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.
Here are some excerpts from an article in the Washington Post:
Read the first paragraph and decide what is the bad news:
Health-care law will add $340 billion to deficit, new study finds
By Lori Montgomery
President Obama’s landmark health-care initiative, long touted as a means to control costs, will actually add more than $340 billion to the nation’s budget woes over the next decade, according to a new study by a Republican member of the board that oversees Medicare financing.
No, the bad news is not that the law will add $340 to the deficit. That’s the good news. The bad news is that this is described as “budget woes.” Ms. Montgomery does not understand Monetary Sovereignty, so as a result, does not understand economics.
The study is set to be released Tuesday by Charles Blahous, a conservative policy analyst whom Obama approved in 2010 as the GOP trustee for Medicare and Social Security. His analysis challenges the conventional wisdom that the health-care law, which calls for an expensive expansion of coverage for the uninsured beginning in 2014, will nonetheless reduce deficits by raising taxes and cutting payments to Medicare providers.
No, the conventional wisdom is that federal financing is similar to personal financing, where deficits are bad and surpluses are good. But the federal financing is the opposite of personal financing. The former is Monetarily Sovereign, while the later is monetarily non-sovereign.
Ms. Montgomery, do you see the difference between “sovereign” and non-sovereign? They are opposites.
For instance, when the federal government runs a deficit, the economy runs a surplus. And, when you pay taxes to cut the deficit, that increases the economy’s deficit. This simple fact gives you a choice:
1. The government, which has the unlimited ability to create dollars, and never can run short of dollars, can run a deficit
2. The economy, which is short of dollars, can run a deficit.
Which do you prefer?
The 2010 law does generate both savings and revenue. But much of that money will flow into the Medicare hospitalization trust fund — and, under law, the money must be used to pay years of additional benefits to those who are already insured.
To demonstrate the ignorance of the conventional wisdom, consider this. Lori Montgomery actually believed it was possible to insure an 30 million more people, and additionally “pay years of additional benefits to those who are already insured – while reducing the cost!
And she, and the rest of conventional wisdom, now complain they were fooled?!!
“Does the health-care act worsen the deficit? The answer, I think, is clearly that it does,” Blahous, a senior research fellow at George Mason University’s Mercatus Center, said.
It “worsens” the federal deficit, meaning it improves the private economy’s finances (“Private,” meaning you and me). Remember: Federal Deficits – Net Imports = Net Private Savings. If deficits go down, private savings go down. This is a law of economics.
Medicare is financed in part through a trust fund that receives revenue from payroll taxes.
Here comes accounting voodoo. If there were no payroll taxes, and no trust fund, the federal government would continue to do exactly what it does now: Pay bills by crediting the checking accounts of hospitals, doctors and pharmaceutical companies. Absolutely nothing would change.
Before Obama’s health-care act passed, the trust fund was projected to be drained by 2017 (later updated to 2016).
More accounting voodoo. The so-called trust fund is an accounting fiction that does not exist in the real world. Those checks to doctors come from the Treasury. The checks are instructions to doctors’ banks, telling the banks to increase the doctors’ checking accounts. The Treasury can send these instructions, endlessly, and banks will obey, endlessly. That’s how dollars are created.
“This isn’t just a persnickety point about the intricacies of budget law,” Blahous said. “If Medicare were going insolvent in 2016, you’d better believe right now there would be more pressure on lawmakers to do something about it. . . . It’s essential that there be a full public understanding of the most economically significant federal law in years.”
Amen to that, brother. It is absolutely essential that there be a full public understanding of the realities of federal financing, i.e. Monetary Sovereignty. Medicare is a federal agency. The federal government, being Monetarily Sovereign, never can be insolvent, so none of its agencies can be insolvent.
I award Lori Montgomery three dunce caps (My memory says she already has received some, so perhaps she is a professional collector.)
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