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.
The UK, like the U.S. is Monetarily Sovereign. It has the unlimited ability to create its sovereign currency, the pound. It can pay any bill of any size at any time. Unfortunately, the UK, like the U.S., does not know it is Monetarily Sovereign, so it acts exactly like Greece, Italy and Spain, which are monetarily non-sovereign.
The UK and the U.S. see their ships of state sinking. They both need to bail them out, but both nations are ruled by leaders who do not understand the fundamental differences between Monetary Sovereignty and monetary non-sovereignty. So they try to solve their economic money shortages by supporting some sectors (big banks, mostly), while reducing support for sectors that benefit the poor (Social Security, Medicare, Medicaid, the military).
This is called: “Save the captain of a sinking boat by bailing water from the bow and into the stern, while throwing the passengers overboard” It’s a first cousin to the famous, “curing anemia by bleeding the patient,” which the U.S. has perfected into an art form.
Here is the UK approach:
UK aims for recovery with £20 billion loan scheme
By Tim Castle | Reuters 11/27/11
LONDON – Britain will underwrite 20 billion pounds of loans to smaller companies in a package of measures to boost the economy, while sticking to a strict austerity programme, Chancellor George Osborne said on Sunday.
Osborne is under pressure to find ways to revive a stagnant economy and avoid a return to recession without compromising a deficit-cutting spending squeeze.
The government will back loans to be made by banks to small- and medium-sized companies to cure a shortage of credit that has hampered Britain’s economic recovery.
The “revive, while deficit cutting” is the classic debt-hawk bailing system. Notice also that it involves loans to companies – loans which, when paid back, will reduce the money supply. Why loans instead of gifts? Because the UK does not know it is Monetarily Sovereign, and we’re talking about small companies, not big banks.
Osborne and his coalition government has staked its reputation on eliminating a budget deficit that was a record 11 percent when it came to power last year by implementing the deepest spending cuts in a generation.
This should read, “Osborne and his coalition government has staked its reputation on eliminating the money growth so desperately needed by his sinking economy.
That has limited his room for manoeuvre, cutting off the route of greater deficit-funding to stimulate growth and drawing criticism from the Labour opposition who say the austerity programme is too tight and should be relaxed.
Who’da thunk? You mean cutting the money supply has an adverse effect on an economy? Imagine that!
The neighbouring euro zone crisis has compounded the challenge, with the government’s fiscal watchdog expected to follow other forecasters next week by slashing its growth outlook for 2012 by more than half. The British economy has barely grown over the past 12 months, with households cutting spending as wages fall behind inflation and unemployment rises.
Captain Osborne says, “Pay no attention to that iceberg, mate. Full speed ahead.”
Osborne said it was the credibility gained by Britain’s adherence to its fiscal plan which meant he was able to create the loan guarantee scheme. “There are many governments at the moment that could not operate a scheme like this because (they) would not be regarded as creditworthy enough to do it,” he said.
Ah, the “credibility fairy.” Here’s how she works. A Monetarily Sovereign nation decides to starve its sinking economy of money. As a result, forecasters expect the economy to sink faster, which provides the economic credibility that allows the nation to lend money it should give.
“We have got a deficit reduction plan that has brought us record low interest rates, that has earned us that triple A credit rating,” said Osborne. “We are absolutely going to stick to that plan because that is what is helping Britain weather this international debt storm and is also helping us lay the foundations of a stronger economy.”
Said another way: “Diving deeper into recession, with the money supply draining away, is what earns a triple A credit rating from the rating organizations that also gave a triple A rating to worthless mortgage securities. Based on our past success, we are laying the foundation for a stronger recession.”
. . . ministers have announced . . . measures to help growth, including backing mortgages for families buying new-build homes and a 400 million pound investment fund to help construction firms finance housing developments . . . an agreement with large British pension funds (to invest) in . . . roads and broadband networks, . . . a 1 billion pound programme to find jobs and work experience for 400,000 unemployed young people, and a 600 million pound investment in specialist maths schools.
Sounds good, right? Now, the other shoe drops:
There has been less detail on the funding for these measures, with newspapers speculating that some welfare benefits will be frozen to pay for them.
Perfect. Take money from welfare recipients to pay for economic growth. The lowest, weakest, least influential part of the 99% will pay for the 1%.
Sound familiar? In America we have a similar, though somewhat different system for screwing the 99%. We cut Social Security, Medicare and Medicaid benefits to “save” these programs (In Vietnam, we bombed villages to “save” them), while bailing out the biggest, wealthiest banks at the expense of the customers they screwed.
And the only ones complaining are the #OWS protesters, whom the 99% abhor for being loud, unkempt and causing traffic jams.
You simply cannot make this stuff up.
I award Chancellor Osborne 2 clowns for obvious reasons.
This brings my clown deficit to 1352. Osborne is worried.
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
One thought on “–Curing anemia by bleeding the patient. Saving the captain by throwing the passengers overboard.”
Is MMT totally unknown or are the politicians pretending that neo-liberal economics is correct?