Imagine you are President of the United States. What would you do about the economy? To help clarify your thoughts, here are excerpts from two articles that appeared in the 4/28/11 Washington post:

Economic growth slows to 1.8% in early 2011 By Neil Irwin

The economy’s growth slowed at the start of the year, according to new data that show the recovery is so weak that it doesn’t take much to knock it off its stride.

The 1.8 percent pace of increase in gross domestic product in the first quarter, according to a Commerce Department report Thursday, is down from a 3.1 percent gain in the final months of 2010. It is also lower than the level of growth that, over time, would be expected to drive down joblessness. The U.S. economy needs to grow about 2.5 percent annually to keep unemployment steady given continual growth in the labor force and in worker efficiency; even stronger GDP growth is needed to bring unemployment down . . . . at a time when the government is straining for ways to jump-start the economy and when forecasts had called for a strong start to the year, the slowdown came as a disappointment.

So clearly, the economy has not yet recovered from the recession, and may be sinking back into the pit. Millions of Americans have lost their jobs, lost their homes, lost their health care, lost their ability to attend college (or even high school) and lost their futures and their children’s futures. They see threats to Social Security, our infrastructure, our medical and scientific research, our schools and our safety.

Now read this:

More Democrats defiant on debt ceiling By Peter Wallsten

A growing number of Democrats are threatening to defy the White House over the national debt, joining Republican calls for deficit cuts as a requirement for consenting to lift the country’s borrowing limit. Defying the White House, the senators are joining Republicans in calling for deficit reductions as a condition for lifting $14.3 trillion ceiling.
[ . . . ]
And although many lawmakers and aides say a bipartisan deal is likely, the insistence on conditions by a small but pivotal group of Democrats suggests that any agreement would almost certainly have to include substantial cuts in the deficit. . .

The Tea (formerly Republican) Party, and now even the Democrats all want deficit spending to be reduced and the economy stimulated. So, Mr. President, what should you do?

(Can the madness of Congress and the debt-hawks be made any clearer than this?)

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

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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”

Perhaps the biggest problem with Monetary Sovereignty is it’s so counterintuitive. It does not match our everyday experience. You and I don’t create unlimited money out of nothing. Even the states, counties and cities and many nations can’t do it. But the federal government routinely creates dollars and T-securities seemingly from thin air. It just feels wrong.

And because it feels wrong, the notion that deficits can climb and climb, and still remain “sustainable,” (whatever that means) feels wrong. The fact that federal taxes and federal borrowing do not pay for federal spending feels so wrong as to be laughable. And why won’t our children and grandchildren have to pay for the debt? It just feels wrong.

And surely, if we keep printing money, we’ll be another Weimar Germany, won’t we? And, if I spend more than I earn, won’t I eventually go bankrupt, and if so, why won’t America? And why does everyone – I mean everyone– say the federal deficit should be reduced, if it isn’t true? And really, if every politician, newspaper editor, columnist, economist and teacher says the federal deficit must be reduced, why should people believe me?

All 300+ posts on this blog attempt to defeat each of those doubts with facts. But intuition is a powerful opponent. And I long have felt the need for an ultra short piece anyone can understand, not only intellectually but intuitively. And this is what I’ve come up with. Tell me what you think.

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In 1971, the U.S. went off the gold standard, and became “Monetarily Sovereign,” which created two basic questions:

1. How much can a Monetarily Sovereign government deficit spend?
2. How much should a Monetarily Sovereign government deficit spend?

The answer to #1 is: An infinite amount. That is what “Monetarily Sovereign” means. The federal government’s “printing presses” are limitless. They can create endless dollars to pay endless bills and to service endless borrowing. Unlike state and local governments, the federal government never can run short of money. That’s why federal taxes and borrowing, which are relics of the gold standard, don’t pay for federal spending.

The answer to #2 is: Enough to grow the economy but not enough to cause excessive inflation. (A little inflation is considered desirable.) Deficit spending is the government’s process for adding dollars to the economy. Money is the lifeblood of an economy; a growing economy requires a growing supply of money. Federal deficit spending is a compromise. Too little and we have recession or depression. Too much and we have excessive inflation.

Today, lack of growth, not excessive inflation, is our major problem, so we should increase deficits to stimulate growth. If excessive inflation were to emerge, we will have two methods to control it:

1. We can reduce federal deficits and/or
2. We can raise interest rates to increase the value of the dollar.

Both would reduce inflation, though historically, reduced deficit spending has caused recessions, while increased interest rates have not. Which is the better choice?

This is a foolish time to focus on preventing excessive inflation, when our urgent need is to grow the economy.
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What do you think? Can it be simpler?

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

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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”

“1. There is no reason to reduce the deficit. In fact, reduced deficit growth has led to every depression and nearly all recessions. A growing economy requires a growing supply of money. The current myth that the deficit must be reduced is based on the false belief that federal budgeting is like personal budgeting, where debt is a burden.

2. In a Monetarily Sovereign government, there is zero relationship between taxes and spending. If taxes were reduced to $0, or raised to $100 trillion, neither would affect the federal government’s ability to spend. Federal taxes do not fund federal spending.”

In a subsequent comment, I asked, “Why do we need to reduce the federal deficit (or debt)? Any fact-based answers?” and a person called “KJ Foehr” responded:

I agree partially with your premise. The math does appear to indicate current deficits and debt are unsustainable, especially if (when) interest rates rise again. Deficits ARE good (stimulative) now, but I but do believe current levels are bad later (unsustainable long-term).
The problem is many ideologues and their drones do not see the good in it, and therefore, demand that it be reduced NOW. Some apparently actually believe significant cuts in government spending now will help reduce employment and improve the economy! What we have is a crisis of ignorance, not a crisis of government spending.

I responded to several subsequent comments with: “All of the solutions offered on this post involve either cutting benefits or raising taxes, either of which will hurt people and hurt the economy. Strangely, no one wishes to entertain the opposing view, as though hurting people and the economy were a good thing! My complaint about debt hawks is they reject the opposing view, without offering evidence to support their own view.”

The person called KJ Foehr then did an about-face and said,

“I disagree completely with this idea that neither borrowing nor taxes are necessary. If that were the case, then why doesn’t the government just eliminate taxes completely? Or is the sole purpose of taxes to reduce aggregate demand? How ridiculous. Please don’t respond; I don’t have time for wingnut theories and won’t be reading any more of your posts.”

So his “evidence” consists of “why doesn’t the government . . . ” as though the government always does things right. He finishes essentially by saying he doesn’t want to read anything that answers his questions or disagrees with his opinions.

Then someone called “Christopher” said,

“There is no reason to reduce the deficit. Blahbittyblahblahblahblah….. LOLOL.

In essence he seemed to be saying, “My eyes and ears are closed to anything other than what I already believe.” And finally, Barry said, “Dude, you really need to get your own blog.” rather than answering the simple question I posed, “Why do we need to reduce the deficit or debt?”

I wrote, “Barry is an intelligent man, who claims to understand MMT, but who never addresses the fundamentals of MMT. I gave reasons why the deficit and debt should not be reduced, but if you would like to see a more complete analysis, go to SUMMARY. For those who wish to learn, 10 minutes of reading can be worthwhile. Barry, you may wish to look at that page.”

Then, someone called “freemarketeer” asked,

Barry, curious as to what your take on Modern Monetary Theory is. I’ve been reading up on it recently, and it appears to describe our monetary system better than any other theory. It’s certainly bizarre from a traditional econ standpoint, but I’ve always thought traditional econ theories were stupid, full of half-baked behavioral assumptions.

Whatever your opinion of MMT, why would we raise taxes now? The economy isn’t exactly rip-roaring (despite record corporate earnings). I’m still skeptical we’ll keep it going as inflation continues working through the value chain.

Seems like a reasonable request, which I knew Barry would not honor, and I said so, as follows: “As for getting Barry’s opinion on MMT, good luck. He has three standard responses to MMT facts:
“You sovereign guys are dreadful bores”
“For the record, I completely understand your analysis — its just that I think its shite.” (his word)
And his absolute favorite, which he repeats endlessly, “Rodger: To the man whose only tool is a hammer, everything soon begins to look like a nail . . .

Once, when I asked why he felt the deficit and debt were too high, his response was “Telling the public that the federal debt and deficit are too high ? You got the wrong guy, bub.” Huh?? Isn’t that exactly what he is saying?

Anyway at one time, and with Barry’s agreement, I sent him an Email outlining 10 points from Monetary Sovereignty, as a discussion starter. Barry never responded. If you want to see it, I’ll Email it to you. Getting Barry to discuss facts is like getting Rand Paul to discuss . . . well, facts.”

And here is the most amazing response I ever have received from a nationally known columnist:

Barry Ritholtz Says: April 25th, 2011 at 10:21 am

freemarketeer: I have no opinion.

ROGER: Why do you think it is my responsibility to address subjects of your choosing? I get 1000 emails a day asking about this or that, and you make it a big deal that I dont stop doing what I am doing to answer YOR QUESTIONS IMMEDIATELY. If I dont respond to your email, its likely because its a subject that I am not interested in.

Here’s a newsflash: I write about what interest me — and to be blunt, I dont give a flying fuck about what interests you. That is why you have a blog — to write about your passions. I have a blog to write about mine.

I dont want anyone’s homework assignments. I get so many of these inane — WHY DONT YOU DO A POST ON THIS? or the ever popular WHAT DO YO THINK OF THAT? that I even put the NO HOMEWORK ASSIGNMENTS into my Terms of Use

Barry was screaming at me, while he redacted my earlier response. It probably was too embarrassing for him. I responded with a note that undoubtedly will not be published: “Gee, Barry, I offered to send you the bullet points and you agreed. If I had known you weren’t interested, I would have saved myself the work. The things of interest to MMT are exactly the things you write about. The fact that MMT (or Monetary Sovereignty) disagrees with some of your points is exactly why you should print them and respond to them with facts, not swearing.

That’s what makes a discussion worthwhile, not just having a bunch of people all repeating the same mantra: “Debt should be reduced; deficit should be reduced.” There are some good, solid reasons the deficit and debt should be increased. Why not discuss them?”

Oops, I just checked his blog and yep, he cut out this last comment. He seems loath to publish anything that disagrees with his views. But I have a prediction: When the world begins to accept Monetary Sovereignty or Modern Monetary Theory, Barry will say he knew it all the time.

By the way, Barry mentioned his “Terms of Use.” Here they are, which he repeats in every post:

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

Think about it: “ignorance, unfamiliarity with empirical data, lack of respect and most of all, civility.” This is what unrestrained ego can do to a man.

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

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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”

David A. Stockman, a former Republican representative from Michigan, was President Reagan’s director of the Office of Management and Budget from 1981 to 1985. He wrote an OpEd column for the New York Times that is so wrong as to be a parody.

Here are a few excerpts:

It is obvious that the nation’s desperate fiscal condition requires higher taxes on the middle class, not just the richest 2 percent.

I guess he thinks our “desperate fiscal condition” is the federal deficit, or is it federal debt. He doesn’t say which. (They are completely different, not even functionally related.) Somehow, I thought our real problems are unemployment and slow per capita GDP growth, both of which would be exacerbated by Stockman’s call for higher taxes on the middle and upper classes.

Likewise, entitlement reform requires means-testing the giant Social Security and Medicare programs, not merely squeezing the far smaller safety net in areas like Medicaid and food stamps.

“Means testing” is a euphemism for another unnecessary federal tax. The federal government could and should support Social Security and Medicare. And did you notice the “. . . not merely squeezing . . . Medicaid and food stamps.”? Not merely? So it’s O.K. to squeeze the poor, so long as the middle class is squeezed, too?

A quasi-bankrupt nation saddled with rampant casino capitalism on Wall Street and a disemboweled, offshored economy on Main Street requires practical and equitable ways to pay its bills.

“Quasi-bankrupt”? “Rampant casino capitalism”? “Disemboweled, offshored economy”? You always can tell a guy is full of crap when he uses that kind of wild language. What is “quasi-bankrupt”? No one knows. The federal government isn’t, and never can be, bankrupt. So does that make it “quasi”? Or is he talking about the public, many of whom are really, not quasi, bankrupt, in part because the David Stockman’s of the world do not understand Monetary Sovereignty, thus making the federal government deficit reluctant.

And “casino capitalism”? It’s a cute phrase, but specifically, what does that mean? Too much lending? And here I thought one of our problems was too little lending.

Ingratiating himself with the neo-cons, Mr. Ryan has put the $700 billion defense and security budget off limits; and caving to pusillanimous Republican politicians, he also exempts $17 trillion of Social Security and Medicare spending over the next decade. What is left, then, is $7 trillion in baseline spending for Medicaid and the social safety net — to which Mr. Ryan applies a meat cleaver, reducing outlays by $1.5 trillion, or 20 percent.

Trapped between the religion of low taxes and the reality of huge deficits, the Ryan plan appears to be an attack on the poor in order to coddle the rich. To the Democrats’ invitation to class war, the Republicans have seemingly sent an R.S.V.P.

Absolutely true. That’s what deficit reduction nonsense does. See, it’s like this. Deficits are absolutely necessary for economic growth. So when you try to reduce deficits you always wind up doing something really stupid.

. . . Such fiscal jabberwocky ignores the fact that we have experienced a recession every five years or so for the last six decades . .

Right. And all but one of them has been introduced by reductions in federal deficit growth – the reductions Mr. Stockman recommends.

. . . for decades now, the central banks of the world have been giving policymakers a false signal that sovereign debt is cheap and limitless. Functioning like monetary roach motels, central banks have become a place where Treasury bonds go in but never come out — thereby causing bond prices to be far higher and interest yields much lower than would obtain in a market that wasn’t rigged.

Monetarily Sovereign debt is very cheap (it costs nothing) and it is limitless. Nobody knows what “Treasury bonds go in but never come out” means, but he loves his “roach motel” analogy. Interest yields are exactly what the Fed makes them to be.

Indeed, the Fed and currency-pegging central banks in East Asia and the Persian Gulf have absorbed nearly all of Uncle Sam’s multitrillion-dollar spree of debt issuance. Moreover, about $4.6 trillion, or more than half of all debt held by the public, is now sequestered in central banks — paid for with printing-press money.

The government could stop issuing debt tomorrow, and this would have zero affect on the government’s ability to spend. He, of all people, should know that. Further, “printing press money” is money. What other kind of money is there, David?

Even central banks cannot defy the canons of sound finance indefinitely, however. Japan will buy less Treasury paper as it turns inward to recover from the wrath of nature. Likewise, China will drastically curtail its currency pegging and related Treasury bond purchases in order to suppress the rip-roaring imported inflation and speculative bubbles now engulfing its domestic economy. And unless the Fed wants to ruin the value of the dollar, it will need to keep its promise to get out of the bond-buying business, too, when its second round of quantitative easing ends in June.

We don’t need to sell Treasuries to Japan, China or anyone else. The Fed can protect the value of the dollar simply by raising interest rates.

Ominously, the biggest and baddest of these real investors, the quarter-trillion-dollar Pimco Total Return Fund, has already thrown down the gauntlet by selling Uncle Sam’s paper short.

All that means is Pimco expects interest rates to rise, which will reduce the price of existing Treasuries. Ho hum, This is ominous?? Since rates essentially are zero now, there is nowhere to go but up.

In the real world, however, the global bond market is already rumbling — and around the corner, a fiscal conflagration surely lies.

“Fiscal conflagration.” Believe it or not, this blog post cut out most of his extravagant language. It went on and on, with each colorful phase adding to the assurance he is clueless. Anyway, he ends with the typical debt-hawk non-prediction, prediction: “Around the corner.” You may add this to “soon,” “one day,” “someday,” “eventually” “ticking time bomb,” “unsustainable,” “over time,” “children and grandchildren” and all the other indefinite prophesies.

Perhaps most amazing, is that so many famous pundits all write the same, apocalyptic drivel, over and over again, and the media keep printing it. How many times can the preachers predict the same end of the world, before the congregations figure out these guys are charlatans?

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

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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”