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 = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Yahoo News, 12/30/11
Spain must stick to deficit-cutting schedule: Rehn
BRUSSELS (Reuters) – It is essential that Spain keep on track in correcting its excessive deficit, Olli Rehn, the EU’s economic and monetary affairs commissioner, said on Friday. “I regret the sizable fiscal slippage relative to the 2011 budgetary target,” Rehn said in a statement.
“It is all the more important now that Spain remains fully committed to the fiscal consolidation path and stays determined to correct its excessive deficit by 2013 as scheduled.”
Spain’s new government said on Friday that this year’s budget deficit would be much larger than expected, and it announced surprise tax hikes and wage freezes. Rehn said he welcomed Spain’s package of policy measures as “a very important step to shore up public finances and reassure financial markets”.
The European Commission would carry out a detailed assessment of the larger-than-expected slippage and the budgetary impact of the new package once it received all the details, he said.
(Reporting by Barbara Lewis; Editing by Leslie Adler)
Tax hikes and wage freezes. Tax hikes remove money from the economy; wage freezes limit consumer spending. Could there be a more misdirected path toward economic recovery? The best analogy is applying leeches to cure anemia.
But what else can Spain do? Its government is helpless. They voluntarily surrendered the single, most valuable asset any nation can have: Their Monetary Sovereignty. They no longer can create sovereign currency to pay their bills, as they have no sovereign currency. They are monetarily non-sovereign. They are drifting in the sea, and the EU refuses to toss them a life preserver.
Why the world (including the U.S. Congress, the President, the media and the old-line economists cannot learn from Spain’s (and Greece’s and Italy’s) experience is mystifying. Our leaders would like to make America monetarily non-sovereign, i.e. unable to create our sovereign currency via deficit spending. Why? Because they believe a Monetarily Sovereign nation is just like you and me. They cannot understand the fundamental differences between federal finances and personal, kitchen-table finances. Our leaders think deficits are bad, and don’t understand deficits are necessary.
They see, right before their eyes, what happens to monetarily non-sovereign governments, including the U.S. states, counties and cities. They are unable to pay their bills. Illinois, with large debt, is months in arrears. The U.S., with large debt, has no trouble at all, paying its debt.
And yet, this evidence makes no impression. It’s as though they say, “Despite all the evidence provided by astronomy, biology, geology, plate tectonics and physics, I believe the world is 5,000 years old, and you can’t change my mind.”
They see, right before their eyes, that Japan is not bankrupt, despite a debt/GDP ratio well above 200%, yet continue to predict disaster if the U.S. debt/GDP ratio reaches 100%.
They see, right before their eyes, how recessions occur when federal deficit growth slows, and how recessions are cured when deficit growth increases, yet continue to speak against deficit growth.
They see right before their eyes how inflation has not been related to deficit growth, but continue to claim federal spending will cause inflation.
They see the equation, Federal Deficits – Net Imports = Net Private Savings, and though understanding that increases in private savings are necessary for economic growth, they rail against deficits.
They see the equation, Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports, and though wanting GDP growth, they cannot assimilate the fact that this requires Federal Spending Growth.
They discuss the fact that raising taxes slows an economy, yet don’t seem to understand why this is so. (Taxes reduce the deficit, taking dollars from the economy.)
They saw that on August 15, 1971, how President Nixon took us off the gold standard, because the U.S. was in danger of not being able to pay its bills. They saw that taking us off the gold standard made it possible for us to pay our bills. Yet they continue to espouse exactly the same economic beliefs, as though this momentous date, August 15, 1971, never happened.
What manner of people are these, who lacking any historical evidence, continue to claim that reduced money creation, or even money supply reduction, will grow the economy and cure unemployment?
Spain will suffer. Greece will suffer. Italy will suffer. Soon the rest of the euro nations will suffer. And the U.S. will suffer, if the debt hawks have their way. But if by some miracle, America’s leaders begin to understand the differences between Monetary Sovereignty and monetary non-sovereignty, we can grow as never before. We once again can create, then live, the American dream.
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
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports