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.
O.K., that’s not a real quote from Mr. Bernanke, but it should be. He keeps doing exactly the opposite of what is needed to grow the economy, and when the economy doesn’t grow much, he does the same thing, even more so.
Let’s keep it in language simple enough even for politicians:
1. Adding money to the economy stimulates it; taking money from the economy slows it.
2. High interest rates force the federal government to pay more interest on its bonds, notes and bills. Low interest rates allow the federal government to pay less interest.
3. Government interest payments go into the economy (except for foreign payments). This enriches and stimulates the economy. Low interest rates provide less money, so enrich and stimulate less than do high rates.
And this is why, contrary to popular myth, low interest rates do not, can not and never will grow the economy. If you own any T-securities, you understand that the government pays you less when rates are low, which gives you less money to spend. (As my grandson would say, “Well, duhhh!”)
Fed says no rate hikes until at least late 2014
Reuters, By Pedro Nicolaci da Costa
WASHINGTON (Reuters) – The U.S. Federal Reserve on Wednesday said it will not raise interest rates until at least late 2014, even later than investors expected, in an effort to support a sluggish economic recovery. Without making major shifts to its outlook for the economy, the central bank described the unemployment rate as still elevated and said it expects inflation to remain at levels consistent with stable prices.
It depicted business investment as having slowed, dowgrading its assessment from the December meeting. Economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014,” the central bank said in a statement.
If the Fed can convince financial markets it will be on hold longer than they had anticipated, long-term interest rates could drop as investors price in the new information. There is also the possibility that officials will announce an explicit inflation target, perhaps a hard marker of 2 percent or a range of 2 percent or a bit below.
Fed officials appear likely to bide their time in determining whether more monetary stimulus is needed. Many economists expect they will eventually decide on another spurt of Fed bond buying – probably one focused on mortgage debt.
In response to the deepest recession in generations, the Fed slashed the overnight federal funds rate to near zero in December 2008. It has also more than tripled the size of its balance sheet to around $2.9 trillion through two separate bond purchase programs. The policy is credited with having prevented an even more devastating downturn, but it has been insufficient to bring unemployment down to levels considered normal during good economic times.
In December, the U.S. jobless rate stood at 8.5 percent, and some 13 million Americans were still actively looking for work but could not find it.
In short, the Fed’s low-rate policy reduces the federal deficit, which in turn, reduces economic growth.
One might ask how the Fed could not understand this basic truth. While I try to answer many questions about our economy, that is one question for which I have no answer.
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