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.

Can it be that the mainstream press, after being blind for all these years, is just now, almost, on the verge of, perhaps, possibly beginning to get it?

What S&P’s Downgrades Mean for the Euro’s Future
Time Magazine, By Michael Schuman, January 16, 2012

By focusing primarily on fiscal austerity and liquidity support, Europe has entered a race to the bottom. The more budgets get cut and taxes go up, the weaker economies become.

Hello, Tea/Republicans. Hello, Democrats and the President. Hello, media and old-line economists. Hello, all you who are calling for smaller government and reduced federal deficit spending. Did you understand that? Michael Schuman’s words should be in bright neon, on every road leading to Washington, D.C.: The more budgets get cut and taxes go up, the weaker economies become.

That makes it harder to meet fiscal targets or stabilize debt, leading to more cutting and tax hikes and even slower growth, and so on and so on. Economies enter recessions (which is already happening across Europe), making reform more difficult and spooking investors, causing borrowing rates to rise and putting more pressure on national finances.

It’s a deadly spiral. By simply imposing more rules on fiscal policy – the basis of a German-inspired vision for a more integrated euro zone – Europe’s leaders are setting targets many members can only meet through extensive suffering, and thus, the new drive for reform of the euro zone can make the debt crisis worse, not better.

What’s missing in the reform equation is the other side of integration – not just more dictates and rules, but deeper policy coordination to spur growth and help weaker economies. Instead of an “austerity union” now being pursued, the euro zone needs a true fiscal union, one that doesn’t just penalize rule-breakers, but also uses tax and budgetary coordination to assist debt-ridden economies return to health.

That could include a “eurobond” or other methods towards at least partial debt consolidation. Along with a beefier bailout fund, the euro zone must engage in policy changes across its members to reduce imbalances and aid less competitive economies find growth. We’re not seeing any of this happen.

Unfortunately, Mr. Schuman proposes debt “consolidation,” which is another word for “more-debt, pay-later.” What he should propose is Monetary Sovereignty, which means: Debt is money, and in a Monetarily Sovereign government, increasing government debt, i.e. increasing the money supply, is required for economic growth.

He ends his article with:

Until the leaders of Europe find a way to share sacrifices and allocate losses, the debt crisis will continue to spiral downwards and Europe will remain the biggest threat to global economic stability. If the current direction continues, it may only take a few more rounds before the debt crisis finally delivers the knock-out punch to the euro, and Europe’s dream of integration.

Yikes! “Share sacrifices and allocate losses? Isn’t this the race to the bottom he scoffed at? Instead of sharing sacrifices and allocating losses, how about Monetary Sovereignty, in which sacrifices and losses become unnecessary.

There are two, and only two, long-term solutions for the euro nations:

1. Return to Monetary Sovereignty by re-adopting your own sovereign currency
2. Become a quasi-United States of Europe, with the EU giving (not lending) euros to member nations.

There are no other long-term solutions.

So, Mr. Schuman is almost, but not quite, there. One day, he’ll get it, at which time he’ll say (you know what’s coming), “I knew it all the time.”

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