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.
==========================================================================================================================================
Those who understand Monetary Sovereignty continually wonder why the facts don’t seem to penetrate. The concept is so simple and straightforward, yet not one person in a thousand is willing to examine those facts, much less understand them or agree with their implications. Why?
I can remember an incident from the time I was five years old, and memory being what it is, I probably remember it wrong. The memory is of a family picnic. My uncle had built a bonfire, and my parents, uncles and aunts threw branches and leaves into it, which made the fire flare up in a big roar.
We kids loved it, but were not allowed to throw things into the fire, because it was considered dangerous. I recall whining about this, so after a time, my father said, “O.K., you can throw sand into the fire.” Thrilled, I picked up a handful of sand and threw it in, but the fire didn’t grow. So I threw another handful and another, but instead of flaring up, the fire grew smaller.
Finally, much to my dismay, the fire went out, and all the fun went out with it. I thought I was building the fire, but I was putting it out. And on the drive home, when I realized what I had done, I felt so sad. I fundamentally misunderstood the difference between wood and sand. That’s what I remember. That feeling of sadness and betrayal and ignorance.
And now I look at the American people, exactly 99% of whom are “99%ers,” demanding that federal spending be reduced, and taxes be increased – that Social Security be cut to save it, and Medicare and Medicaid and the military – in effect, throwing sand on the economic fire, and I empathize in advance, the sad, betrayed feeling they will have, and the feeling of ignorance.
So a fundamental misunderstanding about the nature of things may be part of it.
“Forgive them father, for they know not what they do.” I forgive them, but will they forgive themselves, when or if the realization sets in?
Then there are those of you who are parents; you know the drill. Something happens when your child becomes a teen: Based on your experience, you tell your teenage child to do something or not to do something, and what is the reaction? Anger at your interference? Disgust at your foolishness?
No matter that you have clear facts on your side. The teen brain doesn’t want to hear facts; he (or she) wants to hear what his contemporaries say. He wants to follow in the herd. He doesn’t want to think; he wants to feel. There is safety in the group.
And now I look at the American people. The facts of Monetary Sovereignty are irrefutable, but the people don’t want to hear facts. Their reaction to those facts is anger at this interference in their preconceived notions, disgust at the foolishness of those trying to explain the facts. The people not only want to follow the herd, they want to follow in the middle of the herd. They don’t want to think; they want to feel – safe.
Perhaps the teen brain has an evolutionary benefit, allowing humans to ignore facts in favor of group adhesion. And all of us retain vestiges of this teen-brain, even into our dotage. Our teen brain cheers passionately for our favorite sports team, when our logical brain tells us that team’s success will have zero practical benefit for us.
So teen brain may be part of it.
And then there is the “too-good-to-be-true” syndrome. Bad experience has taught us cynicism is wiser than optimism. The hard way seems more noble than the easy way. Politicians boast about their humble beginnings, as though climbing the ladder from the very bottom is superior to climbing it from the middle. And working for something is superior to having it given to you. And “if it seems to good to be true, it probably is.”
Monetary Sovereignty seems too good to be true. The federal government can pay any debt. In fact, it creates more money simply by paying its debts. Taxes are unnecessary. Borrowing is unnecessary. Bankruptcy is impossible. And all the while, inflation can be prevented. We can have Medicare for everyone. Education for everyone. A much richer Social Security. An end to poverty. We can have it all.
This cannot be. Our world is turned upside down. All we have been taught and all we believe is wrong. This is too good to be true; it cannot be true. It is Pollyanna.
So cynicism may be part of it.
In answer to the question, why don’t the facts penetrate — why don’t we get it — part may be that fundamental misunderstanding about the difference between people’s finances and the federal government’s finances. Part may be the teen brain. And part may be cynicism.
Put them all together and they spell “austerity,” for us, for our children and for our grandchildren. This will be our legacy. This is how we will be remembered.
Or maybe there’s something else. Searching. Searching.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
==========================================================================================================================================
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 
Here is how the banker’s game works:
1) Get the government to issue some currency (cash — paper or reserves at the central bank — reserves are government issued cash central bank deposits). Government issued cash is around 5% of the currency (money) supply. The government issued currency is put into circulation by the government simply spending it.
2) The rest (95%) of the currency is issued by the private banks. Each customer loan is a new bank deposit (i.e., new currency) and increases the currency (money) supply of the economy. Note that this newly created money (currency) is put into circulation by the borrower spending it. Most currency (about 95% America’s currency supply) has been borrowed into existence and when bank customer pays the loan back that amount of currency is removed from circulation. The banking system cannot go backwards (fewer net loans) as time moves on because fewer net loans means fewer currency in circulation in the economy.
Accumulation of interest charges on outstanding loans means that the currency supply must constantly increase even if it means giving out lower quality loans. Think of it like a plane flying it must fly at some minimum speed or else the plane (the banking system) will crash (i.e., banking system collapse).
3) The bankers make dam sure that the common public does not understand how the monetary system works meaning that the private banks issue 95% of the currency. This is whole another topic how they do this.
4) The system works until real economic capacity of the economy grows and debts can be serviced and interest charges paid. Most of the time the economy oscillates between boom (growth) and bust (recession) because bust is needed to clear debts and start a new lending cycle.
5) Eventually, one of these cycles goes so deep that currency supply (and demand) falls so low that too many debts become un-serviceable. The recession becomes a depression now.
6) The bankers then have to decide how to “reset” the system. One way to reset the system is to let the depression takes its course. But of course this path is very chaotic because people lose jobs and may become violent. Once most debts are cleared lending can start again and the currency supply is replenished. Wars are a good way to get initial money (currency) into an economy after a depression to get demand going again. This is the great depression scenario.
7) Another way to “reset” the system is to get the government to print too much money and spend and destroy the currency and blame it on the government. This justifies issuance of a totally new currency (note that hyperinflation clears debts) and the lending cycle can start again.
8) The banking system (as is) is setup to maximize the power and influence of the global bankers and NOT for the maximum general well being of people. By the way this is a global game. This is the only system around no matter what country you are in. The global banking cartel makes sure that no competing systems are allowed to exist (so they might be copied and global bankers will lose power).
For more details on this stuff please read the following articles in order listed below:
http://seekingalpha.com/article/209386-modern-monetary-system-there-is-another-way
http://aquinums-razor.blogspot.com/2011/08/what-is-relationship-of-money-to.html
http://aquinums-razor.blogspot.com/2010/07/why-is-deflation-and-depression.html
http://seekingalpha.com/article/210346-should-newly-created-money-be-a-private-or-a-public-asset
http://seekingalpha.com/article/192375-cause-of-today-s-economic-crises-too-much-thrift
http://seekingalpha.com/article/160269-a-radical-solution-for-america-s-insolvent-financial-system
http://seekingalpha.com/article/146658-great-banking-confusion-is-there-a-better-way
Mansoor H. Khan
http://aquinums-razor.blogspot.com/
LikeLike
Spot on Mansoor. Your #3 answers Rodger’s general question of “why?”… Through a combination of mass marketing and control of economic narratives via the corporate media and academia, all the smoke and mirrors as well as the protecive layers of the racket in our Govt. institutions keep the house of cards propped up. They certainly aren’t going to give out their rentire privileges without a struggle.
Frederick Soddy, through the application of thermodynamics, points to the global debt-based monetary system as a perpetual motion scheme. What happens when an unstoppable force runs up against an immovable object?
It should be noted that per your #6, we have been in a state of perpetual military “growth” conflict for decades now and are currently rattling the sabers for an almost certain assault on Iran.
@Scott, I agree. The movement has already indicated a shift in consciousness. They’ve opened up the dialogue and changed the conversation. Evidence across the econo-blogosphere indicates that there are quite a few smart people going down to the street level for “teach-in” educational engagement. This is a huge step forward to shedding some sunlight on the creditor class and how they pull the strings. Since ‘money’ is just a social arrangement, we can agree to change it.
LikeLike
I find hope in the idea of an evolutionary ‘integral consciousness’ which is a theory I believe is credited to philosopher Ken Wilber. Maybe growing up with the internet, the ability to access more information than anyone could before, is helping younger generations develop their cognitive functionality. Being exposed to SO many different perspectives and having to judge the truth and value of the information available could be honing the ability to discern The process of integrating other perspectives to form and reform our own could be evolutionary.
You mentioned the 99%, and that brings to mind the OWS movement. I see all kids of notions bubbling up among these noble protests; from signs that say “End the Fed” or “Get the money out of elections”, for example. You are probably correct in assuming that most of them don’t understand Monetary Sovereignty. However, in my opinion, they are creating a good environment for learning about it. They question authority. They question the mainstream media, who is largely to blame for spreading misinformation about ‘trickle down’ and ‘job creators’ and other supply-side bs. In some ways, the protesters on Wall Street and in other cities are like the founders of the U.S.A. in looking to create a new way of governing ourselves. Maybe there are some modern Jeffersons and Franklins in the crowd, who are also equipped with knowledge of Open Source Initiative and the creative power of such collaboration. What would America be like if Madison and the others had not only YouTube and Wikipedia and Twitter, etc., but also Modern Monetary Theory?
I guess my point is that you are more likely to be successful at teaching the young than teaching the old.
LikeLike
My explanation “Why don’t facts penetrate?” is the following.
It is a pre-requisite to understand MS and MMT that one has (at least) an operational / intuitive / implicit understanding of
i) Information as a “thing” fundamentally different from matter, yet needing a material carrier to be “seen” and “operate”.
ii) Money is a special kind of a social information system (the legal system is another one)
While the concept of “matter” is millennia old, the concept of “information” is very novel in human evolutionary terms. It began to take form at the dawn of the XX century with advances in logic, computation and communications as technological developments made information “visible” along with its creation, storing, processing and transfer becoming cheaper and cheaper.
Therefore, it is not to expect that the notion of information (i) is so widely disseminated in human minds as that of matter (or energy).
Moreover, knowledge not always advances. The library of Alexandria was burnt. Aristotle knew more about the nature of money than the vast majority of people on Earth today: “Money is nomisma” (law).
Along history the conception of the nature of money oscillated as information (law in Aristotle words) and matter (metals, gold). One can google David Graeber for this. We are now at the end of a cycle of centuries where the nature of money was predominantly conceived as gold. (Rothbard: “Money is gold.”)
The move from the gold standard to fiat currencies was provoked by pragmatic considerations without due understanding. This is common in human history. Humans change behavior under the push of practical necessity. Understanding and conceptualization comes afterwards and it is far from an always progressing, linear process. It goes forth and back and (hopefully) forth.
This having been said, it seems me that it is not at all surprising that the vast majority of people do not understand MS or MMT. To the historical inertia of ideas one must add the dreams and desires of the powerful (and the not so powerful) that want social development to regress.
The key advances stand on
a) that information as a “thing” fundamentally different from matter, yet needing some form of matter as a “carrier” to become “visible”, becomes common understanding and
b) the notion of i) being adopted as the nature of money, rather than matter (proper money is fiat money).
As someone else has noted prevalence of ideas is linked to generations. Generalization of new ideas requires new generations – things are what they are, statistically speaking the human brain becomes “frozen” at the age of thirties, if not before.
One can expect that the new generations that have grown with (interactive) information devices and systems (mobile phones,debit and credit cards, computers, the Internet) are in a much better position to intuitively understand and use information (i) as they are living in a information rich world.
The missing link for them is ii) and b) – adopting the concept of information as the nature of money.
So, I also would reinforce the idea that “you are more likely to be successful at teaching the young than teaching the old”.
I’m only interested in positive outcomes. Sure, civilization can disappear or it can regress for an undetermined interval of time into feudalism. These are uninteresting, if possible, outcomes.
An interesting outcome is that civilization will continue to develop, MS and MMT can gain widespread “currency” (!), “public debts” and “deficits” will disappear from public discourse, with “net government spending” substituting “budget deficit”, and we will be able to concentrate on other energetic, material and informational concerns for prosperity: lowering energy input for GDP, developing alternative energy sources, pumping heat out of Earth, substituting depleting material resources by organic (including nanotech engineered) ones, generalizing open source software, open design of goods and services, open access to knowledge, open democracy.
Lots of things to do ! 🙂
LikeLike
I am here, and listening, and trying to spread the word. It is scary because you are saying something 180 degrees from what virtually every smart/educated person says about the economy, and that feels like hubris!
But MMT made a lot of sense to me (after an initial adjustment period.)
The phrase “monetarily sovereign” seems important; it quiets people down… you can see themselves thinking, “Where the hell DOES money come from?”
LikeLike
I’m telling you, Rodger, make your page a little more marketing friendly. You’ve got the right idea with the dunce caps, but only people who are paying attention on a daily/weekly basis are going to know what you’re talking about. Putting up a gadget that showed the dunce cap deficit would be more effective. Make your other site more interactive. Make an economics quiz in Java or something. I’m surprised it isn’t already that way as you’re a marketing guy.
As far as the blog goes, take a little advice from Frank Luntz. Be a little more Orwellian. It’s not “pro- or anti-choice;” it’s “pro- or anti-life.” Use words that work. Right now, your blog really only appeals to the policy wonks in the crowd.
LikeLike
Actually the facts do penetrate. Congressman Dennis Kucinich absolutely agrees that the issue of MONETARY SOVEREIGNTY lies at the core of all America’s financial problems. Last year Kucinich introduced H.R. 6550 The National Emergency Employment Defense Act of 2010 (NEED Act) to take MONETARY SOVEREIGNTY out of the hands of private central bankers, and restore it to the government, per Article I, Section 8 of the US Constitution.
Kucinich got ZERO co-sponsors, and Congress allowed it to die.
On 21 Sep 2011 Kucinich re-introduced it again, this time as HR 2990 — The National Emergency Employment Defense Act of 2011. (NEED Act.)
This time he got ONE co-sponsor, John Conyers.
The bill is highly detailed and intricately thought out. It has been referred to the House Committee on Financial Services, 80 percent of whose 61 members are fanatically pro-private-banker-control.
So the bill will be allowed to die again.
Occupy Wall Street protesters, do you want a single message that will cure almost everything? How about two words?
SUPPORT
HR 2990
Kucinich wants to establish a Monetary Authority under the Executive Branch, with the Fed reorganized and put under the US Treasury.
I invite readers to check out the wording of the bill. I promise it’s not dry and boring.
http://www.govtrack.us/congress/billtext.xpd?bill=h112-2990
LikeLike
I would like to share an analogy that I have been using to help the people I talk to understand why they have no need to fear what we call the “national debt”.
I tell them that because I have 200 pennies and owe 2 one dollar bills, I have a “personal debt” of two dollars, do you agree that this is correct?
They always say “technically” you would be correct, but “actually” you would be wrong, because you can easily convert your 200 pennies into 2 one dollar bills by depositing the 200 pennies in the bank and withdrawing 2 one dollar bills, and thereby bring your two dollar “personal debt” down to zero dollars.
I tell them that because the United States has $14 trillion dollars in T-Securities and not $14 trillion dollars in currency, we have a “national debt” of $14 trillion dollars, do you agree that this is correct?
For the people whom I can see the light bulb light up over their head, I can stop right there.
For the people whom I can see are confused, I tell them “technically” I would be correct but, but “actually” I would be wrong, because the United States can easily convert the $14 trillion dollars in T-Securities into $14 trillion dollars in currency by debitting the government’s T-Securities account and creditting the T-Security owner’s bank accounts, and thereby bring our $14 trillion dollar “national debt” down to zero dollars!
I say that being able to simply credit a bank account without debitting another bank account is the benefit of the United States being a MONETARY SOVEREIGN, and when they ask what is a MONETARY SOVEREIGN, I refer them to this blog and hopefully we gain a new convert!
LikeLike
There goes their legacy:
One day, soon I hope, when the tipping point comes, and the public begins to understand at least the basics of Monetary Sovereignty, guys like Stockman and Stern finally will get it, and announce they knew it all the time.
Rodger Malcolm Mitchell
LikeLike
I blame it on the teachers, not the students. Economics was hard enough when it was taught before 1971, and now you want people to forget all they know and adopt something totally contrary. Like, oh, we’re sorry, gravity goes up now, not down. How did Einstein’s ideas become “mainstream” knowledge? Not the low-level technicals, which very few understand, but every grade-schooler knows e=mcsquared and its implications, even if they can’t do the calculations. Figure that out, and you will be able to educate people. Personally, I find the tone of this blog somewhat offputting, often even insulting, not something that would appeal widely.
LikeLike
John, the weird thing is that pre-1971, mainstream economics was much closer to the post-1971 reality. 1971 returned money back to what it always really was, fiat money, sovereign money. All that Nixon did was have the USA stop running a Gold Shoppe that bought and sold gold – why on earth should governments do that?
1971 made things simpler. But simultaneously, the mainstream completely forgot the last few decades of the enormously successful Keynesian era, and resurrected ancient and remarkably stupid, illogical & preposterous theories, exactly when they had no truth whatsoever in them. And then dressed them up in misunderstood pretend-mathematics to make the dopes propagating them look smart. And these frauds had amazing success miseducating everyone, ordinary people, to be even stupider & less in contact with reality than at the height of the gold standard era!
The problem with MMT/MS is that it is “so simple it repels the mind”. After studying it a while you realize that you knew, everyone knows MMT/MS already, since childhood. It is mainly a matter of getting rid of crazy ideas that make no sense, not learning really new ones.
LikeLike
I graduated in 1972, and Keynes was what was taught to me. No mention of chartalism or MMT. They told me that Keynes said we should manage aggregate demand by having a surplus during expansions, and a deficit during contractions. That the Federal Reserve controlled the supply of money, and thus the price level. I don’t know what was taught before 1971, but nobody told me it had suddenly changed.
They also taught a little Friedman, who said the money supply should grow at a steady rate, along with the economy. Somewhat like MMT, although he thought the Fed created money, not the Treasury, and operated more or less independently of the Federal budget.
Maybe for someone whose first exposure to economics is MMT, it may seem simpler. For me, there was a lot to unlearn.
For one who has never studied economics, I doubt that the idea that the Federal budget has to follow different rules than the family budget is simple or intuitive, otherwise the goal of deficit reduction and balanced budget would not have such wide popular appeal.
LikeLike