Economic austerity causes civil disorder. Reduced money growth cannot increase economic growth. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Which is better for the U.S.: Increased exports or increased federal deficit spending? Answer first, then please read the following article, which appeared in the online version of Time:

Time: Can China Help Prevent a U.S. Tailspin?
Posted by Roya Wolverson Wednesday, August 10, 2011

China’s $31 billion trade surplus in July is an irksome reminder to U.S. officials of the advantages China reaps from its undervalued currency. China has repeatedly dismissed U.S. demands that it let the yuan appreciate faster, which would help boost the U.S. recovery by making its exports cheaper.

Many economists think that, for the U.S. economy to get back on track, exports have to grow faster. Although only 10% of U.S. GDP comes from exports now, export growth has driven more than a third of the increase in U.S. GDP over the past year. Those gains are partially due to a falling dollar, fueled by fears about the U.S. economy’s future and the Fed’s bond-buying sprees. A faster appreciation of the yuan would only help a U.S. export bender.

According to Ms. Wolverson, an increase in U.S. exports would be stimulative. And she is right. But why would sending our goods and overseas benefit the U.S. in any way? Why, for instance, does it help America for farmers to work and sweat, growing and harvesting corn, and then to send this corn to a foreign land? Where is the economic benefit in that?

The obvious answer: Exporting goods and services is just another word for importing dollars. It’s not the goods and services leaving America that benefit us. It’s the dollars coming in, that stimulate our economy.

A growing economy requires a growing supply of money, and exports (i.e. the import of dollars) is one way to increase the money supply. That is the sole benefit of exporting.

There is another way to increase the money supply: Federal deficit spending. When the U.S. government buys goods and services domestically, it credits the bank accounts of the domestic sellers. This creates dollars, adding them to the economy. The U.S. government is America’s biggest customer, bigger than China, bigger than Canada, bigger than any other nation.

The financial effect of federal deficit spending is identical with the financial effect of exporting. Both increase the dollar supply; both stimulate the economy. Yet inexplicably, most old-line economists favor exporting while simultaneously disfavoring federal deficit spending. As with so many economic beliefs by old-line economists, this makes no sense.

Fact is, federal spending could be viewed as a better stimulative than exporting, because federal deficit spending does not require us to send valuable goods and services overseas. We can keep them right here, enriching America.

Summary: Financially, federal deficit spending is identical with exporting. Both add stimulative dollars to our economy. And deficit spending has the advantage of not requiring us to send our valuable goods and services overseas.

So the next time someone tells you we need to export more, ask him or her, “Should the federal government increase deficit spending?” If he says, “No,” grab him by the throat and as sweetly as possible, scream, “You idiot.” Then show him this post.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings