–Here comes the International Monetary Fund, the world’s economic bull in a china shop.

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

If one could point to any organization more economically ignorant that the U.S. Congress, you would have to decide between the European Union and the International Monetary Fund. Focus for now on the IMF, which has been damaging the world’s economies for many years. Here are excerpts from a 9/21/11 article written by Carlo Cottarelli, Director of the IMF’s Fiscal Affairs Department:

The fiscal outlook in most countries is stronger than we expected two years ago. Let’s take the five largest European countries. The chart below shows, in gray, the increase in the public debt to GDP ratio that we were projecting two years ago for the period 2012 through 2014.

It also shows in blue the increase in debt over that same period that we are projecting today. As you can see, debt ratios are now projected to go up by less than we previously expected. In some cases, they are even expected to fall. This reflects the commitment that these countries have made to reduce their deficits over an extended period.

Four euro nations and one non-euro nation

Look closely at the IMF graph. It shows five countries, four of which are monetarily non-sovereign, and one of which, the U.K., is Monetarily Sovereign. As readers of this blog know:

Debt/GDP is meaningless for a Monetarily Sovereign nation, and a Monetarily Sovereign nation is not comparable with a monetary non-sovereign nation. While deficit reduction may be necessary for monetarily non-sovereign nations, it not advisable for Monetarily Sovereign nations, except in the rare case of otherwise uncontrollable inflation.

Debt/deficit reduction removes money from an economy, which always leads to recessions and depressions. Mr. Cottarelli does not recognize this fact, because he works for the IMF, which invariably spreads its austerity nonsense, and as a result, never helps any nation recover from any economic problem. They are the classic “apply-leeches-to-cure-anemia” organization, damaging everything they touch and never learning from history.

For the United States, for example, commitment to a credible program to reduce debt and deficits over the medium term could free up space for a short-term stance that is more attuned to the economic cycle. From this perspective, the American Jobs Act proposed by President Obama can play an important role in supporting growth and employment, if it is embedded in an appropriate medium-term framework to bring down the public debt.

Given the size of the adjustment needed in the United States, this framework will need to involve an increase in tax revenues, and it will be important to ensure that the burden of this is distributed equitably across society. Reform of entitlements—both health care and social security—to contain the growth of spending on these items is also needed.

Could more ignorance be displayed in just two paragraphs? Reducing federal debt and deficits does not “free up” anything. Federal spending is not limited by debt or deficits. Deficit reduction is an economic disaster, as Americans are doomed to discover within the next few months.

Increasing tax revenues always hurts an economy. And “reform of entitlements,” the upper-class euphemism for “cutting income for middle- and lower-class who need it most” also always hurts an economy.

Because he does not know which nations are Monetarily Sovereign and which are not, nor does he even understand what Monetary Sovereignty is, and because he is in a position whereby he should know better, I award Mr. Cottarelli and the entire IMF, the maximum of five dunce caps.

(Note to IMF: Despite running a large deficit in dunce caps, I never will run short — just as the U.S. government never will run short of dollars)

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


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