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.

This falls under the category: “When you’ve tried everything wrong maybe, just maybe, you eventually will try something right. The euro zone is coming closer, but still no cigar:

Euro zone may drop bondholder losses from ESM bailout
(Reporting by Julien Toyer, John O’Donnell and Luke Baker in Brussels, Andreas Rinke in Berlin and Mike Shields in Vienna; writing by Luke Baker; editing by Rex Merrifield, John Stonestreet), 11/25/11

BRUSSELS (Reuters) – Euro zone states may ditch plans to impose losses on private bondholders should countries need to restructure their debt under a new bailout fund due to launch in mid-2013, four EU officials told Reuters on Friday.

A good sign. Imposing losses on private bondholders would exacerbate the ridiculous austerity of the euro nations. Taking money out of private hands is economic suicide. (Hello, U.S. debt hawks. Are you listening?)

Euro zone powerhouse Germany is insisting on tighter budgets and private sector involvement in bailouts as a precondition for deeper economic integration among euro zone countries.

Bad sign, for the above reasons.

Commercial banks and insurance companies are still expected to take a hit on their holdings of Greek sovereign bonds as part of the second bailout package being finalized for Athens. But clauses relating to PSI in the statutes of the European Stability Mechanism (ESM) – the permanent facility scheduled to start operating from July 2013 – could be withdrawn, with the majority of euro zone states now opposed to them.

The concern is that forcing the private sector bondholders to take losses if a country restructures its debt is undermining confidence in euro zone sovereign bonds.

Well, of course. Any time you screw a lender, he is less interested in lending again. Commercial banks and insurance companies are lenders. This is what passes for deep insight in the EU.

Berlin wants all 27 EU countries, or at least the 17 in the euro zone, to provide full backing for alterations to the treaty before it will consider giving ground on other issues member states want it to shift on, officials say.

Germany is under pressure to soften its opposition to the European Central Bank playing a more direct role in combating the crisis, and member states also want Berlin to give its backing to the idea of jointly issued euro zone bonds.

Bad sign. Forcing monetarily non-sovereigns to guarantee the debts of other monetarily non-sovereign nations is exactly like forcing New York and California to guarantee the debts of Illinois.

Actually, the ten EU nations, not using the euro (and therefore Monetarily Sovereign) easily could back the debts of the euro nations – if those ten understood they are Monetarily Sovereign (which they don’t.)

While most euro zone countries just want to forget about enforced private sector involvement, some are adamant that there must be a way to ensure banks and not just taxpayers shoulder some of the costs of bailing countries out.

Hey, I hate the banks as much as anyone (See: Brake the Banks), but pulling euros out of the banks merely serves to impoverish an entire economy by reducing the money supply.

The euro zone continues to flirt with the only solution short of dissolution: The EU, being Monetarily Sovereign, must give (not lend) euros to member nations as needed. The EU sort of, kind of, almost wants the European Central Bank (ECB) to provide these euros, but just as they reach out to that solution, they pull back with monetary non-sovereignty ignorance.

Like virtually all U.S. politicians, media and citizens, and most old-line economists, the EU cannot understand the difference between Monetary Sovereignty and their own personal, kitchen-table finances.

To borrow an overworked analogy, the euro nations are like lobsters in a pail. The reason lobsters can’t escape from a pail is because every time one tries to climb out, the others pull it back down.

I award the EU one clown (formerly dunce cap), not only for economic ignorance, but for the humorous visualization of a bunch of lobsters pulling each other down. I now am running the equivalent of a 1351 clown deficit, still with no danger of bankruptcy nor need for austerity. I’m clown sovereign.


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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
b>Gross Domestic Product = Federal Spending + Private Investment + Private Consumption + Net exports