–What will Obama do now that he has built his own jail?

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.
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In 2008, when the stock market, and virtually every other market, crashed, President Obama undertook a series of economic stimuli. Though, as I predicted back then, those timid steps were proved to be too little and too late, they did prevent the recession from turning into a depression, and until recently the economy was beginning to creep out of its funk.

Of course, “stimulus” is just another word for deficit spending, i.e. pumping money into an economy that is starved for money. But incredibly, the President of the United States has no idea how the economy works (seems impossible, doesn’t it?), so equally incredibly, he voluntarily surrendered his only tool for saving the economy: Federal deficit spending.

Recently he made a pitiful gesture toward solving the economy’s most financial and emotional problem: Unemployment.

Obama seeks aid to help military veterans get jobs By Julie Pace, The Associated Press, 08/06/2011

WASHINGTON — President Barack Obama on Friday proposed tax credits and training programs to help thousands of U.S. service members returning from wars in Iraq and Afghanistan find jobs in the shaky economy at home.

The president announced his proposals after a report showed the nationwide unemployment rate remained over 9 percent.
[…]
He asked Congress to authorize a “Returning Heroes” credit for 2012-13 that would give companies that hire unemployed veterans a tax credit of up to $2,400. It would be $4,800 if the veteran has been unemployed for six months or more. Obama also called for an extension of the “Wounded Warriors” tax credit, which gives companies hiring vets with service-related disabilities a $4,800 credit. If the veteran has been unemployed for six months, it increases to $9,600.

The administration said the tax credits would cost the government about $120 million.

Oh, please. $120 million! Are you serious? The federal government is projected to spend $3,833,861 million this year. That’s 3 trillion, 833 billion, 861 million, and Mr. Obama would like to take that “all the way up” to $3,833,961 million — a pathetic three thousandths of one percent. Wow, talk about a timid step being too little, too late.

And if I know our President, he will try to convince the Tea/Republican party he really isn’t increasing the deficit, because as everyone knows, he already (foolishly) said he wouldn’t.

But wait, toward the bottom of the same article, we find:

Obama challenged Congress to work after its August recess on legislation to extend a tax break on Social Security payroll taxes, to further extend unemployment insurance and to pass a program for “putting construction workers back to work rebuilding America.”

Could this be the FICA holiday (or better yet, elimination) I called for way back in 2009? (“Ten Reasons To Eliminate FICA” ) And wouldn’t this increase the dreaded deficit Mr. Obama swore not to increase?

And what about extending unemployment insurance: doesn’t that also increase the deficit? And more construction work; further increase in the deficit? OMG, has the President belatedly understood this fundamental economic formula:

Federal Deficits – Net Imports = Net Private Saving.

And does he belatedly understand that deficit growth is the only way to get out of a recession and the only way to grow the economy?

One can hope so, but good luck Mr. President. You already have said the deficit is too high. And you must deal with those economically ignorant Tea/Republicans, not to mention your economically ignorant Democrats, all of whom not only agreed with you that the deficit is too high, but that austerity (aka “poverty”) is the way America wishes to live.

So how are you going to get yourself out of this jail you so foolishly built for yourself? How are you going to add money to an economy that is starved for money and headed for depression, without seeming to add money. How about:

“Pay no attention to that man behind the curtain.”

If you pull this one off in time for the election (that’s all that matters, isn’t it?), you indeed will be the wizard behind the curtain.

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

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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

MONETARY SOVEREIGNTY

–How to flush your money down the toilet and other newspaper recommendations.

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Please read the flush-your-money-down-the-toilet instructions from my favorite hometown newspaper, the Chicago Tribune, recommended on 8/7/11:

(Here are some of) the top federal tax expenditures and, ballpark, how much they (tax deductions) save taxpayers every year:

*Employer payments for health insurance premiums and other health benefits: $131 billion
*The home mortgage interest deduction: $96 billion
*Capital gains and dividends: $80 billion
*Pension contributions and earnings: $60 billion
*Earned-income tax credit for low-income people: $53 billion
*Charitable contributions excluding education and health: $36 billion

These tax breaks deplete the federal treasury, penny for penny, just as much as does spending on defense, Medicaid or ethanol subsidies. If Congress and President Barack Obama scaled them back, tax rates could plummet.

In the Chicago Tribune editors’ world, all your money belongs to the federal government, and any tax you and I don’t pay becomes a “tax expenditure” and should be eliminated. The Tribune quotes that economic genius Sen. Tom Coburn, “Tax subsidies are socialism.”

Oh really? Socialism is government ownership of resources. So by the correct definition, when the government collects tax dollars, it gains ownership of those resources, which is socialist, and when it allows the public to keep ownership of its money, that is anti-socialist. Ah, details, details.

More important is the Tribune’s belief that taxes and tax rates are related to spending. They aren’t. There is zero correlation between federal spending, which has gone up over the years, and tax rates, which have gone down over the years. As always, the Tribune editors simply do not know what they are talking about, nor do they want to know. They’d rather parrot popular wisdom than check facts. It takes less effort.

Aside from tax rates, tax dollars also are unrelated to federal spending. Unlike the states, counties and cities, the U.S. is Monetarily Sovereign, meaning it has total control over its sovereign currency, the dollar. If federal taxes fell to $0 or rose to $100 trillion, neither event would affect the federal government’s ability to pay any bills of any size any time. (The local governments are monetarily non-sovereign and so do depend on taxes for spending. The Tribune doesn’t understand the difference between Monetary Sovereignty and monetary non-sovereignty.)

Then most importantly, the Tribune wishes to take money out of your pocket and give it to a government that doesn’t need it. A tax on employers for health insurance translates into a tax on you. Either your employer could afford fewer employees or would have to cut salaries or charge consumers more for goods and services. The money has to come from somewhere.

(As an aside, businesses really don’t pay taxes; people pay taxes. The tax money that ostensibly comes from a business actually comes from employees and/or customers — in short, you. All taxes ultimately come from people’s pockets, no matter who or what initially pays them.)

Reduce the home mortgage interest deduction and you take money from homeowners. Tax pension contributions and you take money from those who hope to retire. Reduce the earned-income tax credit for low-income people and you take money from the pockets of the poor. Reduce the tax credit for charitable contributions and you take money from contributors and charities.

So considering the fact that the federal government, being Monetarily Sovereign, does not need or even use your money (It pays bills by crediting bank accounts), whose pocket would you like to raid for no reason at all?

Lest you think all of the above is typical Tribune-ignorance, you ain’t seen nothin’ yet. Read this:

Both (political) groups discussed trimming tax expenditures and dropping the top income tax rate to perhaps 25 percent

How does that translate into economic growth? Broaden the tax base, lower the rate, and you’re closer to having market forces–rather than politicians–determine how individual and companies spend their money. Suddenly they’re investing their resources to gain efficiencies, profits and expansions, rather than tailoring decisions to what the tax code rewards or punishes.

Let me translate that into English: “Broaden the tax base, lower the rate. . .” means: “Make the lower income groups pay more, and let the upper income groups pay less.” Of course, the Tribune editors are in the upper income group, but I’m sure that is just a coincidence.

Then there is this Tribune comment about its recommendation to tax mortgage interest:

If you rent, you get nothing. If you have reasons not to itemize deductions, you get nothing. If you pay off our mortgage to live debt-free, you get nothing. Borrow a fortune for a McMansion, however, and the Internal Revenue Service provides a big discount, at the expense of every other taxpayer.

Gosh, the Tribune must really be for the small mortgage payer and small taxpayers, right? Well, no. Most small mortgage payers and small taxpayers would pay more taxes under the Tribune plan. The money goes to the federal government, which the Tribune thinks should be given to the richest taxpayers by cutting the top tax level.

And the ignorance continues:

The federal purse is so threadbare that the only way to spend more is to borrow more.

Say, Tribune editors, exactly how much is in that “threadbare” purse? You have no idea? Of course not, because such a number does not exist for a Monetarily Sovereign government. There is no “purse” and the government creates dollars ad hoc, as it pays its bills.

And as for having to “borrow more,” that could be stopped tomorrow. Just eliminate the law requiring the Treasury to issue T-securities in the same amount of the federal deficit. No T-securities = no debt = no problem.

Then there is this final Tribune gem:

Twenty-five years ago, members of Congress from both parties joined with President Ronald Reagan to reform the nation’s tax scheme.

We hope today’s Congress has enough debt realists to do the same with President Obama.

I almost, but not quite, am embarrassed to remind the Tribune editors that not only did President Reagan and his Congress run the biggest deficits outside of WWII, but those big deficits led to a period of strong economic growth — until President Clinton ran his surplus, which led to a recession.

But heck, who needs facts when you can just reprint all the popular myths and fairy tales of the day? Isn’t that what a great newspaper is supposed to do?

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

MONETARY SOVEREIGNTY

–More on (moron) the S&P downgrade of American national credit

Quote from Fox News, 8/6/11:

For the first time in history, Standard & Poor’s downgraded the U.S.’s vaunted Triple-A rating to double A+ after the market’s close on Friday night, a rating it has held at S&P since 1941.

The rating was dropped to double-A+, S&P says, because of its deepening concern that Washington, D.C. cannot get a grip on the nation’s finances in the mid – to long-term, as well as fears that the economy could weaken, and that interest rates could spike higher, causing interest costs on the debt to rise. S&P also cited a weakening federal revenue picture as part of its reasons behind its downgrade.

Let’s examine this one line at a time:

“For the first time in history, Standard & Poor’s downgraded the U.S.’s vaunted Triple-A rating to double A+ after the market’s close on Friday night, a rating it has held at S&P since 1941.”

Think of it. S&P rated the U.S. AAA all through World War II, during which the federal debt was much higher relative to the size of the economy, and when we were being attacked by two powerful enemies, who very well could have defeated us. Today, with a relatively lower debt, and much greater national security, the U.S. is downgraded to AA+.

“S&P says, because of its deepening concern that Washington, D.C. cannot get a grip on the nation’s finances in the mid – to long-term . . . “

What does “get a grip on” mean? No one really knows. Does it mean the federal government will not be able to service its debts? No. As a Monetarily Sovereign government, it can service any size debt denominated in it sovereign currency, the dollar (100% of the federal debt is denominated in the dollar). In fact, the federal government has the power to eliminate all federal debt tomorrow, merely by crediting the bank accounts of all T-security holders. No T-securities = no federal debt = no debt worries.

Or perhaps S&P is not worried about the debt, but rather worried about the deficit??? If so, S&P may not understand the lack of functional connection between debt and deficit (we could have either without the other), but for certain they do not understand this basic equation in economics: Federal Deficit – Net Imports = Net Private Saving. If they did understand that equation, they would know that reducing the deficit reduces saving, which slows the economy.

“. . . as well as fears that the economy could weaken, and that interest rates could spike higher, causing interest costs on the debt to rise.”

Yet another thing S&P doesn’t understand: As a Monetarily Sovereign nation, the U.S. has the unlimited ability to service any debt including any amount of interest. In fact, there actually is a slight, but positive, relationship between federal deficits and GDP growth. The probable reason: Federal interest payments add stimulus dollars to the economy. Further, there is no historical relationship between federal deficits and interest rates.

“S&P also cited a weakening federal revenue picture as part of its reasons behind its downgrade.”

Finally, S&P does not understand that unlike spending by the states, counties and cities, spending by a Monetarily Sovereign nation is not constrained by revenue. If federal taxes fell to $0 or rose to $100 trillion, neither event would affect by even one dollar, the federal government’s ability to spend.

Someday, someone will ask the officers of S&P how their evaluation of France (a monetarily non-sovereign nation that hangs at the edge of bankruptcy, yet incredibly has been gifted with an AAA rating) compares with their evaluation of Monetarily Sovereign United States, a nation that unlike France can pay any bill, and time. Can you visualize the officers of S&P looking at each other and mumbling “Duuuhhhhh. . .”?

And that might be the smartest thing they will have said all year.

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

MONETARY SOVEREIGNTY

–S&P downgrades itself

Just when you thought Standard & Poor’s couldn’t get more disfunctional, they outdo themselves. You remember S&P, don’t you? They are the people who became famous for giving AAA ratings to absolute junk, helping to cost investors hundreds of millions of dollars.

Now, showing neither shame nor remorse, they have downgraded United States debt from AAA to AA. In S&P’s opinion, this puts the federal government’s credit at a lower level than that of such companies as:

US Bancorp
XTO Energy
State Street Corp.
Citigroup
Bank of America
GE Capital
Wells Fargo
JP Morgan Chase
Goldman Sachs
Keybank
John Deere
West Corp.
GMAC
KFW International
Johnson & Johnson
Microsoft

Long after these companies — and S&P — have disappeared, the U.S. government still will be here, paying its bills, with no difficulty whatsoever. The Monetary Sovereignty of the United States will overcome the economic ignorance of Congress and the President.

But, if you feel safer buying the bonds of these firms than buying United States T-bonds, T- notes and T-bills, I have a bridge in Brooklyn I would like to sell you. And if you believe anything S&P says in the future, I have two bridges to sell you.

S&P didn’t downgrade the U.S. It downgraded itself. But don’t worry. This will have zero effect on our economy. It’s a publicity ploy by S&P.

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

MONETARY SOVEREIGNTY

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