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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To help you understand the wonderful world of economics, I give you excerpts from the following Associated Press article:

Deep spending cuts pose a new threat to US economy.
By Christopher S. Rugaber, AP Business Writers | AP – Fri, Nov 18, 2011 11:51 AM EST

WASHINGTON (AP) — Just as the U.S. economy is making progress despite Europe’s turmoil, here come two new threats. A congressional panel is supposed to agree by Thanksgiving on a deficit-reduction package of at least $1.2 trillion. If it fails, federal spending would automatically be cut by that amount starting in 2013.

Congress may also let emergency unemployment aid and a Social Security tax cut expire at year’s end. Either outcome could slow growth and spook markets.
[…]
Many economists hoped that an extension of the Social Security tax cuts and unemployment benefits would be part of a supercommittee deal. . . . The Social Security tax cut gave most Americans an extra $1,000 to $2,000 this year. Unemployment benefits provide about $300 a week. Most of that money quickly and directly boosts consumer spending, which drives the economy.

By contrast, an expiration of those benefits could cut growth by about three-quarters of a percentage point, economists say. Throw in other cuts, like those passed in the August debt deal, and all told, federal budget policies could subtract 1.7 percentage points from growth in 2012, according to JPMorgan Chase and Moody’s Analytics.
[…]
“It would be very difficult for an economy that’s doing well to digest, let alone one that’s barely growing at potential,” said Ryan Sweet, an economist at Moody’s. “That could unwind a lot of the improvement we’ve seen so far.”

The economy grew at an annual rate of 2.5 percent in the July-September quarter. Some analysts fear it could fall below 2 percent next year, especially if the emergency unemployment benefits and Social Security tax cuts aren’t renewed.
[…]
If the automatic spending cuts take effect, the defense budget could be cut by nearly $500 billion over nine years. Some contractors are nervous. Wes Bush, CEO of Northrop Grumman, has told analysts that the company is bracing for spending cuts. “It’s certainly going to be a more challenging environment” next year, he said.

O.K., we understand and agree. Moody’s says spending cuts will adversely affect economic growth. Absolutely true. It’s what we’ve been preaching for years. But wait. Continuing to read the same article, we find this:

Some investors fear that the supercommittee’s failure would spark fresh downgrades of U.S. debt. Standard & Poor’s downgraded the government’s long-term debt in August. That contributed to a stock market plunge. It’s possible that a deadlocked supercommittee would lead the two other major rating agencies — Fitch and Moody’s — to follow suit.

Huh? Spending cuts would adversely affect the economy, reducing economic growth. Reducing economic growth would prevent rating agencies from downgrading U.S. credit??

But wait. Continuing in the same article we read:

Some economists say the automatic spending cuts could actually boost confidence a bit: They would reassure the world that the U.S. government can make progress in shrinking its deficit.
[…]
Priya Misra, an analyst at Bank of America Merrill Lynch, estimates that Congress will need to find $2 trillion more in cuts by August 2013 to prevent another credit downgrade.

So let’s get this straight. Spending cuts will hurt the economy. They will reduce economic growth and take spending money from consumers. Hurting the economy, reducing economic growth and taking spending money from consumers will reassure the world and boost confidence and prevent a downgrade in credit.

And this is what passes for logic in mainstream economics.

Yet the “99%” believes it.

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

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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This is a note to those who have fallen for the Tea Party’s, anarchist nonsense that “government is the problem,” and the Republican’s suck-up-to-the-rich nonsense that there is too much government regulation, which is stifling the economy. I recommend this article titled: Tiny Rule Change at Heart of MF Global Failure

Here are a few excerpts:

Laurie R. Ferber has quite a resume. She is currently the general counsel of MF Global Holdings Ltd., the New York-based futures and commodities brokerage that filed for bankruptcy on Oct. 31, listing some $40 billion in liabilities.
[…]
Before that, she spent more than 20 years at Goldman Sachs Group Inc., where first she was general counsel for J. Aron & Co., a commodities business that Goldman Sachs bought in 1981, and then was the co-general counsel of Goldman’s principal business, known as FICC — for Fixed Income, Currency and Commodities — when J. Aron was merged into the rest of Goldman’s fixed-income division.

But at the moment, her greatest significance may be as a long-time advocate for revisions to a little-known and vastly underappreciated Commodities Futures Trading Commission rule called Regulation 1.25.

Before 2000, the rule permitted futures brokers to take money from their customers’ accounts and invest it in a number of approved securities limited to “obligations of the United States and obligations fully guaranteed as to principal and interest by the United States (U.S. government securities), and general obligations of any State or of any political subdivision thereof (municipal securities.)” That is, relatively safe securities with high liquidity.

The banks, however, pushed the CFTC to expand the investment options that would allow firms to practice “internal repo.” In this scheme, money is taken from customer accounts and invested short-term in a variety of securities, with the futures brokers reaping the not- insignificant financial rewards from their customers’ money.

And, lo and behold, such efforts were successful. In December 2000, the CFTC agreed to amend Regulation 1.25 “to permit investments in general obligations issued by any enterprise sponsored by the United States, bank certificates of deposit, commercial paper, corporate notes, general obligations of a sovereign nation, and interests in money market mutual funds” — in other words, riskier investments that could make more money for Wall Street.

Then, in February 2004 and May 2005, Regulation 1.25 was further amended and refined to the liking of Ferber and the banks. In the end, the door was opened for firms such as MF Global to do internal repos of customers’ deposits and invest the funds in the “general obligations of a sovereign nation.”

This practice, of course, may well be the centerpiece of the MF Global disaster.
[…]
In a nifty bit of Washington irony, about a year ago, shortly after the Dodd-Frank Bill was passed, the CFTC proposed vastly restricting the way customer money could be invested. . . Unsurprisingly, the reform effort went nowhere. Equally unsurprisingly, one the many comment letters from financial professionals to urge the CFTC to keep the status quo came from Laurie Ferber.

Too much regulation? Too much government? Ask the Tea Party. Ask the Republicans. No, better yet, ask the thousands of people who have lost billions of dollars to crooked financial companies, for lack of regulatory oversight – you know, that stifling stuff that keeps the rich from cheating the poor.

On the same web page, you will find an editorial from Jesse’s Café Americain:

History shows that it is never the initial criminal action that brings down a government, but it is always the subsequent coverup and obstruction of justice that destroys careers and cripples administrations and their parties.
[…]
The ideological fantasy that government is the problem, and simply getting rid of it is the answer, is a great propaganda slogan for white collar criminals to promote, but it makes little sense in the real world of flawed human beings and a persistent rogue element in any society.

For it is the constant weakening of regulations by the banks and their lobbyists that led to the financial crisis and the looting of the public trust. If the criminals have corrupted the policeman, one does not get rid of the police department as a solution . . . One reforms what has been corrupted, and prosecutes the criminals more vigorously.

The problem is the weakening of government by corruption. And the solution is reform, not more of what went wrong with the rule of law, replacing it with lawlessness.

The danger is that when, in the name of libertarian reform or some other misguided anarchist movement, the laws are knocked down, and the social fabric is torn, very often the worst of us, the truly ruthless opportunists, put forward their ‘strong men’ or a ‘great leader’ to bring back order and act as the law, or merely preside over the law of the jungle.

And then begins the real descent into hell.

A brilliant analysis, and one you should remember the next time a politician tries to convince you that the solution to your problems is to cut spending on regulations, untie the hands of business, and let the good times roll.

In summary, you are being lied to. You are being lied to when you are told the federal deficit is too high, as the media claim. No, Social Security and Medicare should not be cut to “save” them. No, payroll taxes should not be increased. No, the federal government is not “broke,” as John Boehner famously lied, nor is it “living beyond its means,” as Barack Obama continues to lie. No, big government and all those nasty business regulations are not the problem, except for cheaters.

The problem is the 1%, whose control over the politicians, the media and the university schools of economics. They preach the lies, because in every case, the so-called solution benefits the 1% at the expense of the 99%.

And the greatest irony of all: When those of us, who understand Monetary Sovereignty, Modern Monetary Theory and other factual descriptions of our economy, try to explain the truth, the response from 98% of the 99% is something along the lines: “Everyone knows that’s stupid and you’re stupid, too.

Or as Bruce Dold, editor of the Chicago Tribune wrote to me last week, “Thanks again for your thoughts, Rodger. As we’ve discussed before, the editorial board takes a different view on the supercommittee and the importance of deficit reduction.”

The possibility that Bruce Dold and the editorial board of the Chicago Tribune are part of the 1%, surely has nothing to do with their view.

Anyway, the 99% don’t reach for, or even recognize, a life saver when it is thrown to them, even as they drown cursing in this man-made, economic disaster. Their blood is in the water and the sharks still are hungry.

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

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.
==========================================================================================================================================
Perhaps it is my perverse sense of humor that forces me repeatedly to ask debt-hawks the following question (which they never answer):

Read these two important equations in economics:

Gross Domestic Product = Federal Spending + Private Investment + Private Consumption + Net exports

Federal Deficits – Net Imports = Net Private Savings

Based on these equations, how do federal tax increases and/or spending cuts (aka deficit reduction) reduce unemployment or grow the economy?

The clear answer is, “They don’t.” But, consider the Committee for a Responsible Budget, whose president is Maya MacGuineas, and who continually demands the deficit reduction super committee to “go big” — i.e. cut $4 trillion, rather than “just” $1 trillion from the federal deficit.

Maya MacGuineas on “Debt Reduction Done Right”
November 17, 2011

Putting in place a deficit reduction plan to bring the debt back down to around 60 or 65 percent of GDP over a decade creates the opportunity to grow the economy in a number of ways that will not be achieved either through one-off stimulus measures or incremental spending cuts.

Those who understand Monetary Sovereignty are aware the debt/GDP fraction is meaningless. It measures nothing and provides zero information regarding the health of an economy. Go to http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt for a list of countries and their debt/GDP. See if you can see any pattern of economic health by debt/GDP.

Ms. MacGuineas begins her defense of debt reduction with a meaningless goal. But it gets better:

First, it would take off the table the risk of a fiscal crisis. I know that only a few years ago, comparing the U.S. to Greece seemed inflammatory and absurd. However, recent events – including the well-deserved downgrade and the paralysis of our political system – now show the possibility of a full-blown fiscal crisis to be not nearly as remote as we would have liked to believe. Only by charting a new fiscal course will we remove that risk.

Yes, comparing a Monetarily Sovereign U.S. with a monetarily non-sovereign Greece is inflammatory and absurd, almost as inflammatory and absurd as paying any attention whatsoever to S&P ratings. You remember S&P, don’t you? They are the ones who gave AAA ratings to worthless mortgage schemes and to monetarily non-sovereign France, while lowering the U.S. rating, and all the while, accepting money from the very companies they rate.

And to which “fiscal crisis” does Ms. MacGuineas refer? Does she mean the U.S. being unable to create enough of its own sovereign currency to pay its bills? Or does she mean the fiscal crisis caused by debt ceilings along with forced spending reductions and tax increases, i.e. deficit reduction?

Second, implementing fiscal reforms that are comprehensive in nature, rather than incremental, offers the opportunity to restructure our budget and tax systems in ways to promote growth. The key here is switching from a consumption-oriented to an investment-oriented budget.

Let’s parse this gobbledegook: “fiscal reforms” is her synonym for “cut the deficit” and “comprehensive” means “big.” So she is saying big deficit cuts are better than small budget cuts. Why? Because they “promote growth.” How? She never says.

Given those two undeniable equations in economics, deficit cuts simply cannot promote economic growth. But Ms. Macguineas and her group just know in their guts that deficits are bad, cutting them is good, and if its good, it must promote growth, and the more cuts, the more growth.

Anyway, she’s paid to believe that. Here are other comments she makes:

Our debt as a share of the economy is higher than it has ever been in the post-war period, and we are on track to continue adding to it forever.

I certainly hope so. If the economy is to grow forever, the money supply must grow forever, and if the government continues to be required by law, to create T-securities in the same amount as the deficit, the debt must grow forever.

By the end of the decade we could easily be paying interest payments of nearly a trillion dollars per year, which can be described as nothing other than a tremendous waste.

Or, more correctly, those interest payments can be described as a tremendous economic stimulus.

We know not only is the debt already probably a drag on the economy, but that at some point, unless changes are made, it will lead to a fiscal crisis.

“Probably,” Ms. Macguineas? “At some point?” Do I detect a bit of uncertainty there? Or just lack of evidence?

High debt levels harm the economy by diverting capital away from productive investments.

If federal debt is the legal result of federal deficits, which add to the money supply, how does this “divert capital away” from anything?

Higher interest payments in the budget squeeze out other priorities – whether they are other spending or lower taxes – and leave the budget highly vulnerable to increases in interest rates.

Only if there is a foolish debt ceiling, which Ms. Macguineas favors. Remove the debt ceiling and nothing gets squeezed out.

This inequity is exacerbated by the fact that the bulk of our government spending goes to consumption — much of it for the elderly — rather than investments, which would at least have the potential to boost longer-term growth.

And there you have the fundamental Tea Party, right wing mantra: Cut Social Security; cut Medicare; cut welfare, cut aid to the poor, cut all those benefits for “consumption,” i.e. payments to needy people.

To gain further understanding of what economic ignorance can produce, I recommend you read the full text of her paper, which you can find at http://www.riponsociety.org/forum114mm.htm

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