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. Austerity breeds austerity and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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. . . in the big lie there is always a certain force of credibility; because the broad masses of a nation are always more easily corrupted in the deeper strata of their emotional nature than consciously or voluntarily; and thus in the primitive simplicity of their minds they more readily fall victims to the big lie than the small lie, since they themselves often tell small lies in little matters but would be ashamed to resort to large-scale falsehoods.
It would never come into their heads to fabricate colossal untruths, and they would not believe that others could have the impudence to distort the truth so infamously.
Even though the facts which prove this to be so may be brought clearly to their minds, they will still doubt and waver and will continue to think that there may be some other explanation . . .
—Adolf Hitler , Mein Kampf, vol. I, ch. X
Once we believed that in America, hard work and a good plan would allow even the poorest among us to climb the economic ladder. We believed “rags-to-riches” was a natural outgrowth of the American experience. We believed in the American dream.
Now, the rich have used The Big Lie to convince the poor to vote against their own best interests. The so-called “99%” have been sold the idea that a mean, hardscrabble life is a noble life, that pain leads to pleasure and that austerity is the road to prosperity. The wealthy“1%” of America don’t believe these things for themselves, of course. They are exempt from The Big Lie, and the poor don’t object.
The American dream always has been a cooperative enterprise between Americans and the American government, each relying on the other. It begins with the belief that anything is possible, if you truly strive. It continues with the belief you can make a better life for yourself, and an even better life for your children, and they will make a better life for their children.
By necessity, the American dream includes a beneficial government that unlike those heavy-handed European monarchies of yore, encourages and assists entrepreneurial growth by providing financial and social support – a government that looks out for the little guy, a government that “has your back.”
That beneficial government first does what a government is formed to do: It creates money. And it assures that even the poorest among us have access, not only to dollars, but to the benefits dollars can buy – access to education, food, housing, health care, transportation, communication, protection and the law.
On August 15, 1971, the U.S. acquired the most valuable asset any nation can have– more valuable than its land or its minerals or its water or its crops – and that asset is Monetary Sovereignty, the unlimited ability to control its money supply. No longer would our government’s hands be tied by tax collections. Federal spending only would be limited by inflation, and inflation could be controlled with interest rates. The stage was set for the “99%” to receive the government support the American dream requires.
No longer would our government’s hands be tied by tax collections. Federal spending would be limited only by inflation, and inflation could be controlled with interest rates. The stage was set for the “99%” to receive the government support the American dream requires.
But though the underlying facts changed in 1971, the teaching of our leaders never did. Americans were told The Big Lie: That despite Monetary Sovereignty, federal finances continue to be like personal finances – limited by income – and that federal income pays for federal spending, and without income there can be no spending.
It was as though Monetary Sovereignty never happened.
Even today, the vast majority of economists, and virtually all politicians, media and columnists deny the implications of what happened in 1971. So, we remain blinded to the most important event in U.S. economic history.
Visualize any medical doctor denying the germ theory of disease or any physicist denying the existence of atoms, or any geographer denying the world is round, and you have a parallel with professional economists denying Monetary Sovereignty, so central is this basic truth of economics.
While there always have been worries about federal deficits and debt, and these worries earlier had a basis in fact, the federal government was not greatly hindered. Massive federal deficit spending cured the Great Depression at a time when the U.S. was monetarily non-sovereign. Now, ironically, when there should be no worries at all about deficits and debt, a group called the Tea Party has risen to focus on these meaningless numbers, and by spreading The Big Lie, has turned the entire nation into debt watchers.
Now, ironically, when there should be no worries at all about deficits and debt, a group called the Tea Party has risen to focus on these meaningless numbers, and by spreading The Big Lie, has turned the entire nation into debt watchers.
And this focus has impacted the poor more than the rich, contributing to the increased financial gap between them, destroying the American dream. The people have been taught federal deficits are “unsustainable,” a “ticking time bomb.”
They have been taught federal deficit spending will cause inflation “eventually,” though there is no historical relationship between federal deficits and inflation.
They wrongly have been taught our children and grandchildren will pay for today’s federal debt, a debt they neither own nor ever will pay.
The people have been taught that sacrifice now will protect our children and grandchildren, though in fact, sacrifice now actually will punish those children and grandchildren.
Cut Social Security? Cut Medicare? Cut support for education? Cut FDA oversight of food and drugs? Cut oversight of banks and other financial institutions? Cut support for medical and physical research? Cut support for education? Don’t extend unemployment benefits? Cut support for climate change prevention?
Every single cut punishes the children and grandchildren of the “99%.”
All of these facts should be obvious to even the most casual observer. Yet they disappear in the face of the Big Lie, which is that a Monetarily Sovereign nation somehow can run short of the money it has the unlimited ability to create, and that it must borrow and tax in order to obtain its money, and that like you and me, it can have difficulty paying its debts with its own money, and that federal benefits, particularly benefits to the “99%”, must be reduced.
The Big Lie comes from the “1%” influence on the economists, the media and the politicians, all of whom are financed by the wealthy. It is the “1%’s” method for protecting, and indeed, expanding the Gap between rich and poor.
That is the motivation, and we have seen the effect, but what is the cure?
Clearly, rational facts do not overcome The Big Lie. Instead, I believe there must be an event or series of events, so horrifying that a desperate public will ignore The Big Lie and seek refuge in a bigger truth.
Today, we are in the early stages of such an event – a terrible recession – and political action to reduce the federal deficit will exacerbate this recession until it turns into a full-blown depression, and the resultant riots and chaos perhaps will be sufficient to turn even the most brainwashed toward the fundamental truths of Monetary Sovereignty.
The wealthy will fight with every resource at their command. They will intimidate the economists and the media and the politicians. They will deny the facts. They will claim patriotism and moral high ground. They will shame and deceive.
And they might win, and if they do, we have seen the end of the American dream.
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
#Monetary Sovereignty - Mitchell 
Christopher S. Rugaber, AP Economics Writer, On Saturday November 5, 2011, 11:13 am
WASHINGTON (AP) — The jobs crisis has left so many people out of work for so long that most of America’s unemployed are no longer receiving unemployment benefits.
Early last year, 75 percent were receiving checks. The figure is now 48 percent — a shift that points to a growing crisis of long-term unemployment. Nearly one-third of America’s 14 million unemployed have had no job for a year or more.
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Thanks for another great essay, Rodger! I like this one particularly because it confirms what I’m seeing in the mainstream media and helps resolve some of my own cognitive dissonance. I keep thinking, ‘Why don’t they see the obvious? Why do people with solid credentials as economists continue to spread the fear of deficit spending?’
I see a lot of hope in the Occupy Wall Street movement. Not only is it helping to call attention to the inequality in our economic and political systems, it seems like a great ‘teaching moment’, or an opportunity to spread knowledge about monetary sovereignty.
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I fear for OWS, because they don’t understand Monetary Sovereignty. So they are in danger of being bogged down in discussions of, “How will you pay for that?” every time they make a demand.
I have urged them first to learn Monetary Sovereignty, then teach it to America. Once that is accomplished, the rest will follow naturally.
Rodger Malcolm Mitchell
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Excellent commentary and I agree with your sentiment. Things did not get this way by accident, and the fraud is not so innocent.
The 1% have brainwashed the masses. Most people I talk to think inflation hurts the poor and middle classes the most when it’s really the 1% who are most scared of it (unreasonably so I might add). And you can’t argue with them as they are quite convinced they’re right. They get all their information from think tanks funded by billionaires of course.
We have 17% unemployment and they are talking about spending cuts and tax increases?! I thought we learned these lessons 70 years ago! It’s maddening really. Next time I hear “structural unemployment” I’m going to blow a gasket!
There are many ways to fix the economy. All we have to do is pick one. But the only thing congress can agree on these days is that we need to go big on deficit reduction!?! @$%#! The only deficit we need to be concerned about is a deficit of intelligence!
They tell the unemployed to blame themselves and people cheer. That is like blaming the person for not getting a seat in a game of musical chairs. Even if everyone did everything 100% correct there would still be 17% unemployment. The system is cruel and needs changed.
The 1% are against any kind of government spending unless the money is flowing to them. They want to have a monopoly on the money. What the 1% refuse to understand is that we are ALL better off with a healthy 99%.
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You just quoted Adolf Hitler, thus discrediting whatever argument you were trying to make. See http://en.wikipedia.org/wiki/Godwin's_law
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I quoted the foremost authority on Big Lies. If you disagree with the content of the post, no problem. Do you?
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Rodger, I think he’s just being humorous. Read the link.
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Seriously, you need to drop the whole Hitler thing. It sounds like you are trying to demonize your opponents. But I will move on.
You have some interesting ideas. I don’t totally agree but I think you may be on to something. There has to be more to it than just monetary sovereignty. I think the currency also has to be widely traded, so that narrows it down to 8: USD,EUR,JPY,GBP,CHF,CAD,AUD, and NZD. I don’t think any other currency could do what you are suggesting without causing hyperinflation. But I think for these 8 it would be possible to vastly expand the amount of currency and basically spend a country’s way out of a recession.
There is still the problem of interest. Once interest payments exceed a certain percent of tax revenue, then the debt will quickly escalate.
I think what you are saying is why can’t currency be issued without debt. (Or in the alternative issued as non-interest paying debt). There is an interesting article about United States Notes (http://en.wikipedia.org/wiki/United_States_Note) which were issued free of interest.
Federal Reserve Notes don’t pay interest, and any interest the Fed receives on bonds it owns gets paid right back to the Treasury, after expenses. So this is similar.
The problem is that we need more of these FRNs in circulation, not sitting in excess reserves. How about this, have the Treasury issue $2 trillion in a special series of bonds that pay 0.25% interest. Have the Fed buy this with newly created dollars. And then give everyone over 18 a check for $10,000 (assuming there are 200 million people). The recession would be over.
Anyways, I think there is at least some common ground here.
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Nathan
Your understanding of money and banking is poor
Money is a financial asset. Financial assets are always backed by a debt financial liability without exception (either Govt backed debt including notes and coins or non Govt debt). So debt free money is impossible.
Govt spending
The banks journal entry is
Debit Fed Reserves
Credit Customer deposit
So money increases
If money inflation is a problem just issue bonds
This reduces bank reserves (bank buys bonds) or money and reserves (non bank like a pension fund buys bonds)
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Nathan, the “wide trading” has no real economic effect. What has real effect – deflationary effect – is “wide saving”, The currencies you mention are “widely saved” reserve currencies. This does give the issuing government a bit more room to spend without inflation. That is all. But it also makes this spending necessary. If a government does not spend enough to counter foreign & domestic saving, instability, recessions & unemployment will result. That’s what we’ve seen in the USA. Interest is not a problem, or very meaningful. Whether the government arranges that the bulk of its financial assets saved are in currency or bonds is a secondary matter. What is important is that it spend enough, and on the right things. More generous SS, Medicare & Medicaid would be a great idea right now, as would less taxation. And above all, make sure that the real economy is healthy, that we do not squander a colossal amount of resources on forcing people to be unemployed, by having a Job Guarantee at a decent, living wage.
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Excellent article once again Rodger.
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The Big Lie is even bigger…
Fact is: in a fiat currency the concept of “public debt” does not make sense. It has no meaning. It is inapplicable… It is like the concept of epicycles in a heliocentric model…
By spending in its own fiat currency a government does not incur any liability. Incurring a liability is a necessary condition for being in debt. Therefore if it does not incur a liability it cannot be in debt. Therefore “public debt” has no meaning and if it has no meaning the “thing” denoted by the words does not exist.
Claiming that “public debt” should be made smaller is equivalent to claiming that the empty set should have less elements…
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Something like my growing dunce-cap deficit.
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EmptySet: Quite wrong. The “public debt” certainly does make sense and does exist. Fiat money, which is a pleonasm – all (state) money is fiat money – is a form of debt. The public debt makes sense & is real, just like Rodger’s dunce cap deficit.
When a government spends its fiat money, it incurs the liability of promising to accept this money in return for debts owed to it, in modern times, tax debts above all.
Epicycles are an empirical phenomenon of planets “moving backwards in their orbit” as seen from the also-moving-around-the-sun Earth, and do exist in our heliocentric system, as is well known to people designing telescope movements / systems for tracking planets & other objects. Not a good analogy for “public debt”, though.
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Calgacus: It is not necessary to write messy arguments because “public debt” does not exist for a government that issues a fiat currency. The fact is not worth that.
Let one assume a government that issues a fiat currency also issues bonds. That “public debt” does not exist does not imply that said government is not liable to pay the bonds and interest at term or that it can legitimately default on their bonds.
For a government that issues a fiat currency, bonds are saving certificates.
As a honest money keeper, said government is liable for abiding to the terms it stated in keeping money. The fact that “public debt” does not exist for said government is irrelevant to this liability.
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EmptySet: Again, this is confused and is not MMT/MS, although an unfortunate number of people seem to believe things like this. RJ above has it right: “Debt free money is impossible”. Fiat money is a form of debt. Fiat money is a bond. “By spending in its own fiat currency a government does not incur any liability” is false from any perspective, under any definition, as is “The fact that “public debt” does not exist for said government is irrelevant to this liability”. The concept of public debt is perfectly meaningful – it is just the total of the fiat money liabilities and bond liabilities or any other monetarily quantified liabilities of a government.
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The problem is the word ‘debt’ and what you mean by it.
Now normally debt implies that it is a burden. A Real Burden that can only be eliminated by ‘future work and energies’, ie a transfer of effort.
In that sense any liability denominated in another liability under the same controlling entity *cannot* be classified as debt.
So Greece has public debt, and lots of it, but the US, UK and Japan only really have public liabilities. Those public liabilities fall into different categories, bonds, bank reserves and physical cash, which attract different interest rates and have different lifespans.
For something to be ‘debt’ in the sense most people understand it, it has to be denominated in a third party liability.
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Why not argue from the 1%’s point of view. OK 1% you are really doing great now, but I have a proposal that will allow you to make even more money than you could ever think possible! Might work?
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Interesting thought, but here is what I learned in my 60 years as a business owner: Absolute income means less than comparative income.
Someone earning $25,000 per year feels good, so long as his friends, neighbors and co-workers earn $20,000 per year. But someone earning $1 million a year feels awful if everyone he knows makes $2 million a year.
People care less about the money than about the gap.. People who came to me for a raise invariably mentioned someone else in the company who was earning more. The highest paid people in the company were satisfied, but if one person was given a big raise, everyone one else was angry.
Look at the basketball players. I think the minimum these scantly educated boobs makes is about $4 million, yet they are on strike, because other players make $40 million. And they hang with people who make $400 million.
So I wonder — would showing the rich how everyone benefits, be a good motivation, if the gap stayed the same?
Rodger Malcolm Mitchell
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excellent point, rodger!! you have your moments…
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