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