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 euro nations, five of which are referred to as the PIIGS (Portugal, Italy, Ireland, Greece, Spain), are in deep financial trouble because years ago they voluntarily surrendered the single most valuable asset any nation can haveMonetary Sovereignty — and this problem is exacerbated by being net importers.

As monetarily non-sovereign nations they are not able to create their sovereign currency (they don’t have a sovereign currency, in that the euro is not sovereign), and as net importers they see euros continuously drained from their economies. (Germany, a euro nation, prospers because it is a net exporter, thus draining euros from its neighbors).

Those two economic problems, monetary non-sovereignty exacerbated by net importing, are identical to the situation in which the American states, counties and cities find themselves. For the euro nations, there are two, and only two, long-term financial solutions:

1. Return to Monetary Sovereignty by re-adopting their sovereign currencies
2. The EU to give (not lend) euros to member nations as needed.

For the American states, counties and cities, the number of long-term solutions comes down to #2: The U.S. government to give, not lend, dollars as needed.

The Washington Post
States face bleak economic forecast, report says
By Michael A. Fletcher, Published: November 28

States are caught in a fiscal vise as weak economic growth, dwindling federal help and increasing appeals from hard-pressed local governments squeeze their budgets.
The Fiscal Survey of States says that even as states struggle with tepid revenue growth, they will be called on to spend more because of the economic distress caused by continued high unemployment.

“State budgets are certainly improving; however, growth is weak, and there is not enough money for all the bills coming in,” said NASBO Executive Director Scott Pattison. “State officials will still be cutting some programs, and increases in funding for any program except for health care will be rare.”

It is mathematically impossible for any monetarily non-sovereign governments — whether states, counties, cities or PIIGS — to survive long term, without money coming in from outside their borders.

Relying on internal taxes for support is a losing proposition. As inflation-adjusted dollars are drained from a state, either via imports or inflation, fewer tax dollars are available. This produces a downward helix of fewer dollars begetting greater needs, requiring even more tax dollars.

The counties and cities must have state support, while the states must receive federal support. However, the deficit-cutting frenzy in Washington makes federal support of the states difficult, if not impossible.

The report says that Medicaid, the combined federal-state health program for the poor and the disabled, will place the biggest budgetary burden on states. Because of increasing caseloads, declining federal help and spiraling health-care costs, state Medicaid spending is growing much faster than state revenue, crowding out funding for other priorities.

The federal government had provided extra Medicaid help to states as part of the stimulus program. But that help has ended, prompting states to increase their Medicaid spending by an average of 29 percent this fiscal year, according to the Kaiser Family Foundation.

Many states have streamlined their Medicaid programs in an effort to control costs. Still, officials in more than half of the states said in a recent survey that there is an even chance that their Medicaid programs will face a budget shortfall as enrollment continues to increase.

The monetarily non-sovereign states simply cannot afford to pay for Medicaid, nor should they. This program should be folded into Medicare and supported by our Monetarily Sovereign, U.S. government, which easily can afford to do so. Keep in mind that Medicare is not supported by FICA. No federal program is supported by taxes. That is one of the truths of Monetary Sovereignty. So for the federal government to assume all Medicaid payments would not require taxes to be increased by even one dollar.

States are also struggling to meet the needs of local governments. Many states cut aid to localities during the recession, and many of them want it restored.

Ultimately, our lives are local. We urgently feel the effects when our city or village is unable to maintain roads, sewers, water, police, fire protection, zoning and other local initiatives. These are the problems local governments should care for, not national problems like Medicaid and other unfunded federal mandates. There, in fact, should be no unfunded federal mandates.

In addition, states are bracing for further reductions in federal aid that are likely to come from Washington’s efforts to slow the growth of the deficit.

The fiscal pressure on states has become a drag on the job market; local and state governments are shedding jobs, even though the private-sector job market has shown signs of improvement.

State and local governments have cut 455,000 jobs since the beginning of 2010, and public-sector jobs account for the smallest share of the nation’s employment since the 2008 financial crisis, according to the Bureau of Labor Statistics.

The U.S. states, like the PIIGS, are in deep trouble, and for exactly the same reason: They are monetarily non-sovereign and are not receiving sufficient help from their sole Monetarily Sovereign source, the central government.

Unless Congress and the President come to their senses, and begin to understand the facts of Monetary Sovereignty, the states will suffer the same fate as the euro nations: Insolvency leading to chaos. The euro nations are more fortunate in that they have the alternative of leaving the EU. The U.S. states are stuck in that they don’t have the alternative of leaving the Union.

Or do they?

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