measure come before the full House for consideration next week. It was not clear whether the conservative Republican Study Committee would propose a lists of cuts to specific programs, as the Appropriations Committee has done, or whether it would simply instruct the White House to cut spending across the board, allowing it to avoid the sometimes painful specifics.

Translation: We heroically will pander to the far right by starving the economy of money, but we don’t want to take the blame for the horrendous results. So we will force the White House to do it. Then we can point fingers. Clever, huh?

House GOP leaders endorsed the Appropriations cuts but were vague about the details. House Speaker John A. Boehner (R-Ohio) said the package of reductions would fulfill “our pledge to the American people that we will cut spending. All of this will help create an environment where we’ll have more jobs in America.”

Translation: See, it’s this way: Removing money from the economy somehow encourages businesses to hire more. We’re not sure how that works, but so long as no one is asking, we’re not telling.

House Majority Leader Eric Cantor (R-Va.) told reporters Wednesday morning that excessive federal funding has “been a big inhibitor to investment and job growth.”

Translation: Like Boehner and the Tea Party said, adding money to the economy inhibits investment and taking money from the economy is stimulative. We know that doesn’t make sense, but is that important?

The list of cuts . . . (would include) Obama’s high-speed rail initiative and the AmeriCorps volunteer program, one of President Clinton’s signature creations.

Translation: Our kids don’t need high-speed rail. Walking is healthful. And sure, AmeriCorps members address critical needs in communities all across America, for instance: *Tutor and mentor disadvantaged youth, *Fight illiteracy, *Improve health services, *Build affordable housing, *Teach computer skills, *Clean parks and streams, *Manage or operate after-school programs, *Help communities respond to disasters, *Build organizational capacity

But the Tea Party tells me none of those things are important, and who am I to argue about details? I just say what they tell me.

The list takes direct aim at Obama’s innovation agenda, slashing the budget of the Office of Science by 20 percent. Elite science labs in Tennessee, California and Illinois are bracing for furloughs and possibly layoffs.

Other Republican targets include arts and cultural funding through the Corp. for Public Broadcasting, the Smithsonian Institution, the National Archives and Records Administration, the National Endowment for the Arts and the National Endowment for the Humanities. All of the entities are routinely included on GOP lists; federal subsidies for the CPB would be effectively eliminated under the House proposal, fulfilling a long-standing conservative pledge to cut federal ties with NPR and public television.

Funds for minority business development, family planning and conservation programs would also be axed. Despite the persistently high unemployment rate, job training funds would be reduced by $2 billion. Community health centers, which serve a large number of low-income uninsured people, would lose $1 billion in funding. And more than $200 million would be trimmed from maternal and child health grants, which provide funding for immunizations as well as assistance for blind and disabled children.

Translation: Oh, quit your whining. Just a bunch of bleeding heart stuff. Name one thing on the list that benefits our children, our grandchildren or America. Who cares about them, anyway. The important thing is to:
a. Beat Obama. b. Pander to the Tea Party. c. Remain ignorant about economics. So please, don’t bother us with facts. We have our priorities.

I hope this translation clarifies things.

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

No nation can tax itself into prosperity, nor grow without money growth.

6 thoughts on “–What federal budget cuts will mean to you, your kids and your grandchildren

  1. Rodger,
    I have been following your website for sometime now and what you write has begun to make sense to me, albeit slowly. I agree with your concept about Monetary Sovereignty, but today the economies of the world are interconnected, more than ever before. Today America imports most of its goods and with the Dollar being the reserve currency, we have the luxury to pay for these imports using our currency that we create at will. Other Monetary Sovereign countries need to purchase Dollars with their currency in order to pay for their imports. Hence they need to keep the value of their currency in check. Don’t you agree?
    What would happen if Dollar is no longer the reserve currency? What if the importer no longer accepts Dollars and we need to convert them to another commonly accepted currency? How will we pay for these Imports then? That’s when the other countries (or world markets) will determine the value of the Dollar. If we print too many (even if we increase the interest rates to control the value) the world market can devalue our currency and demand more of it for the imports, causing us to pay more for everything we buy.
    Monetary Sovereignty works well for a self sustained economy that doesn’t need to import most of its essential goods. America is not in that stage anymore.
    What are your thoughts on this, especially about the scenario where Dollar is no longer the world’s reserve currency. Hope you would make a separate post on this topic rather than just reply to this comment.
    Thanks

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  2. BankRaped,

    The only constraint on federal dollar creation is inflation, which the Fed controls with interest rate control.

    Being the world’s so-called “reserve” currency just means we’re the biggest, with the most money out there, and more people accept it than any other currency.

    People who export to us are required to accept dollars, if they want our business. Similarly, people who export to China, Japan, Australia and Canada must accept their sovereign currencies, though they are not the world’s reserve currency.

    Anyone who insists on receiving dollars can be paid merely by trading the nation’s sovereign currency for dollars. Currencies are freely traded, so there is no reason not to accept any Monetarily Sovereign nation’s currency, barring the aforementioned inflation.

    I traveled in Cuba recently. They don’t accept U.S. dollars, though they do accept Canadian dollars. No problem. I had the choice of exchanging my U.S. dollars for Canadian dollars or for Cuban money. I opted for Cuban money. Simple.

    When I travel in any country and use a credit card, my card company makes the exchange for me. Currency refusal is not a real problem except for a few inflation-riddled, 3rd-world countries.

    You said, “. . . even if we increase the interest rates to control the value the world market can devalue our currency and demand more of it for the imports.” If the reward for owning dollars (interest) increases, the demand increases, both domestically and internationally.

    And if for some reason, a nation were to refuse our money, we would buy from someone else. Then the seller would cut his price, to gain back our business.

    By the way, since we went off the gold standard, there has been no relationship between federal deficits and inflation. See: https://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation/

    Rodger Malcolm Mitchell

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  3. Rodger,
    Thanks for the reply. Hope we can continue this conversation here. You said If the reward for owning dollars (interest) increases, the demand increases . Also in the past you said the way to control inflation is to increase interest rates. These are logical. But, in the article “Eliminate Federal Debt” you say
    Just as the government now creates T-securities out of thin air, it as easily and prudently could create money directly – also out of thin air and also backed only by full faith and credit.”
    If that’s the solution then how and where does interest rates come into play? If US govt directly issues dollars without “borrowing it first” then who pays whom the interest on these Dollars created? So how does increasing or decreasing the rate of interest affect the rate at which the US govt creates Dollars? i.e. even if the interest rates are set high, it doesn’t necessarily stop the US govt from issuing/creating more Dollars. Today the is a value for the Dollar based one (1) the full faith and credit of US, and (2) the interest rate on the T-securities. So today one can buy these T-securities (Dollars) and expect its value to be protected by (1) the full faith and credit of US and also protect against inflation (to a certain extent) by the interest payments on these securities. If we go by your solution, then there is no protection for the hold of the Dollar against inflation, hence the Dollar could lose value in the future.
    Hope I am making sense here 🙂
    thank you for your time.

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  4. Bankraped,

    Interest rates for dollars are not set via T-securities, where interest is determined in the open market. Interest rates are set via the Fed Funds rate, which the banks pay at the discount “window.”

    While the Fed Funds rated influences T-security interest rates, other factors combine to determine these open market rates.

    Rodger Malcolm Mitchell

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