–A letter you may wish to write to your political representatives and local media:

Dear _______________;

Can you explain why the federal deficit and debt should be reduced?

1. Is it because the federal government may have difficulty servicing its debt? No, as a Monetarily Sovereign nation (since 1971) the federal government now has the unlimited ability to pay debts of any size. Even were the federal debt to be $100 trillion, the federal government could pay off the debt in one day, by pressing a computer key, and without causing inflation. (Paying off federal debt merely is the exchange of one form of money [dollars] for another form of money [T-securities]. It does not increase the money supply.)

2. Is it because large deficits will require high taxes, later? No, there is zero relationship between federal spending and federal taxes. Were all federal taxes to fall to zero, this would not affect the federal government’s ability to spend by even one dollar.

3. Is it because our children and grandchildren will be in debt? No, our children and grandchildren are not the debtors and do not pay for previous federal spending. We are the children and grandchildren of the WWII generation, and we never have, nor ever will, pay for WWII debts. Today’s children and grandchildren are not paying for the Reagan-era debts.

4. Is it because paying the federal deficits and debt will cause inflation? No, contrary to popular wisdom, there is no historic relationship between federal deficits/debt and inflation, which actually has been caused by oil prices.

5. Is it because large federal deficits and debt will force interest rates up? No, interest rates are not set by the marketplace, but rather are set arbitrarily by the Fed, when it sets the Fed Funds rate.

6. Is it because federal deficits and debt hurt GDP growth? No, historically there is a positive relationship between federal deficits/debt and GDP growth.

7. Is it because federal deficits and debt reduce personal savings? No, historically, there is a positive relationship between federal deficits/debt and personal savings. This is because federal deficits supply the money to be saved.

8. Is it because federal deficits/debt replaces private debt? No, because federal deficits add money to the economy, they facilitate private borrowing.

9. Is it because federal spending gives government too much power? No. Federal deficits could and should support states, counties and cities, where the local governments direct the programs and the federal government merely supplies the money. This is similar to the way Medicaid is handled.

10. Is it because the U. S. government is like the euro nations, whose large deficits and debts are driving them toward insolvency? No, those nations are monetarily non-sovereign, so cannot create their currency. The U.S. is Monetarily Sovereign and can create its currency. The rules that apply to monetarily non-sovereign nations do not apply to Monetarily Sovereign nations.

11. Is it because federal deficits/debt increase the wealth gap between the rich and the poor? On the contrary, reductions in federal spending impact the poor more than the rich. Social programs and the military not only are skewed toward the poor, but occupy the largest part of federal spending. The majority of suggested budget cuts would affect the poor more than the rich.

So why is there concern about the federal deficit/debt? Because people confuse personal debt with federal debt, and think the same rules apply.

Still, what is wrong with reducing the federal budget? Here’s what: The federal government supports thousands of valuable projects that improve our lives — from Medicare to Social Security, roads, bridges, dams, food inspection, aid to the poor, housing, the military, financial oversight, product safety, medical research, scientific research, homeland security, education, energy, communication, FDIC, and on and on and on. Losing these benefits would severely impact our lives. The budget cutters claim to protect our children and grandchildren, but in reality, they punish those they claim to protect.

Further, a growing economy requires a growing money supply. Federal deficit spending is the federal government’s method for adding the money to grow the economy. All depressions and most recessions have come as a result of reduced growth in federal deficit spending.

In short, there is zero value or purpose to cutting the federal budget and thousands of reasons not to.

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

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

Here is the latest to join the “Clueless” club

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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People laughed about T.V. commercials that began, “I’m not a doctor, but I play one on television.” The viewer was expected to believe the actor’s medical expertise because he plays a doctor. Well we have a corollary in the media. It’s “I’m not an economist though I pontificate about economics in the newspapers,” and the latest to join that revered group is Steve Chapman who is “a member of the Tribune’s editorial board and blogs at http://www.chicagotribune.com/news/opinion/chapman/

For those of you who are new to my site, Monetary Sovereignty is the foundation of modern economics, just as arithmetic is the foundation of mathematics. So when someone doesn’t understand Monetary Sovereignty, you can be sure he does not know what he’s talking about, when it comes to economics.

Here are a few quotes from Steve Chapman’s 4/7/11 column titled, “Reforming Medicare for the Real world.”

Critics (of Budget Committee Chairman Paul Ryan’s plan to overhaul Medicare) say its not as sweet as the status quo. But the status quo is too good to last. Mark Pauly, a health care economist at the University of Pennsylvania’s Wharton School, says of Ryan’s plan, “It’s not better than what we have now, but what we have now is not something we can have 20 years from now.”

Let me translate that for you. The plan is worse than what we have now. Americans will have less health care insurance, leading to poorer health care.

Why not? Because it will cost too much for the nation to afford. . . Absent substantial changes, Pauly has calculated payroll taxes would have to triple to pay for all the promised benefits

Here’s where Mr. Chapman’s (and Professor Pauly’s) cluelessness rears its ugly head. Monetary Sovereignty shows that federal spending is not constrained by federal taxes. In fact, FICA could be completely eliminated, while benefits were tripled, and this would not affect by even one penny the federal government’s ability to support Medicare. In short, federal taxes do not pay for federal spending.

Yes, state taxes pay for state spending, and county taxes pay for county spending, and city taxes pay for city spending — but states, counties and cities are not Monetarily Sovereign. The federal government is. This is a fact that Mr. Chapman, along with Congress, the President and most (thankfully, not all) economics professors don’t understand.

I have news for people old enough to be thinking about retirement: Your children may love you, but not enough to be taxed into poverty. Ryan’s detractors pretend we can go on enjoying the status quo indefinitely. But it’s only a matter of time before we hit a fiscal wall, hard.

Translation: Things may not be so great now, but they are going to get a whole lot worse for you. Why? Because your leaders and we columnists are too ignorant and/or lazy to take a few minutes to understand at least the basics of Monetary Sovereignty.

And what is that “fiscal wall” Mr. Chapman mentions? No one knows, least of all him. At one time, the debt-hawks claimed if we ever passed a debt/GDP ratio of 60%, we would be insolvent. We passed that, so the figure hastily was changed to 100%. We’re about to pass that, but we’re nothing compared to Japan, which already has passed 200% and is nowhere near any mythical “fiscal wall.”

As the Congressional Budget Office notes, “Most elderly people would pay more for their health care.” That’s not a terribly enticing prospect. But we might as well stop pretending there’s any alternative. . . The reason people will dislike what Ryan offers is not that he’s needlessly cruel. It’s that his plan confronts reality, and reality bites.

So there you have it folks. The debt-hawks promise you a bleak future, and there’s nothing you can do about it, except to watch America spiral down to 3rd world status. The sky is falling, and your life soon will be crap, and your children’s lives will be worse crap, so live with it.

Uh, well there is one thing: You can learn Monetary Sovereignty, in which case you would discover that the future doesn’t need to bite. It can be a great one, and all it takes is a bit of brains.

You might drop Steve Chapman a note at schapman@tribune.com, and ask him why he refuses to learn the basics of economics (i.e., Monetary Sovereignty) but still feels qualified to write about economics.

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

–Second thoughts. Election costs and credit card swipe fees: Good or bad?

I saw two articles in the paper today, and my first reaction was different from my second reaction. See how you feel:

“Record tab in race to top job,” by Fredreka Schouten, USA Today.

“This could easily be a $2 billion presidential election, and that’s just for the nominees,” said Sheila Krumholz, executive director of the non-partisan Center for Responsive Politics.”
[ . . . ]
Liberal groups say they’ll capitalize on the Supreme Court’s decision in Citizens United v. Federal Election Commission to raise large amounts to aid Obama. The ruling, denounced by Obama during his 2010 State of the Union Address, allows groups that operate independently form candidates’ campaigns to spend unlimited amounts of corporate and union cash in ads.

My first thought was, “It’s outrageous to allow all that money to be spent. People will buy the election. The individual voter/contributor doesn’t stand a chance. There should be some limit on the money that goes into these campaigns.”

However, my second thought is, this is a perfect way to protect the individual voter/contributor. Let’s say the cost of a campaign were “only” $1 million. Then a wealthy candidate could dominate. He/she could put in $500K of his own money, and virtually own the public’s attention. But how many people could dominate a $2 billion campaign?

Even adding another billion wouldn’t make much difference. The law of marginal returns says that a certain point, each additional dollar of advertising makes less and less impact. And there is a point where additional dollars actually can have a negative effect. If GM doubled its advertising budget, it wouldn’t sell double the cars. It may not even sell many more cars at all.

Perhaps, massive budgets actually protect the individual voter/contributor in our free speech society. No individual could dominate. Because political contribution rules are so byzantine, we might achieve more fairness by simply letting everyone contribute as much as they wish. What’s wrong with a $10 billion presidential campaign? Letting everyone spend what they wish sure would eliminate cheating, wouldn’t it?
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Then I saw an editorial about “swipe fees,” the charge each retailer pays the credit card clearing companies. It said:

<Every time you use a debit or credit card, you shell out an invisible sales tax in the range of 1% to 3%. That’s how much retailer have to pay the banks taht issue the plastic.

These anti-competitive charges–known as interchange, or swipe , fees – add up. In 2008 retailers paid $48 billion, which they passed on in the form of higher prices. That’s an average of $427 per household.

[ . . . ] the 2008 financial crisis soured Washington on banks, giving retailers an opening to win a provision in the financial reform law that limits fees on debit cards and allows stores to rebate the saving to their customers. The Federal Reserve has tentatively set the fees at 7 cents to 12 cents per transaction, down from the current average of 44 cents.

My first thought was, “Bravo. Cut those fees. Save consumers money.”

My second thought was: Every time Congress gets into the price-setting business, they cause more trouble than they solve. How is this different from Congress setting the price of milk, bread, cars and TV sets?

Most people receive a benefit from their credit cards. They get convenience. They get the ability to cancel purchases. They get a 30-day delay in payment. They receive points or miles or dollars for each dollar spent. Someone has to pay for those services, and ultimately that someone is the consumer. If the banks can’t charge sufficient swipe fees, they will find some other way to make a profit. Perhaps raise annual fees? Charge for mailing invoices? Charge for customer phone service?

And who says the government knows best, when deciding prices? There are many cards available, and there is strong competition among card issuers. Sure, it makes populist sense to rule against banks, these days, but does it make business sense? Does Congress really do consumers any favors when it determines the price an industry may charge? Is Congress really that skilled at business?

Government price controls always seem to have a dark side, related to higher costs and/or poorer service. I say, hands off, government.

What do you think?

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

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

Newsweek magazine details ignorance in America. Are you one of the ignorant? Guess who is.

The March 28, April 4 (double) issue of Newsweek contains an article by Andrew Romano, titled “How Dumb Are We.” The subtitles are: “Newsweek gave 1,000 Americans the U.S. Citizenship Test. 38 percent failed. The country’s future is imperiled by our ignorance.”

The article shows the results of questions asked, for instance:

5. The House of Representatives has how many voting menbers? 86% answered incorrectly

8. What did Susan B. Anthony do? 59% incorrect.

11. We elect a U.S. senator for how many years? 61% incorrect.

14. How many justices are on the Supreme Court? 63% incorrect.

20. How many amendments does the Constitution have? 94% incorrect

22. What is the name of the speaker of the House of Representatives now? 59% incorrect.

We all have seen these tests, showing the ignorance of the American (pick one): voter, student, adult, specific race, teacher, college graduate et al. The point of this article, and indeed the point of all such articles, seems to be that because of this widespread ignorance our nation is doomed. As the article says:

For more than two centuries, Americans have gotten away with not knowing much about the world around them. But times have changed – and they’ve changed in ways that make civic ignorance a big problem gong forward. While isolationism is fine in an isolated society, we no longer can afford to mind our own business. What happens in china and India … affects the autoworker in Detroit.

O.K., fair enough. Knowledge is better than ignorance, and because there is so much to know, sheer capacity combined with a scoop of laziness, makes us all ignorant about many things. And as voters, we should try to be more knowledgeable so we could elect knowledgeable representatives. And isn’t it a shame we’re not.

But then, this author, who criticizes American lack of knowledge, says:

The current conflict over government spending illustrates the new dangers of ignorance. Every economist knows how to deal with the debt: cost-saving reforms to big-ticket entitlement programs; cuts to our bloated defense budget; and (if growth remains slow) tax reforms to refill our depleted revenue coffers.
[. . . ]
Poll after poll shows that voters have no clue what the budget actually looks like . . . even though 71 percent of voters want smaller government, vast majorities oppose cuts to Medicare, Social Security and Medicaid. . . Needless to say, it’s impossible to balance the budget by listening to these people.

As the texters write, OMG! This harsh critic of American ignorance, who feels it is a shame only 35% of test-takers knew “What happened at the Constitutional Convention?”, has no clue about Monetary Sovereignty.

He thinks it’s more important to know the answer to “What do we call the first 10 amendments to the Constitution?”, than to understand the fundamental truths of modern American economics, one of which is a growing economy requires a growing supply of money, thus a balanced federal budget mathematically must lead to recessions and depressions.

He would destroy America by cutting entitlement programs and defense, then increase taxes (if growth remains slow. Yikes!). He thinks federal coffers (whatever they may be) are revenue depleted, though a Monetarily Sovereign nation never can be “depleted.” But, apparently he would be happy if more people knew the answer to “Name one of the writers of the Federalist Papers.”

I leave it to you to decide which voter ignorance is more dangerous to America: Having no knowledge of federal financing vs. not knowing “When was the Declaration of Independence adopted?”

Mr. Romano is right about this, however: There is massive ignorance in America, and this ignorance is a threat to our future. He and the Tea (formerly Republican) Party are shining examples.

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

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

MONETARY SOVEREIGNTY

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