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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Here is what President Obama said regarding the federal deficit:
Mon, 11/14/2011 – Associated Press
“It feels as if people continue to try to stick with their rigid positions rather than solve the problem,” Obama said of the 12 members of the bipartisan deficit committee. . .
“My hope is that over the next several days, the congressional leadership on the supercommittee go ahead and bite the bullet and do what needs to be done, because the math won’t change. There’s no magic formula. There are no magic beans that you can toss on the ground and suddenly a bunch of money grows on trees. We got to just go ahead and do the responsible thing.”
Obama spoke as lawmakers on the specially created committee appeared deadlocked with a Nov. 23 deadline fast approaching to find more than $1 trillion in deficit cuts or trigger harsh spending cuts across federal programs including the Pentagon.
Has greater ignorance of economics ever been expressed by a President than, ”There are no magic beans that you can toss on the ground and suddenly a bunch of money grows on trees”? Where does Mr. Obama think dollars come from? Is he really saying the federal government is not Monetarily Sovereign and does not have the unlimited ability to pay its bills? Is he really saying federal finances are limited as are personal finances?
I simply cannot believe that a Harvard graduate, a seemingly otherwise intelligent human being, surrounded by the best minds in America, could be so unremittingly ignorant about the most important subject of his administration. And because I can’t believe it, I think there is an underlying cause, and that cause is crass politics.
As I see it, he probably understands the foolishness of his comment, but is trying to appeal to his audience, which repeatedly has been told the deficit is too high and the rich should be taxed. Mr. Obama displays neither the courage or the honesty to tell them the truth, lest they not vote for him. He would much prefer to make the nation suffer than risk his election loss – at least, that’s my take on it. What else could it possibly be?
As I’ve said previously, a person who would injure America for his own personal benefit – that’s the definition of a traitor. So I award President Obama 1 traitor symbol:
Anyway, in the unlikely event he and/or his followers one day might read this post with minds open to learning, along with spirits open to lifting their fellow Americans, here is a simple formula they might understand, accept or reveal to the world:
A= B + C
For those who know basic algebra (I assume President Obama is one of them), it means whatever you do to the right side of the “equals” sign, also is done to the left side. So, if you decrease B without increasing C equally, A will decrease. Basic algebra.
Turning to our economy, how do you know whether it is shrinking or growing, and by how much? The most often used measure of economic growth is GDP or Gross Domestic Product. It measures the dollar value of all final goods and services produced in a country, usually for a 12-month period. One formula for GDP is:
GDP = private consumption + government spending + gross investment + net exports
Again, whatever you do to the right side of the formula, automatically happens to the left. Government spending is one of the four parts of GDP. As in the A = B + C formula, if we decrease government spending, GDP will fall (i.e. the economy will shrink), unless we also increase gross investment, private consumption or net exports by an equal amount.
President Obama seemingly has no plan for how to would increase gross investment, private consumption or net exports. He speaks only of his desire to reduce government spending, which taken alone must decrease GDP. Further, I know of no mechanism by which a reduction in federal spending will increase investment or consumption.
In fact, federal spending reductions tend to reduce investment and consumption. A feedback mechanism multiplies the effect of federal spending changes. See the graph, below.
Looking incrementally, as you did in “Want to stimulate the economy” you can see that the peaks and valleys of the blue line (federal deficit spending) correspond with or precede the peaks and valleys of the red line (private investment) and the green line (personal consumption) by 1-2 years.
Going back to President Obama’s statement, what he really has said is: “We got to just go ahead and do the responsible thing: Reduce GDP, reduce our economy, have a nice big ‘responsible’ depression.’” If he succeeds, a depression is exactly what we will have.
I award President Obama three dunce caps, the 1078th dunce caps I’ve awarded. (He actually deserves more than three, but do you think dunce caps grow on trees?)
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 
Rodger, Rodger, Rodger,
Did your mother never tell you you will catch more flies with honey than with vinegar?
President Obama probably did not study economics at Harvard, but even if he did what would they have taught him? Not MMT, or Krugman and the rest would know it, too.
I would never vote for a Liberal like Obama, because I fundamentally disagree with him on the role of government, but that does not mean he is a traitor, or that he knows how bad his policies are. He is doing the best he can. He needs education, not scolding.
Please, be gentle. Forgive them, for they know not what they do. Getting Krugman on your side would be valuable, but getting Obama on your side would get you 51% of the vote instantly. Is this the message that you think he will respond favorably to? Don’t let your emotions rule your strategy.
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“Please, be gentle. Forgive them, for they know not what they do. ”
President’s advisers should know and most probably do know. So who is holding them back from telling the truth? That is the real question that the readers of this blog need to ponder?
http://aquinums-razor.blogspot.com/2011/11/here-is-how-bankers-game-works.html
mansoor h. khan
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Ah, John,
Does saying someone’s name three times indicate a slightly irritated superiority, as though speaking with a naughty child? Oh, the delicious annoyance you must feel. Still, you read this blog, and write almost as much as me.
Obama is about 25 years younger than me, so his more recent, Harvard education is no excuse for ignorance, but it does indicate he’s at least smart enough to have graduated there. Given he’s that intelligent, and surrounded by advisers, he presumably has heard of Monetary Sovereignty or MMT. Yet, still he “talks stupid.” Why?
And if you think he’s a liberal you haven’t been paying attention. He’s a conservative, i.e. a “liberal” only by comparison with today’s fascist right wing. No true liberal would suggest cutting Social Security and Medicare, a step he long has favored. I know of no prominent liberals, today.
As for being gentle, in order to convince him, I have zero hope that he ever would:
a. Read this blog
b. Care what this blog says
c. Change his tune
I am from Chicago. I know how Chicago politicians think. They have but three concerns: Getting elected; staying elected; power. Daley was a traitor to Chicago; Obama is a traitor to America (though not as evil as the Tea Party)
But hey, if you think he’s not a traitor, only stupid, I’ll go along with damning him with faint insult.
Obama will be the last to fall in line, and then only after a majority of voters believes the facts. He never will lead this parade.
Rodger Malcolm Mitchell
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Rodger,
I read your blog to educate myself. In terms of the economics discussed here, I feel anything but superior.
You claim to want to convince people of the validity and truth of your economics. I’m telling you that you are going about it in a very unproductive way, by berating those who disagree with you. You are free to disregard that advice, of course.
I have no idea what you mean by “delicious annoyance”.
I won’t defend Obama’s lust for power (not unique to Chicago, BTW), or his practice of Chicago politics.
He is a liberal, even compared to others who wear that label in the US. (Someone once said that politics in the US runs the gamut from K to O.) He had the most liberal voting record of anyone in the Senate, while he was there. That makes him more liberal than Bernie Sanders, or Schumer, or Kennedy, or anyone else who was there at the same time.
I understand that some liberals are upset that he has not carried the day in every political struggle, and that he has made some compromises, but he has advanced the cause quite a lot, in the face of strong opposition. He has led the parade for things he believes in, most notably his health care law. He has expanded government from 20% of GDP to 25%, a truly monumental achievement for the liberal movement.
As for cutting Medicare and Social Security, I believe his preference is to means test them, and expand the tax to higher income levels, not to cut across the board. That is the quintessential liberal approach to budget management. The liberal economic objective is to expand government, and to transfer wealth from the “haves” to the “have nots” – exempting themselves, of course. Cutting benefits to those who have more ability to pay their own way is completely congruent with raising the top income tax rate, another pillar of liberal economics which Obama favors, and high estate tax rates, which he also favors.
If Obama doesn’t read this blog (or the others), or care what it says, then how could he know about MMT? Assuming that Obama and/or his advisers are familiar with MMT, which I think is quite a stretch, how are they different from other economists who disagree with you? I gather Krugman argues economics with MMTers in these blogs, or in his own, but I see Krugman on TV a lot and I have never heard him or any other economist mention MMT or Monetary Sovereignty. If you took a poll, I think the number of Americans who have heard of them would be in single digits, if not in decimal places only. It is not part of the political debate at all.
Why does he talk “stupid”? Because that is the language of his audience. The general public would not understand him if he talked MMT to them. For the most part, the only economics they know is the economics of their family. Even those trained in economics at Harvard “know” what Krugman “knows”, and it’s not MMT. And why should he even bring up MMT ideas if he and his advisers are aware of them and disagree with them?
Obama is not an economist, he is a politician, and as you know his objective is to get re-elected, and to leave office with a “legacy” that history approves of, and he knows his best chance of that is to have a good economy on election day. If he were trying to sabotage our economy, then he would be sabotaging his own interests as well. If he knew about MMT, and thought a bigger deficit would help the economy, then he would fight for a bigger deficit just like he fought for his health care bill, which a majority of voters opposed. He does not concern himself with the opinions of the majority of voters on policy matters.
But, enough about Obama. Let’s talk about us. Does the word “curmudgeon” seem to come up a lot? How did that make you feel? More likely to consider my ideas, or less likely?
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John, so we can put an end to the BS, I don’t give a crap what you think about my methods. Your repeated lectures are tiresome and childish. If you have a better way, take the trouble to begin your own blog (or is it too much work?) and demonstrate to the world how superior you and your method is.
As for Obama, his legacy will be he didn’t understand economics, and as a result, the U.S. lingered in semi-recession for his entire term.
Rodger Malcolm Mitchell
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The most fundamental mistake is to analyze Obama on the assumption that he is a real American who wants the best for the United States.
Aside from a few unimportant longterm events such as killing Bin Laden, Obamas policies and actions consistently are contrary to US well being.
His cohorts and cabal surrounding him, quietly and in sinister ways driven and financed by Soros are a better way to point out his ‘mistakes”.
Obama is not making mistakes. What he and his cohorts are doing is deliberate and aims to diminish the USA .
$2 Billion for Off Shore drilling in Brazil? Soros is a large stockholder in the Brazilian off-shore project? Obama guarantees the US will buy all that Brazilian off-shore oil while killing the Louisiana off-shore industry ?
Obama has said that the European “government” of America that took the land from the natives was no more legitimate than that of the South African (white) government that took S. Africa from the Africans.
As long as you understand that Mau Mau descendent Obama is an anti establishment, angry Chicago organizer poseur with a phony Social Security number and a life’s history that cannot be vetted, it will help worried Americans to understand what is really going on in our White House.
Obama is probably in person a nice fellow to have a beer with in the back yard but when speaking to the entire legislature in India, the stone faced audience showed their contempt for the arrogant big mouth embarrassment confronting them for which they did not have a caste low enough to fit him in.
There is no point in analyzing Obama/Soros. He is not in good faith and will do as much as he can get away with to diminish our America. His contempt for all America stands for is what drives him and makes him the perfect tool for all who hhave written books and led anti American causes in the past 60 years.
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Rodger,
I like the formula!
I think it is especially helpful with engineering types like myself.
If only we could get them to teach this in high school and college.
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“a person who would injure America for his own personal benefit – that’s the definition of a traitor”
I suppose all those bankers, traders, mortgage lenders and financial “experts” should be tar & feathered and hung in the gibbet then!
They knowingly and willingly manipulated the US (and the world’s) financial markets to ensure a crash – knowing they would profit from it.
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Roger I think you are overlooking two things.
[1] If we do not have public monetary sovereignty, then we must borrow our currency from private bankers. Thus, increased government spending can be harmful, since more spending means more debt, the amount of which tends to outpace GDP.
[2] As a corollary, irresponsible government spending is the same as too little government spending. Obama and the Congress want to decrease government spending on social programs, but INCREASE government spending on wars, the Pentagon, the intelligence / security complex, and the bank bailouts. This increased spending is on borrowed money. Thus we go into debt as a nation, in order to benefit the “1%.”
Government spending is a secondary issue. The primary issue is pubic monetary sovereignty, without which we must borrow our own currency from private bankers. Thus everything the government does puts us further into debt.
Suppose government spending got the economy going again. That would mean the masses produce more income tax revenue, all of which (at the federal level anyway) goes straight back to the private central bankers. We might have jobs, but we would still be slaves. Likewise, if we had a modern-day equivalent of the 1930s WPA, the econmy might improve a bit, but e would still remain slaves.
The private central bankers control not only monetary policy (where the money comes from) but fiscal policy (where the money goes, and is spent). If they don’t like a program because it helps the masses, they simply say “There is no money to pay for it.”
Until this is changed, and control is taken from the private bankers, we are doomed.
I just read an article by a British idiot who says that since electronic fractional reserve banking has increased England’s debt to crippling levels, more power should be given to the private insiders of the Bank of England, who are the lords of debt.
The British clown says we must NOT have public monetary sovereignty…
>>“Of course, we need to shelter this power to create money from vote-seeking politicians. But the power to create money is far too dangerous to leave in the hands of the banks who caused the crisis. Taking this power away from them is our best hope of both ending the current crisis, and preventing the next one.”
That is, he wants to give more power to insiders at the Bank of England. Since he regards those private insiders as benevolent and selfless, he thinks this is the same as public monetary sovereignty.
http://www.guardian.co.uk/commentisfree/2011/nov/15/money-privatised-stealth
Suppose the government did have power to create money, and suppose politicians used that power to get votes. In that case the politicians would have to serve the masses, not the private bankers. Politicians would spend money not on wars, but on things that benefit the masses.
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“If we do not have public monetary sovereignty, then we must borrow our currency from private bankers.”
We have “public” Monetary Sovereignty. The U.S. is Monetarily Sovereign. The federal government creates dollars without the need for borrowing.
“Thus, increased government spending can be harmful, since more spending means more debt, the amount of which tends to outpace GDP.”
All money is debt, and federal spending creates money. So yes, spending creates debt, but money is not harmful.
” . . . irresponsible government spending is the same as too little government spending.”
One man’s “irresponsible” is another man’s responsible. You may think military spending is irresponsible; others believe it protects our freedoms. Further, military spending stimulates the economy and reduces unemployment.
“This increased spending is on borrowed money. Thus we go into debt as a nation, in order to benefit the “1%.”
Federal spending does not require what erroneously is called “borrowing.” A Monetarily Sovereign nation, by definition, does not borrow its own sovereign currency. T-securities (aka “borrowing”) could be eliminated tomorrow. Though the total of outstanding T-securities is near $15 trillion, America is not “in debt.”
“Suppose government spending got the economy going again. That would mean the masses produce more income tax revenue, all of which (at the federal level anyway) goes straight back to the private central bankers.”
Taxes are unnecessary in a Monetarily Sovereign nation. Tax money does not go to private central bankers. Two reasons:
1. Federal taxes are destroyed upon receipt
2. There is no such thing as “private central bankers.” Central banks are public.
I strongly urge you to read: Monetary Sovereignty, several times if necessary, until you understand the concept.
I also recommend Basics.
Rodger Malcolm Mitchell
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Rodger Mitchell claims
[1] The U.S. is Monetarily Sovereign. The federal government creates dollars without the need for borrowing.
>> The federal government does not “create dollars.” It gets its money by issuing securities (T-bills and T-bonds) which are debt. The Federal government owes this debt to the buyers of securities, which include investors and the Fed. To pay on this debt, the Federal government keeps issuing more securities (going more into debt). Issuing bonds (debt) is not the same as issuing debt-free money.
[2] All money is debt, and federal spending creates money. So yes, spending creates debt, but money is not harmful.
>> Incorrect. All money is not debt. Money only becomes debt-based when issued as bonds, and when private bankers are in control. The government, if it had monetary sovereignty, could issue a the debt-free money it chose to.
[3] One man’s “irresponsible” is another man’s responsible. You may think military spending is irresponsible; others believe it protects our freedoms. Further, military spending stimulates the economy and reduces unemployment.
>> People who think that military spending on aggressive imperialistic wars “protects our freedoms” are lying psychopaths. I dismiss them. Further, military spending only stimulates the economy and reduces unemployment for towns that have military bases, and for the small percentage of the population engaged in military industries. By “irresponsible spending,” I mean that which benefits only a select segment of the population. A less wasteful destination of spending would be on, say, rebuilding America’s infrastructure.
[4] Federal spending does not require what erroneously is called “borrowing.” A Monetarily Sovereign nation, by definition, does not borrow its own sovereign currency. T-securities (aka “borrowing”) could be eliminated tomorrow. Though the total of outstanding T-securities is near $15 trillion, America is not “in debt.”
>> The government issues bonds for its financing. Therefore the government is in debt. Yes, T-securities could be eliminated tomorrow if the government had the direct power to create money, without issuing T-bills. But that would be overthrowing the private bankers who own the Fed, which is unlikely to happen.
[5] Taxes are unnecessary in a Monetarily Sovereign nation. Tax money does not go to private central bankers. Two reasons:
1. Federal taxes are destroyed upon receipt
2. There is no such thing as “private central bankers.” Central banks are public.
>> Central banks are NOT public. They are privately owned by stock holders. This applies to all the big banks and Fed banks that are part of the Federal Reserve cartel. As far as federal taxes being “destroyed upon receipt,” I would need to see proof of this before I believe this claim. Regarding taxes, they will always be necessary, if only as a means to regulate the money supply. If too much money (or credit) is in circulation, and inflation looms, then taxes can remove enough money to restore balance.
[6] I strongly urge you to read: Monetary Sovereignty, several times if necessary, until you understand the concept. I also recommend Basics.
Thank you for your patronizing final swipe there. It looks like we will have to agree to disagree about some things. From my perspective, it is you who do not understand monetary sovereignty.
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Rodger,
You have been at this a long time, and have forgotten what it was like to be “blind” like I was, like Obama, the Congress, and all the economists still are!
You presume that Obama knows what Monetary Sovereignty and MMT is, but I believe he is “blind” just like I was only a few years ago.
For example, most people have to take it on “faith” that what you say about federal taxes not being used to pay for federal expenses as true.
If I had not been a computer programmer for the banks and the federal government and never wrote the computer programs that creditted and debitted the accounting books for those entities, I probably would not believe it either, because that is what everyone “thinks” that federal taxes are for, and would have rejected your statement as “crazy”.
Until Monetary Sovereignty and MMT ideas become as entrenched as the idea that federal taxes pay for federal expenses, you cannot expect Obama nor any other president to utter those ideas in public, and not be labeled as “crazy”.
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Critical,
Actually I do empathize with lay people not understanding Monetary Sovereignty. It is alien to what they understand for their own, personal finances. No one is born understanding Monetary Sovereignty.
My complaint is with cement heads who claim to understand economics, but who don’t wish to expend the energy to learn the facts. Obama surely has the opportunity and the duty to get it right, but he keeps telling us the U.S. must “live within its means.” Utter nonsense for a Monetarily Sovereign nation, which has no “means.”
It is an absolute, 100%, undeniable fact that the U.S. pays its bills by crediting bank accounts, and this ability to credit is not dependent on taxes or borrowing. Those who think otherwise simply do not understand how federal financing works, nor do they understand the difference between Monetary Sovereignty and monetary non-sovereignty.
I laugh about debt-hawks who, on the one hand, say the U.S. must borrow or tax to obtain money, and on the other hand who say that “printing money” causes inflation. It doesn’t take too much intellect to see the inconsistency.
If your spending requires you to borrow or tax, then your spending does not creating any new money. So how could deficit spending cause inflation?
Following debt-hawk logic, it would be impossible for the federal government to “print” so much money as to cause inflation.
Rodger Malcolm Mitchell
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