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.

As readers of this blog know, I often have written to Chicago Tribune executives about the illogic of their continual debt-hawk editorializing. They seldom have responded. Perhaps too busy? Or perhaps my Monetary Sovereignty ideas were thought to be so ridiculous, they felt no need to dignify my comments with a response.

On 9/26/11 however, (surprise!) they answered this letter I sent to Bruce Dold, editorial page editor and to Tony Hunter, president, publisher and CEO of Chicago Tribune Company:

Monday, September 26, 2011
Subject: Time to end farm subsidies

The Chicago Tribune continues to parrot the popular wisdom. Its 9/26/11, editorial titled, “Plow ‘em under: Time to end farm subsidies,” included this short paragraph:

But the giveaways at taxpayer expense must stop. They’re an unaffordable drain on the Treasury.

One can argue about whether farm subsidies should be eliminated, reduced or re-directed, but they do not cost taxpayers one cent, they are not unaffordable and they do not drain the Treasury. Federal taxes are not related to federal spending.

Our Monetarily Sovereign federal government spends by marking up creditors’ checking accounts, a process not related to tax collections. If taxes fell to $0 or rose to $1000 trillion, neither event would affect the government’s ability to spend by even one penny.

There is no limit to the federal government’s ability to mark up creditors’ checking accounts; therefore nothing is “unaffordable.” And the Treasury does not store money. It creates money ad hoc, by spending, i.e. by marking up checking accounts. Therefore, it cannot be “drained.”

Unfortunately, the Tribune does not understand the difference between the federal government and state/county/city governments, which do spend taxpayers’ money, and for which spending can be unaffordable and can drain their treasuries.

One wonders when, if ever, the Tribune editors, who write about economics, will bother to learn economics.

Rodger Malcolm Mitchell

I received the following response from Mr. Dold, with a cc. to Mr. Hunter:

9/26/11: Dear Mr. Mitchell,

Thank you for your note and for your other emails on this subject to Tony Hunter and to me. I want to assure you that I have shared your views with other members of the editorial board and discussed them with Mr. Hunter. The editorial writers understand your position on monetary sovereignty. We respectfully disagree with your views on the likely economic impact if federal policy were based on those views.

Again, thanks for corresponding with us.

Bruce Dold
Editorial page editor

I responded:

Thank you for your note. Briefly, Monetary Sovereignty says:

1. Following 1971, the end of the gold standard, federal government spending has not been limited by taxing or by borrowing, but only by inflation considerations.

2. Therefore, federal spending does not use “taxpayer money” or borrowed money. Even were taxes and borrowing to fall to $0, the federal government would retain the unlimited power to create dollars (again, limited only by inflation).

3. The states, counties, cities, businesses, you and I are monetarily non-sovereign. They do use taxpayer money and borrowed money, to pay their bills. Beliefs about federal financing therefore must differ from beliefs about state, local and personal financing.

With which of these facts do you disagree?

Rodger Malcolm Mitchell

They responded:

I think you answer your own question. Yes, the federal government can print dollars, which state and local governments cannot do. But to do so at will would have staggering inflation implications. To say federal spending does not use borrowed money seems to ignore the $9.5 trillion in U.S. public debt, half of which is held by foreign entities. S&P wasn’t willing to ignore that.

Bruce Dold
cc: Tony Hunter

I answered:

Yes, Bruce and Tony, that is the important thing to remember. The only implication of federal money creation is inflation, not the federal government’s ability to pay its bills. The federal government cannot be “broke” (as Boehner claimed), nor can it ever be unable to service its debts — all without inflation.

Here is how the federal government borrows, for instance, from China.

1. First, China must deposit dollars (not yuan) into its checking account at the Federal Reserve Bank.

2. Then, to “lend” to us, China asks the U.S. federal government to debit its checking account and to credit China’s T-security account, also at the Federal Reserve Bank. (A T-security account is similar to a savings account.)

3. Then, to “pay off” the loan, China’s T-security account is debited and China’s checking account is credited– all at the Federal Reserve bank.

And that’s it. Federal “borrowing,” which is much different from personal borrowing, consists of nothing more than debiting and crediting accounts at the Federal Reserve bank. There never is a time when federal debt is a burden to the federal government. It can debit and credit accounts at the Federal Reserve Bank, forever, and it can do so without inflation.

The entire $9.5 trillion federal debt could be “paid off” tomorrow, if the federal government chose to do so. It merely would credit all the checking accounts of T-security holders and debit all their T-security accounts.

S&P ignored the fundamental difference between a Monetarily Sovereign nation and monetarily non-sovereign entities like you and me.

Now, I suspect your next two questions are:

1. Why do you know this, while Congress, S&P and many economists don’t?
2. What about inflation?

If you are interested in learning the answers to these questions, and to all your other questions about economics, please let me know. Merely ask your questions and I will answer them. I suspect you will find this enlightening and interesting.


And then I added:

I neglected to mention that the federal government “borrows” (i.e. issues T-securities), not because it needs dollars. It doesn’t. It issues T-securities because of obsolete laws, created during times of monetary non-sovereignty, which require the Treasury to issue T-securities in an amount equal to the federal deficit.

When the government was monetarily non-sovereign, it relied on taxes and borrowing, just as the states, counties and cities do. No longer. A fundamental quality of a Monetary Sovereign nation is that it does not require or use income to pay its bills. It pays by sending instructions to creditors’ banks to mark up creditors’ checking accounts. It can send these instructions endlessly, without any need for taxing or borrowing or income of any sort.


So far, no further responses. Notice the key, nonsensical phrases in their response: “Yes, the federal government can print dollars, which state and local governments cannot do. But to do so at will would have staggering inflation implications. To say federal spending does not use borrowed money seems to ignore the $9.5 trillion in U.S. public debt, half of which is held by foreign entities.”

Why nonsensical? Because first he acknowledges that the federal government can create dollars (He wrongly calls it “print dollars.”) Then he says I “ignore the $9.5 trillion in U.S. public debt . . .” Since the federal government can create dollars, why does it borrow, and why is borrowing (or repaying) a problem that should not be ignored?

Therein lies the problem. Debt hawks have the uncanny ability to hold two opposing views, simultaneously. Obviously, a nation that can create its sovereign currency does not need to borrow its sovereign currency, nor would it have any difficulty servicing any sovereign debt. These Tribune top executives don’t understand the illogic of their position.

So today, I sent them this note:

Since as you say, “the federal government can print dollars,” why does it need to borrow, and why is S&P concerned about federal borrowing?

Think about it.


I don’t expect an answer, but if one comes, I’ll fill you in. Meanwhile, my hope is that by some miracle, I can convince one major newspaper to print economic fact rather than myth — or at least engage in a rational dialog about economics. What a step forward it would be. Perhaps you can attempt the same with your local paper.

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