Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. 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.
Those looking for humor in the Tea/Republican nomination process, have plenty to work with. Newt is everything the Tea/Republicans claim they hate – multiple infidelities plus no economic plan other than going to the moon. And he really expects the right wing (much less, the entire nation) to elect him.
And Ron doesn’t even want the nomination. He’s just hoping for a good seat at the convention, where he will try to barter his handful of delegates for some Flomax.
So we are left to be entertained by Rick and Mitt.
First came Rick:
SAN JUAN, Puerto Rico (AP) — Rick Santorum says making English an official language should be a “condition” of statehood for Puerto Rico. Santorum said Thursday that the island would also have to make sure English is spoken “universally.”
The Republican presidential candidate told a Puerto Rican newspaper in an interview this week that English would have to be the “main language” if Puerto Rico were to become a state.
Then came Mitt:
SAN JUAN, Puerto Rico (AP) — Campaigning in Puerto Rico, Republican presidential candidate Mitt Romney is refusing to back off his criticism of Supreme Court Justice Sonia Sotomayor.
Minutes after arriving in San Juan on Friday afternoon, Romney faced questions about his charge that Sotomayor is an activist judge. Sotomayor, who is of Puerto Rican heritage, is widely supported by local Democrats and Republicans.
So the joke becomes, who will the Puerto Ricans vote AGAINST? The guy who says he will force them to abandon their native language? Or the guy who says he doesn’t like a popular, fellow Puerto Rican?
I award five clowns, one each to Mitt, Rick, Newt and Ron, plus one to the Tea/Republican party — for trying to convince the country that higher taxes and reduced federal spending will, in some mysterious way, help improve employment and economic growth — and for sending in the clowns.
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
27 thoughts on “–Here’s hoping the Puerto Ricans enjoy a good joke — or two.”
Apparently you’re a drive-by-troll over at http://www.chrismartenson.com. You posted twice, 2 yr and 4 mo apart. Did you even look at the responses? You apparently have some fundamental misunderstandings of how the economy and monetary system work. You might be well advised to have a dialogue rather than a bullhorn.
Let’s see how ironic this comment turns out to be. Who wants to lay odds that “Doug” doesn’t respond?
I visited the site, again, and gave a short description of Monetary Sovereignty. My comments were met with derision, swearing and ignorance, which is what has happened on previous visits — and which is why I seldom visit.
For some reason, those people not only are ignorant of economics, but are determined to remain so.
Doug, thanks for your on-point, name-calling, fact-deficient comment. You have added greatly to the dialog.
By the way, do you know the differences between Monetary Sovereignty and monetary non-sovereignty, and the significance of those differences? Perhaps this question will get you quickly to page through this site, in which case I will have helped educate one more person.
Rodger Malcolm Mitchell
I also suggest you read posts #34 and 36 of the above linked thread which respond in some detail to Mr. Rodger’s apparent philosophical underpinnings.
I do find it interesting that Mr. Rodgers dates the beginning of our “monetary sovereignty” to Nixon’s closing of the gold window. He apparently thinks that was a good thing.
I would suggest that it was the beginning of the debt bubble that we are still blowing up. Without some kind of discipline on money “printing” (perhaps some clarification of what is meant by money printing would be in order for another post), the sky’s the limit.
Another point before I move on, Mr. Rodgers poo-poos the importance of having the world’s reserve currency. We will have the opportunity to discover for ourselves the importance of that status when we lose it. The BRIC countries plus Saudi Arabia, Iran and a few others are working diligently to rid us of that burden. They seem to think its important. I read one estimate that when we lose it, the USD will lose about 25% of its value virtually overnight. I consider that important.
Not sure why you like monetary non-sovereignty. It led to the Great Depression and is the fundamental reason the PIIGS are teetering on the edge of bankruptcy, while Monetarily Sovereign nations, with equal debt, have no difficulty whatsoever paying their bills.
Following 1971, every recession was preceded by reduced federal deficit growth, and every recession was cured with increased deficit growth.
You read “one estimate” that losing the title of world’s reserve currency would cost the U.S. dollar 25% of its value. Is, “I-read-one-estimate” your version of evidence? Second, since the U.S. is the world’s only reserve currency, and no other nation has it, exactly how beneficial has it been vs. other nations? And exactly in what way.
As is usual with Monetary Sovereignty deniers, not one scintilla of evidence ever is presented. Just a bunch of “I-read-one-estimate” and other meaningless phrases.
By the way, if the dollar did lose 25% of its value, how would that affect the balance of payments?
I’ll post your next comment IF it contains evidence, and not just “I-read-one-estimate.” This is a science blog, not a rumor mill.
Rodger Malcolm Mitchell
Oh, btw Nathan, I’ll take some of that action. ;^)
Nathan, don’t pay off too soon. Doug’s response was laughable, and of course, lacked data of any sort. It really wasn’t a response. It was just typing.
That #34 to which he referred, challenged me to explain — can you believe it? — Zimbabwe. Yikes! As if I hadn’t heard that argument at least a thousand times from debt hawks.
I answered, “Zimbabwe’s hyperinflation was caused by Robert Mugabe, who stole the nation’s farm land from its farmers, and gave it to people who didn’t know how to farm.”
The thing about debt hawks is, they seldom do any research. They just toss out names, and think they have made some intelligent point. Next, I expect him to ask about the Wiemar Republic, another debt-hawk favorite.
#36 also was laughable. The author said, “a weak Yen will bring about the endgame very quickly… ability to print more “free” Yen notwithstanding.”
I don’t know what the mythical “endgame” is (I expect the author doesn’t either) but a weaker yen will increase Japan’s exports. Since debt hawks often complain about trade deficits, one would think these folks would like more exports. But there is no satisfying them. 🙂
Rodger Malcolm Mitchell
Contrary to everything you say Mr. Mitchell (sorry about the confusion of names), here is a simple schematic of how money is created:
Here’s a more detailed explanation, though it is a year or two out of date.
We have approximately tripled the amount of US currency since 2008 when the Fed commenced monetizing the debt.
The lesson should be clear, the Fed creates money, the US Gov’t does not.
I am starting our very basically so that we can defined terms as we go along. What is your response as it seems to be a basic tenet of your beliefs that the gov’t creates money by paying its bills?
Mr. Mitchell, as a long time member of http://www.chrismartenson.com, I feel I should apologize for the behavior of some (one in particular) members of the site. The language and nonsense is not what Chris wants on the site and is not the norm. I think there have been emotional reactions on both sides, just as there are here, but I would really like it if we could get past that and have a real discussion. I am curious to see how you got to your conclusions.
Assuming you truly would like to begin to understand Monetary Sovereignty, a good place to start would be at: https://rodgermmitchell.wordpress.com/2009/09/07/introduction/
Then, you might look at: https://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/
Rodger Malcolm Mitchell
The graph almost is correct, but it doesn’t show what you may think.
Bank lending does create dollars. In fact, all lending creates dollars. If you lend dollars to a friend, and your friend gives you a note (like an IOU), you two have created dollars.
Whenever you borrow, you create dollars. That is known as “Debt Outstanding Domestic Nonfinancial Sectors — Consumer Credit Sector.” It is one part of the money supply.
First, the “almost” part. It shows “fractional reserve” banking. (The part labeled #1 is the banks obtaining reserves from the Fed).
Because banks have no difficulty acquiring reserves from the Fed or from other banks or from the public, no bank really is limited by reserves. (One of my companies used to lend millions of dollars to banks, as reserves. These loans were known as “overnights.)
Banks actually are limited by their capital. It really should be called “fractional capital” lending. But that’s a detail.
Your big misunderstanding is your belief this shows the federal government doesn’t create dollars by paying bills. This graph merely shows how banks create dollars. It doesn’t show how the federal government creates dollars. That part is omitted.
Think about it: If you receive Social Security benefits, dollars appear in your checking account each month. Where do those dollars come from? How do they get into your checking account? Answer: The Treasury sends instructions to your bank to mark up your account.
If you are a supplier to the federal government, and send an invoice to the government, you will receive a Treasury check. That check isn’t money. It’s instructions to your bank to mark up your account.
When Congress passes legislation that authorizes spending, who does the spending? Not the Fed. Where does the money come from? Treasury instructions to banks.
It is a common misunderstanding that the Fed is an all powerful institution, that creates America’s dollars. Wrong. Mostly, the Fed (and fed banks) are mere conduits for instructions by the federal government and other depositors and borrowers.
While the Fed often is called “independent,” this independence is quite limited, mostly to setting interest rates. The Fed works for Congress and the President, which could eliminate the Fed tomorrow, if they chose to.
If you own a business and have a bank, who runs your business? You or your bank? The Fed is the nation’s bank. Congress and the President run the business.
Rodger Malcolm Mitchell
Well, at least you’ve identified our fundamental disagreement. All lending does not create money. As I pointed out earlier, when I loan someone money, I have to actually possess that money. Whether I hand someone cash or a check, I have to actually have the money to loan. Banks and the Fed don’t. That is the difference.
That iou is not currency, it is merely a promissory note. I suppose its possible that I could pass it on to someone in exchange for a good or service, if that someone knows and trusts me and the lendee, but that is not currency. And, it is highly questionable whether the lendee owes anything to the third party.
As I also pointed out earlier, the Federal gov’t. can’t disburse money it does not have. The periodic fights to raise the debt ceiling are pretty convincing evidence that the gov’t believes that to be the case. They may play around with the books to fudge a little bit, but they don’t create money out of thin air like the banks do.
That’s all I have time for at the moment.
A dollar bill is merely a promissory note. See: https://rodgermmitchell.wordpress.com/2011/06/20/why-a-dollar-bill-is-not-a-dollar-and-other-economic-craziness/ It is evidence you own a dollar, but it in itself is not a dollar. it is more like a title to a dollar — like a title to a house or a car.
You never have seen, smelled, tasted or touched a dollar. A dollar is nothing more than a number in a bank account. The government increases dollars by instructing banks to increase the numbers in bank accounts. A Monetarily Sovereign government can do this endlessly.
Visualize this: There is a giant fire at the Treasury, and all the dollar bills burn up. Is the government now poorer?
The Federal government always disburses money it doesn’t have, partly because the Federal government doesn’t actually “have” dollars. It creates dollars by sending instructions to banks to mark up checking accounts.
The debt ceiling became obsolete on August 15, 1971, when the U.S. became Monetarily Sovereign. If the U.S. had not become Monetarily Sovereign, and still was monetarily non-sovereign, how would your opinions be different?
If you can’t think of any way your opinions would be different, you do not understand Monetary Sovereignty.
Think of this: Where did the very first dollars come from? How were they created?
Rodger Malcolm Mitchell
“Exactly how long would Congress last if the Federal Reserve genuinely started bouncing government checks?”
How would that work? Since it isn’t legal for Treasury to deal directly with the Fed, I have trouble visualizing how the Fed could bounce a gov’t check.
“You never have seen, smelled, tasted or touched a dollar. A dollar is nothing more than a number in a bank account. The government increases dollars by instructing banks to increase the numbers in bank accounts. A Monetarily Sovereign government can do this endlessly.”
Yes I have held and owned a number of real dollars. I grew up out west when silver dollars were still fairly common, and I owned a number of them. I currently own a number of silver eagles that are denominated $1, but are worth around $35 at the moment. That’s real money. The same amount of silver was worth $1 when I was a kid and is now worth $35. What does that tell you?
I agree that the debt ceiling debates are largely charades, but it maintains the illusion that they are trying to be responsible. And it alerts the masses to the next totally irresponsible move by the gov’t.
I know that all nations have fiat money these days. That’s because the US lead the way and, with our reserve currency, all other nations essentially pegged their currencies to the dollar. It worked when the USD was the unquestioned monetary power on earth. Now it is a shadow of its former self and is going to continue to be devalued as long as the Bernank is the chair satan and as long as we continue with the fiat money. Doesn’t it bother anyone here that the Fed chief is purposely devaluing your money by 2-3% per year and perhaps much more if it gets away from him? :^)
I will get to some of your articles, but I have a real job and several gardens to care for. This remarkable spring weather reveals all kinds of jobs I need to do. I just hope we don’t have a hard freeze before summer gets here in earnest.
As I understand your definition of “monetary sovereignty”, it would require fiat money. It cannot abide money of real intrinsic value. In other words:
“Definition: Fiat money is money that is intrinsically useless; is used only as a medium of exchange.”
Is that about right?
To your point about debt ceilings, why do our executive and congressional branches of government keep fighting about them if they are “obsolete?” More later.
‘To your point about debt ceilings, why do our executive and congressional branches of government keep fighting about them if they are “obsolete?” ‘
To keep the proles in the dark.
Exactly how long would Congress last if the Federal Reserve genuinely started bouncing government checks?
There would be uproar.
And until the Fed starts bouncing checks there is ‘de facto’ no debt ceiling, and unless the Fed can continue bouncing checks (as any bank can with a private sector operation) there is no debt ceiling.
The debt ceiling is nothing more than political theatre.
Whether Monetarily Sovereign or monetarily non-sovereign, virtually all nations use fiat money. I can’t think of any nation in the world. that uses money that has intrinsic value. But yes, in order to be Monetarily Sovereign, money must be fiat.
The PIIGS are monetarily non-sovereign, but use fiat money.
The answer to your last question: Ignorance of Monetary Sovereignty. If that ignorance didn’t exist, I wouldn’t have to write this blog.
Rodger Malcolm Mitchell
I told you, you never have seen, smelled, tasted or touched a dollar. A dollar is nothing more than a number in a bank account. You responded:
“I currently own a number of silver eagles that are denominated $1, but are worth around $35 at the moment. That’s real money. The same amount of silver was worth $1 when I was a kid and is now worth $35. What does that tell you?”
It tells me you just made my point. In money terms, that silver dollar was worth a dollar only because of full faith and credit. Had silver declined to 1 cent per ton, that silver dollar still would have been worth one dollar. What you hold in your hand is evidence you own one dollar — evidence, not the dollar itself. And in money terms, it still is worth exactly one dollar.
You say, “the debt ceiling alerts the masses?” The masses already are concerned with deficits and debt. If anything, the masses are over-alerted. The debt ceiling could and should be eliminated, now.
“. . . all other nations essentially pegged their currencies to the dollar.”
C’mon Doug, you’re just making stuff up. Every once in a while I encounter someone who only wants to argue, and will say the most outrageous nonsense, just to keep from admitting error — and to keep from learning. Please don’t become that guy.
” . . . Bernank is the chair satan . . . “
This is the kind of foolishness you see on other sites. I tend to keep it off this site. Consider yourself alerted. Talk facts and evidence.
“Doesn’t it bother anyone here that the Fed chief is purposely devaluing your money by 2-3% per year.”
No, because I understand why the Fed is doing that. Do you? Take your time.
I do understand why Bernanke wants to devalue our money, it is a form of default. He cannot pay off the Federal debt and when the debt service assumes a more destructive share of the budget, the options open to him are overt default or hidden default. He so far has chosen the latter. The other motivation is a little more traditional, that is to provide an incentive for people who are concerned about the value of their savings deteriorating to put that money at risk in the various markets.
Your notion that any money is money only because of “full faith and credit” is intellectually shallow. The fact is that silver will always have intrinsic value. The same cannot be said for fiat money. The source of inflation is reputedly first and always a monitory event, hyperinflation results when there is loss of faith in the money. Silver and gold have always had intrinsic value. They will never go to zero. Paper currency will and has many times.
“I told you, you never have seen, smelled, tasted or touched a dollar. A dollar is nothing more than a number in a bank account.”
This statement simply betrays your own bias. You have defined fiat as the only legitimate money. And then the only authority you cite is self referential. In other words, something is so because you say so. I browsed quickly through the above posts and, it is true my posts are light in authority. That is a fault. But your posts are completely devoid of authority except your own.
This is your blog and you can do with it as you please, but don’t threaten me for not sticking to “facts and evidence” when you have done precisely that. I have stated facts, it is my fault that I don’t have a lot of time to go roaming through all the material I have read over the years to cite specific authority. But, if that is your standard, then I will abide by it. I just won’t post often.
1. Dollar devaluation does not help the U.S. pay its debt. Whether $1 buys a can of peas or a bushel of peas, doesn’t affect the government’s ability to create $1. Think is out.
2. The Federal government could “pay off” the federal debt tomorrow, simply by debiting all T-security accounts and crediting the checking accounts of T-security holders. This is a simple exchange, identical to your transferring dollars from your savings account to your checking account.
This is all part of the difference between Monetary Sovereignty and monetary non-sovereignty.
3. Silver always will have intrinsic value. How does that affect the fact that fiat money is based on “full faith and credit.” The Great Depression began when the U.S. was on a gold standard. So?
4. The money value of silver is different from its commodity value. The money value of your silver dollar is exactly $1. The commodity value is based on the market, just like, iron, lead, diamonds and plutonium.
5. If you want other voices to tell you the same things, go to http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/ and read “7 Deadly Innocent Frauds.” It’s free, online.
Bottom line: You don’t yet understand the differences between Monetary Sovereignty and monetary non-sovereignty. Ask yourself this one question: “How would my opinions be different before 1971 vs. after 1971?”
That’s the date we became Monetarily Sovereign. The entire world of economics changed in 1971. If you can’t think of differences, you’ll know you should try to listen to what I’m trying to teach you.
Rodger Malcolm Mitchell
In an effort to get to the fundamental differences between our points of view, I am trying to get at how your monetary views fit in the context of how I understand that same system.
Your notion of how we could pay off the Federal debt boils down essentially to that slippery term “printing.” Also, discussion of that term requires a clear distinction that you have thus far avoided: The Federal gov’t does not create money, the Federal Reserve does. So, therefore, the Federal gov’t cannot just: “pay off the federal debt tomorrow, simply by debiting all T-security accounts and crediting the checking accounts of T-security holders.”
The Federal Reserve could, I suppose, theoretically create $15 trillion by buying assets from one or more of the dealer banks with “printed” money. The dealer banks would then pass that money along to the Fed. Gov’t by buying more Treasuries. Then the gov’t could, as you say, credit the accounts of the Treasury holders, thereby erasing that debt. But, that would only trade one set of Treasuries for another. The Fed. gov’t would still be $15 trillion in debt, our currency would be diluted by another $15 trillion and the Fed. Reserve would be sitting on an additional $15 trillion of “assets”, most likely consisting largely of Treasuries.
Perhaps you can listen to a portion of this podcast by Chris Martenson and respond to his view of how our monetary system works. At about the 38 minute mark Chris responds to a reader’s question about inflation/hyperinflation with a pretty lucid explanation of what our future holds monetarily.
Granted, I am somewhat of a linear thinker. I like to see chains of logic that hold together in the context of how the real world economy works. If you can poke holes in my understanding of our monetary system, as I discussed above and as Chris discusses on the podcast, perhaps we can come to a mutual understanding. That would be a big step.
Thanks for your continued efforts.
The Federal Reserve is actually part of government. Trying to pretend otherwise is just a silly game.
However if you want to play that game then here is the solution within the current US legislative framework:
“Minting proof platinum coins with arbitrarily high face values, depositing them at the Fed, receiving electronic credits equal to the face value of the coins from the Fed, and then having the Treasury sweep the profits into the Treasury General Account (TGA) can fill the Treasury’s purse to an arbitrary level selected by the President. “
Right on all counts.
The platinum coin approach was suggested as away to get around the meaningless debt ceiling, which itself is a testimony to Congressional ignorance. That nonsense law should have been eliminated years ago, and the fact that it still exists shows how little Congress cares about America. It’s a disgrace — Congress and the law, both.
Further foolishness: By law, the coin must be platinum, not any other material. Can you believe such idiocy?
This is pointless without carefully documenting everything I say. And, it is clear that Mr. Mitchell has set himself up as a teacher rather than someone who is willing to learn or engage in genuine dialogue. Therefore, I’m going to take the time to do a little research and document the points I make and submit the product when I’m done.
In the meantime, Mr. Wilson. The Fed is an independently chartered bank, not part of the gov’t, although it has been granted the power to create money. You can pretend otherwise, but it is clear that from the beginning of our current recession, every move made by the Fed has solely benefitted the banks under its supposed supervision at the expense of taxpayers.
As to your assertion about platinum coins, I am unfamiliar with that program. Could you provide a source?
Doug, the myth of Fed independence is like cockroaches that won’t go away, no matter how hard one stamps.
The Fed is a government agency, whose independence is narrowly limited by Congress and the President. According to the Fed’s own site, the Fed has ” Operational independence–that is, independence to pursue legislated goals.” This independence (in the Fed’s own words), “. . . prevents governments from succumbing to the temptation to use the central bank to fund budget deficits.”
Think about that. The Fed says it themselves. The Fed cannot create the dollars to fund deficits. So where do the dollars come from to fund deficits? Exactly where I have been telling you: From Congressional spending via the Treasury.
On the Fed’s own web site (at http://federalreserve.gov/pubs/frseries/frseri.htm), you will find this sentence: “As they carry out their duties, members of the Board routinely confer with officials of other government agencies . . . ” Got it? OTHER government agencies. That’s OTHER, as in “We’re a government agency and there are other government agencies, too.”
Could it be any clearer than that?
Finally, if you go to http://www.usa.gov/directory/federal/index.shtml, you will see the “A-Z Index of U.S. Government Departments and Agencies.” Scroll to “F” and you will find the link for “Federal Reserve System.” Click on that link, and it will take you to the Fed’s site.
If you don’t accept any of the above, then I agree with you that this is discussion is pointless.
Rodger Malcolm Mitchell