The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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The Tea (formerly Republican) Party wants lower taxes (good) and less federal spending (bad). The Tea Party hero of the day, Rand Paul is an ardent follower of Ayn Rand. Yes, that Ayn Rand, the one who believes the rich are gods who deserve more, while the poor are leeches who deserve less.
He has couched his beliefs in Tea appeals to tax cuts, patriotism and freedom from government interference, as in freedom from health care, freedom from military protection, freedom from good roads and safe bridges, freedom from healthful medicines and food, freedom to discriminate against gays, freedom from safe banks, freedom from a good education, freedom from clean air, freedom from energy saving, freedom from police protection, freedom from Social Security, freedom from safe air travel, and the many other freedoms we so ardently desire.
But the Tea night is ending, and the dawn of realization has begun.
Washington Post: by Jon Cohen and Dan Balz, Wednesday, April 20, 2011. “Despite growing concerns about the country’s long-term fiscal problems and an intensifying debate in Washington about how to deal with them, Americans strongly oppose some of the major remedies under consideration, according to a new Washington Post-ABC News poll.
“The survey finds that Americans prefer to keep Medicare just the way it is. Most also oppose cuts in Medicaid and the defense budget. More than half say they are against small, across-the-board tax increases combined with modest reductions in Medicare and Social Security benefits. Only President Obama’s call to raise tax rates on the wealthiest Americans enjoys solid support.”
Now, as we Americans awaken to the fact that the Tea/Republican plan to reduce federal spending amounts to the reduction of all the things we want, as well as benefitting those hated rich people, somehow President Reagan’s “government is the problem” mantra doesn’t seem so attractive.
Of course, increasing taxes on anyone, rich or poor, is a typically bad, Democratic idea. All taxes remove money from the economy, and removing money from the economy causes recessions and depressions. Further, this removal of money always hurts the poor more than it hurts the rich. See: Taxing the rich hurts the poor.
That said, I favor Obama’s plan to the Tea/Republican “plan.” Before you faint, let me explain. Both plans are equally ignorant in that they begin with the false assumption federal deficit spending must be reduced. In the Economics Common Sense and Knowledge race, both parties come in last.
However, they have convinced the innocent public of this falsehood, which forces on us a lesser-of-two-evils choice, and Obama’s plan is less evil. Why? Because raising tax rates on the rich not only will satisfy the jealous public, and not only will preserve the various benefits of federal spending, but in reality, will not collect much more in taxes.
We already have learned that higher taxes beget better tax “loopholes.” Remember, rich people know how to bribe politicians better than do poor people. So as those rates rise, the deductions will rise, too. A (for instance) 10% increase in tax rates on those making more than $250K per year, will not net a 10% increase in taxes collected from the rich – maybe not even 5%. Depending on the effectiveness of the bribery, a tax rate increase actually could net less money, because better deductions could be worth more than the marginal rate.
Bottom line, the Obama plan will make everyone happier. The poor will benefit; the rich won’t care and the economy will be less injured by losing money.
As an aside, if I were running for office, my opponent would tell the voters I voted in favor of tax increases, and this is why the politicians find themselves surrendering to their party, rather than thinking.
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.”
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
No, the Republicans are not ignorant. They’re doing this to make sure there will be no recovery under Obama. If you’d like to see the real republican plan, get rid of Obama next year.
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Anyone intentionally hurting America just to get elected is more than ignorant; he is a traitor.
Rodger Malcolm Mitchell
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They are all traitors. Senator Obama even voted against raising the debt ceiling, remember? Rhetoric aside, it was the republican Presidents who actually didn’t give a damn about deficits.
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And what’s the reward for being a traitor? First becoming the President of the country he betrayed, then getting his “plan” endorsed by none other than you! Quite a deal, isn’t it?
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Perfect. Read the last paragraph of the post.
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I was not accusing you of doing anything. My point is no matter what you do you end up supporting crooks. So why not support the party that has proven its Presidents has some understanding of Monetary Sovereignty?
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I know of no Presidents who understood Monetary Sovereignty. Surely, you don’t mean Reagan, whose understanding of economics was nil.
Reagan is dead, and his “government is the problem” mantra lives on in infamy, under the name “Tea Party.”
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Reagan’s understanding of economics was irrelevant. Heck, you can’t even find any Nobel Prize winning economist who understands economics. The fact is Reagan was not afraid of running up the deficits and Bush’s tax cuts fixed the Clinton surplus.
You confuse what they say with what they do. Attacking the government hasn’t prevented “their cut-taxes-increase-spending program” from curing “the Carter inflation and began one of the more impressive economic growth periods in our history”.
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From John Lutz,
Rodger- delighted to have just found you (via Mike Norman or Mosler or Billy Mitchell or Randall Wray ??) – your last few blogs are completely in sync with my views; you give enough good reasons that I might even vote (again) 4 Obama
however, if he and the Dems enact any real deficit reduction, I think we are in for a long recession/depression
what are the financial defensive measures that retirees living on modest defined benefit retirements (SSI’s + pensions = $60k) should contemplate?
we have a diversified IRA from which RMDs provide $25k annually in interest & dividends
no debts on house, cars, medical, etc.
1 1/2 years’ income in cash
I am 73, wife is 65, good health
I know you are not legally prepared to give financial advice, but you have permission to use my data as generic example, should you care to speculate for readers in our position.
Thanks – your blogs are dynamite: maybe the world will catch on and come to it’s senses!
jcl
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John, this question is way out of my expertise, but of course, that never prevented anyone from expressing an opinion.
Based on what you said about RMD, you have about $120K in your IRA, and receive about $85K, mostly taxable income. I wasn’t clear on the interest and dividends. You’ll live about 12 more years and your wife will live about 20 more years (http://www.ssa.gov/oact/STATS/table4c6.html)
I don’t know what “no debts on medical” means, as everyone has to pay for medical, somehow.
I also don’t know your lifestyle and expenses, but if you are able to live on $85K a year, you should be O.K. barring surprises. If you need $100K+ per year, maybe a problem.
You didn’t mention life insurance. Assuming you are actuarial-perfect, your wife will live an additional 8 years after you die, and your total Social Security will go down, so she may need extra help.
O.K., enough boilerplate. Your real question is, what’s going to happen, and my real answer is, I don’t know. The future of the American economy is in the hands of Congress and the President. Tell me what they will do, and I’ll tell you what the economy will do.
Currently, they are threatening to reduce deficit spending. IF (big “IF”) they do as they promise, we will have a recession, possibly even a depression. In that case, CD’s laddered to mature regularly for the next 5 years would be the safest, though lowest return, bet.
Also, if oil prices continue to rise, we’ll have inflation, which makes bonds a poor, though currently high return, bet (because the Fed will raise interest rates, dropping bond prices.)
If nothing much changes, you may want to be a bit more aggressive, and put some money into interest and dividend paying investments. For instance:
JNK (junk bond ETF) pays about 8%, and is short term enough to be reasonably safe.
PFF (preferred stock index) pays about 7%, mostly bank stocks.
CIM (Chimera Investment Co., residential mortgage-backed securities) pays 18%, big returns mean big risk
I own all of the above.
So there are some free comments, worth exactly what you paid. If Congress and the President weren’t acting like fools, I would suggest going heavily into an ETF like SPY, which is the S&P 500 index. It pays a low income, but the value normally would be expected to rise significantly, as we are on the back end of a recession.
Rodger Malcolm Mitchell
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It is one thing if Congress and the President weren’t acting like fools; it appears the inmates have taken over the asylum (Tea Party)
Deficit reduction is a political hot potato, right now; each party will try to outdo the other. Although I agree with your general premise of this post, Obama, with his compulsion to appear nonpartisan, will give ground (compromise) during this election cycle, ceding additional cuts to the budget as demanded by his opponents. However, any deficit reduction enacted, now, will probably not take effect until after the 2012 elections.
Why not just sit in cash, until we see which way the wind blows?
It is far more dangerous to one’s portfolio to make up losses than to miss potential gains. I rather be partially right than catastrophically wrong.
It is true that there are always enough risks to not be invested, and one can always justify reasons to be in cash. The number of uncertainties, at this point in time, on top of a market trading at high valuations skews risks to the upside, IMO.
There are always opportunities for investment gain – tomorrow, next week, or next year. I’ll be watching from the sidelines. Thank you very much.
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If the US were still on the gold standard then how would its economy be now?
Then what would then happen to the US economy if someone discovered how to manufacture gold incredibly cheaply?
When Aluminum was first discovered it was more valuable than gold. Aluminum in fact makes up 8% of the earths crust.
I think everyone would do well to study very carefully the fairy tale The Emperor’s New Clothes, because most people don’t realise that value of everything in purely subjective, and we should all agree that people are more valuable than currency.
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Graham, the short answer is we would truly be broke. But there is a longer answer I will (hope to) publish some time this week, before I leave on vacation.
Rodger Malcolm Mitchell
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