–Four more VIPs who are clueless about Monetary Sovereignty. Four dunce caps awarded.

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.

It never ceases to amaze at how educated people – people who are expected to understand the subject of their own expertise – in fact, are clueless.

Here are four important, highly regarded people. Read excerpts from an article they wrote.

Washington Post
AIG is still costing taxpayers

By Elizabeth Warren, Damon Silvers, Mark McWatters and Kenneth Troske, Published: March 29

Elizabeth Warren helped establish the Consumer Financial Protection Bureau and is a U.S. Senate candidate in Massachusetts. Damon Silvers is director of policy and special counsel to the AFL-CIO. Mark McWatters teaches taxation and directs the graduate programs at the Southern Methodist University Dedman School of Law. Kenneth Troske is chair of the economics department at the University of Kentucky. They served on the Congressional Oversight Panel established by the Emergency Economic Stabilization Act of 2008.

When the U.S. economy was in crisis in October 2008, Congress passed a $700 billion bailout of our financial system. The Troubled Assets Relief Program (TARP) was heavily scrutinized in the media and passionately debated on Wall Street and Main Street. Congress created a bipartisan committee — on which we served — to oversee the funds distributed through TARP. The committee conducted dozens of public hearings and produced 30 oversight reports.

Compare that experience with a recent event. AIG, a massive insurance company that received $182 billion in TARP and Federal Reserve bailouts during the financial crisis, reported in February that it had earned $19.8 billion in the fourth quarter of 2011. Its profits increased a staggering $17.7 billion — from a loss of $2.2 billion a year earlier — because of special tax breaks from the Treasury Department.

Yet there was no congressional debate, no front-page story, no special oversight committee. What happened?

When filing tax returns, companies must report whether they have turned a profit or lost money. If they have made a profit, they must pay the appropriate taxes. On the other hand, if they have suffered a loss, they may “carry forward” that loss to reduce future tax bills.

But (this) it opens a potential loophole. A business that wishes to lower its taxes might acquire companies with enormous past losses just to minimize its tax burden. To prevent this, U.S. tax law since 1986 has limited carry-forward losses when a company changes ownership.

By any reasonable definition, AIG changed ownership: A controlling stake passed from its stockholders to the federal government. As such, AIG should have been limited in rolling over past losses. Beginning in 2008, however, the U.S. Treasury jumped in with a special ruling that the financial rescue did not constitute a change in ownership. AIG was thus permitted to preserve its pre-bailout losses on its books, and now the company is using those losses to show enormous profits and dodge the taxes it owes on the billions it is earning today.

In the minds of Ms. Warren et al, corporate profits are bad and taxes are good.

This is wrong. At first glance, it may appear that the federal government comes out even because it owns AIG stock and benefits as a stakeholder. But the government owns only about 70 percent of the company, while the deal subsidizes all shareholders, including the private parties that own the remainder. Creditors also benefit because a more profitable company is less likely to default on its loans.

The Congressional Budget Office estimated in December that even without the special break, taxpayers will lose $25 billion on AIG.

And there you have it. Ms. Warren’s group does not understand Monetary Sovereignty. They believe a Monetarily Sovereign government is identical with a monetarily non-sovereign government.

But, the former does not use tax dollars. Why? Because it has the unlimited ability to create its sovereign currency. This is in contrast with the monetarily non-sovereign states and local governments, which do use tax dollars.

Because spending by our federal government is not supported by tax dollars, such spending does not cost taxpayers one cent. If tomorrow, the federal government were to spend $100 trillion, this act would create $100 trillion, and cost you, the taxpayer, zero. (Federal spending is the method by which the federal government creates dollars.)

How sad is it, that national leaders — one of whom teaches taxes and one of whom is a professional economist (yikes!) have no idea about the difference between Monetary Sovereignty and monetary non-sovereignty.

These educated people would rather see dollars flowing out of the private sector (aka “the economy”) to the federal government, which has zero need or use of them. And that kind of “thinking” is why the private sector (you and me) suffers financial problems.

I award 4 dunce caps, one each to Elizabeth Warren, Damon Silvers, Mark McWatters and Kenneth Troske.

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


7 thoughts on “–Four more VIPs who are clueless about Monetary Sovereignty. Four dunce caps awarded.

  1. Of course you are right, but especially allowing tax loss carry forwards for such a federally rescued company is bad. Subsidizing crazy gambling instead of productive enterprise is a real moral hazard, with real destructive effects. People should lose their money if they bet wrong.

    I think the economy would do better if half as much money as AIG is getting/keeping went to Rodger Mitchell, rather than the old AIG stockholders & retained management. Less money in the economy, but I think you would do a better job of distributing and spending it than the AIG gamblers. Of course the aggregate of money counts, the size of the deficit. The deficit should never be low enough to cause unemployment, as it almost always does, due to bass ackwards “economics”. But where the deficit spending, free government money goes counts too.

    It never ceases to amaze at how educated people – people who are expected to understand the subject of their own expertise – in fact, are clueless. Hmm, yes. Inspired me to think of it the other way around. What is amazing is how well people do understand the subject of their own expertise, considering how clueless they are, how fundamental the mistakes they make, how insane the underlying theories, philosophies are.

    It reminds me of blindsight – people with brain damage, who think they are blind, but in fact are not. Or maybe hysterical blindness. Academic economics, these people’s expertise, is like some crazy theory, some fantasized computer beaming information into their minds, that “explains” to such people, and actually can work once in a while in limiting cases they take as general, how they can avoid obstacles and make accurate “guesses” on the colors of objects while being blind.

    MMT & MS is just explaining to people, yes, they actually can see, that it is as simple as it really is. Open your eyes to your eyes. Realize you really understand economics already, that the crazy theory is just an ego-protecting fantasy. Like Jesus curing the blind man.


  2. Holly jesus.

    100 trillion in a 50 trillion economy wont do anything.

    Perhaps the dunce hats should be redirected at those not understanding econ 101, supply and demand.

    What happens when you double the supply of something mr mitchell?


      1. Right…

        Isn’t US population growth average 1.3%? That wont be enough demand…

        In terms of rates, why increase money supply if you will have to raise rates to remove it anyway?

        Truth is an increase of the money supply as you suggest would collapse the dollar and would without a doubt cause hyperinflation.

        Please dont use the defense of the fed giving money to banks to have banks return it to the fed.

        Your statement above states ‘spending’ it into the economy.


  3. Right…

    Isn’t US population growth average 1.3%? That wont be enough demand…

    In terms of rates, why increase money supply if you will have to raise rates to remove it anyway?

    Truth is an increase of the money supply as you suggest would collapse the dollar and would without a doubt cause hyperinflation.

    Does deficits cause inflation?

    I’ve looked at the link you’ve provided.. you are right, a sovereign can create as much money as it wantd. You seem to think that having the ability to issue new currency creates wealth or as the regular Joe calls it ‘money’. Sir, it does not. Your comment above proves that. Supply and demand confirm that the new money, if spent, will drive up goods and services by the same % summing to a zero net gain at best.

    This proves that deficit spending, by inserting more money into circulation, is synonymous with removing a % of purchasing power from the accounts of citizens, including seniors and the poor. The rich, sir, get to hedge this devaluation. This means that deficit spending hurts the poor and seniors even more than the suppose help it provides. Not only that, prices go up, driving up the necesities seniors and the poor need.

    It is my believe that what we need is the opposite. Instead of focusing on the demand side, we should focus on the supply side. We dont eat dollars, but we eat food, we live in homes, we drive cars, we eat, we need food, medical services.

    We should be looking for ways to reward suppliers to increase supplies, which in turn means a higher standard of living for demanders. The amount of dollars does not matter at all, as you rightfully said on one of your posts, savings will come into the economy if credit is not available.


      1. I think it’s pretty clear why…

        Over 95% of our currency is debt/credit. When the banks got in trouble, many loans went poof. As bank loans went poof home prices collapse, also removing access to credit for many.

        Mr Mitchell, credit was collapsing because of the above while the fed and congress bailed out banks and increased deficit spending.

        Not saying that money is not needed. Money plays a vital role in people’s life. But sir, when money is used as a tool to do what a few people think is right we have issues.

        I have my own idea of right, but this may be bad for others. When the fed decides who gets bailed out, when a few in government decide that they will ‘invest’ in x or y, this is synonymous with taking from strong hands and giving it to weak ones. Is it any wonder that the economy stinks?

        Nature, sir, has decided that we have gotten ahead of ourselves and asked us to slow down a bit in 2008. We decided that we would beat nature, and here we are in 2012. You would think we would have learnt by now but, Mr Mitchell, after issuing more than 7 trillion in 4 years we still think it’s not enough. Almost 100% increase in the size of our debt and it’s still not enough.

        But sir, i’m 100% certain that nature will force it’s hand. The only thing i ask from you and the MMTers is to have the decensy of not saying that it was not enough. Not after 7 trillion sir.


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