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.

Latest news on the world parade:

Merkel vows faster eurozone reform after S&P downgrades
Yahoo Finance, Reuters 1/14/12, By Robin Emmott and Brian Rohan

European leaders promised on Saturday to speed up plans to strengthen spending rules and get a permanent bailout fund up and running as soon as possible, a day after U.S. agency S&P cut the ratings of several euro zone countries’ creditworthiness.

In a conference call with reporters and analysts after downgrading nine of the euro zone’s 17 countries, Standard & Poor’s said it saw continued risks from the debt crisis that has overshadowed Europe for the past two years and said the single currency area was heading towards recession.

It also warned that France, which suffered a downgrade to AA+ from the top-notch AAA, was at risk of further cuts if a recession further inflates its debt and budget deficit.
“The policy response at the European level has in our view not kept up with the rising challenges in the euro zone,” S&P credit analyst Moritz Kraemer said on the call, forecasting a 40 percent chance of euro zone gross domestic product contracting by up to 1.5 percent in 2012.

Hmmm . . . I wonder why a group of nations, each having surrendered their single most valuable asset — their Monetary Sovereignty — would suffer GDP contraction.

(German) Chancellor Angela Merkel said the downgrades underlined why a so-called ‘fiscal compact’ must be signed by member states quickly, and the next bailout mechanism, known as the ESM, should be funded soon.

“We are now challenged to implement the fiscal compact even quicker … and to do it resolutely, not to try to soften it,” she said at a meeting of her conservative Christian Democrats (CDU) in the northern city of Kiel.

The “fiscal compact,” which I refer to as the “suicide pact,” mandates more centralized EU control over national budgets and sanctions for countries that do not meet deficit and debt reduction targets. Just what anemic nations need: Blood removal.

European Central Bank policymaker Joerg Asmussen warned that Europe’s drive to tighten fiscal rules was being softened, considering the latest draft of the agreement a “substantial watering down” of budgetary discipline because it would allow extra spending in extraordinary circumstances, the Financial Times Deutschland reported.

It’s hard to know whether to laugh or to cry.

Leaders including Merkel have urged countries to tighten their belts with higher taxes and deep spending cuts to rein in massive budget deficits. But that has heightened market concern about their ability to grow their way back to health, pushing borrowing costs even higher for heavily indebted governments.

By what economic mechanism can higher taxes and deep spending cuts rescue an economy? Tea Party insanity has infected Europe as well as the U.S.

S&P said it was not working on the assumption of a euro zone break up, although it blamed its leaders for focusing too much on cutting debts and not sufficiently on competititeveness. “We think that the diagnosis of policymakers regarding the crisis is only partially recognising the origin of the crisis,” said Kraemer, mentioning the focus on budget austerity.

“The proper diagnosis would have to give more weight to the rising imbalances in the euro zone in terms of the external funding positions, current account positions, much of it is based in diverging trends of competitiveness,” he said.

Total gobbledgook. S&P favors austerity — and also doesn’t favor austerity. It straddles the fence, and later, when the whole thing comes crashing down, will say, “I told you so.”

“The downgrade is bad news for Austria but it should wake everyone up when such a thing happens,” Finance Minister Maria Fekter said. “Now everyone recognises that this … is a matter of debt and deficits, not primarily of the economy.”


“The downgrade is far too broad, it effects too many countries, it effects the very credibility of the euro,” (Spain’s) Treasury Minister Cristobal Montoro said on the radio.

The euro has credibility?? Since when? Readers of this blog remember the line, “Because of the Euro, no euro nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the euro.

I said it on June 5, 2005, in a speech at the University of Missouri, Kansas City.

Germany’s Merkel backed a proposal to reduce the reliance of institutional investors on ratings agencies. The idea would be to introduce legislation to allow institutional investors to evaluate risk themselves and make decisions independent from the U.S.-based agencies.

Don’t like the ball game score? Change umpires. Ironically, while the euro nations are angry at S&P, if anything, the ratings are too high, and absolutely, positively will continue to be lowered, unless the EU gives (not lends) euros to member nations.

European leaders are set to meet at a summit on January 30 to discuss how to boost growth and jobs, and Merkel’s words on Saturday suggest she will also be looking for faster progress on tighter common fiscal rules.

That’s the guaranteed-to-fail plan: Try to boost growth and jobs with more austerity. Help a runner by cutting off his feet. Sadly, that’s the same plan the U.S. Congress and President have borrowed from the Tea Party.

However, Merkel is no fool. Austerity will weaken the rest of the euro nations, making Germany even more dominant. That’s the real plan, and the euro nations are falling for it.

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