–Lawrence “Sleepy” Summers comedy hour renewed for another season.

Mitchell’s laws: The more budgets are cut and taxes increased, the weaker an economy becomes. Until the 99% understand the need for deficits, the 1% will rule. 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.

Edited from Wikipedia: Lawrence (Sleepy) Summers (born November 30, 1954) is an American economist. He served as the 71st United States Secretary of the Treasury from 1999 to 2001 under President Bill Clinton. He was Director of the White House United States National Economic Council for President Barack Obama until November 2010.
Monetary Sovereignty

“Sleepy” is the Charles W. Eliot University Professor at Harvard University’s Kennedy School of Government. He is the 1993 recipient of the John Bates Clark Medal for his work in several fields of economics.

Those of you who have read my post, Lawrence Summers: Failing to the top, will not be surprised by the following article. You also may not be surprised that it appeared in the Washington Post, which like all mainstream media, has shown no aptitude for economics.

What may surprise you is that some people continue to pay attention to Summers. In the latest installment of the Lawrence Summers comedy hour, Professor Summers says, the U.S. government should borrow the sovereign currency (dollars) it has the unlimited ability to create. Why? Interest rates are low. Yikes!

Washington Post
It is time for governments to borrow more money
By Lawrence H. Summers, Published: June 4

With the past week’s dismal jobs data in the United States, signs of increasing financial strain in Europe and discouraging news from China, the proposition that the global economy is returning to a path of healthy growth looks highly implausible.

It is more likely that negative feedback loops are again taking over as falling incomes lead to falling confidence, which leads to reduced spending and yet further declines in income.

Translation: The problem is what has come to be known as the “confidence fairy,” which leads to reduced spending and falling incomes.

“It has nothing whatever to do with the federal government or with any other government. It’s all the public’s fault.”

Financial strains hurt the real economy, especially in Europe, and reinforce existing strains. And export-dependent emerging markets suffer as the economies of the industrialized world weaken.

Translation: “There is no difference between the monetarily non-sovereign euro governments and the Monetarily Sovereign governments. If you don’t believe me, look at my wonderful credentials.”

To come up with a viable solution, consider the remarkable level of interest rates in much of the industrialized world. The U.S. government can borrow in nominal terms at about 0.5 percent for five years, 1.5 percent for 10 years and 2.5 percent for 30 years. Rates are considerably lower in Germany and still lower in Japan.

Translation: “What? The government doesn’t need to borrow? It can create dollars at will? And, did you say the U.S. and Japanese governments are Monetarily Sovereign, while the German government isn’t? I wish someone had told me this stuff when I was working for Clinton and Obama. Now, what can I tell the kids at Harvard? (Do I have to return the John Bates Clark Medal?)”

These low rates on even long maturities mean that markets are offering the opportunity to lock in low long-term borrowing costs. In the United States, for example, the government could commit to borrowing five-year money in five years at a nominal cost of about 2.5 percent and at a real cost very close to zero.

Translation: “Given the choice of borrowing at low rates or merely creating dollars ad hoc, hey I go for borrowing. That’s what I’ve taught Clinton, Obama and my students.”

What does all this say about macroeconomic policy? Many in the United States and Europe are arguing for further quantitative easing to bring down longer-term interest rates. This may be appropriate, given that there is a much greater danger from policy inaction to current economic weakness than to overreacting.

Translation: “As you know, quantitative easing has been remarkably successful (in my mind), even without any effect in the real world. I still believe low rates stimulate the economy, despite zero evidence this is so. Who needs evidence? I have credentials. Ask Bill and Barack.”

Any rational chief financial officer in the private sector would see this as a moment to extend debt maturities and lock in low rates — the opposite of what central banks are doing.

Translation: “Sure, the U.S. government, being Monetarily Sovereign, has the unlimited ability to create its sovereign currency, which it does by the simple act of spending. And, O.K., the private sector does not have the unlimited ability to create dollars, so to spend, it must earn income or borrow. I see no difference between the two. Do you?”

So, what is to be done? Rather than focusing on lowering already epically low rates, governments that enjoy such low borrowing costs can improve their creditworthiness by borrowing more, not less, and investing in improving their future fiscal position, even assuming no positive demand stimulus effects of a kind likely to materialize with negative real rates.

Translation: “I also don’t know the difference between the U.S. government and the euro governments. Am I really supposed to understand all this?”

These examples are the place to begin because they involve what is in effect an arbitrage, whereby the government uses its credit to deliver essentially the same bundle of services at a lower cost. It would be amazing if there were not many public investment projects with certain equivalent real returns well above zero. Consider a $1 project that yielded even a permanent 4 cents a year in real terms increment to GDP by expanding the economy’s capacity or its ability to innovate. Depending on where it was undertaken, this project would yield at least an extra 1 cent a year in government revenue for each dollar spent. At any real interest rate below 1 percent, the project pays for itself even before taking into account any Keynesian effects.

Translation: “Presidents Clinton and Obama bought this garbage. So do my students. You should, too.”

There is, of course, still the question of whether more borrowing will increase anxiety about a government’s creditworthiness. It should not, as long as the proceeds of borrowing are used either to reduce future spending or raise future incomes.

Any rational business leader would use a moment like this to term out the firm’s debt. Governments in the industrialized world should do so too.

Translation: “When I say, “a government,” I believe all government’s are the same. Oh sure, some have a sovereign currency, some don’t. And I was told business finance is completely different from Monetarily Sovereign finance, but does that really matter? I mean, really?”


And that, dear reader, is why the U.S. economy, and indeed all economies, are in trouble. The Lawrence Summers of the world have led us here. This is a guy who has caused the U.S. as much damage as any man alive – and continues to cause damage — and we were worried about Osama bin Laden?

I award Sleepy Summers five clowns along with a great big “thank you” for the entertainment he continually provides.


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


4 thoughts on “–Lawrence “Sleepy” Summers comedy hour renewed for another season.

  1. I notice he doesn’t even know what a negative feedback loop is. Maybe economists should study engineering as an undergraduate major before they are allowed to study any sort of economics as a graduate degree.

    For those reading this who don’t know about feedback loops, positive feedback loops occur when a change causes something to happen which increases the change in its original direction. Negative feedback loops occur when a change causes something to happen which reduces or limits the amount of the original change.

    In most systems, negative feedback loops are good because they help to stabilize the system. As some change is introduced, negative feedback slows the change, allowing those operating the system a chance to evaluate its effects and decide whether to increase or decrease that change. Positive feedback loops can cause a minor blip to turn into a catastrophe. For instance, the Chernobyl accident occurred because a positive feedback loop in the system caused a minor incident to spiral out of control so quickly that the reactor operators did not have opportunity to correct the situation. The Three Mile Island incident had various negative feedback loops in the system, so the harm was limited. In both accidents an unexpected change disturbed an otherwise normal process and in both cases a nuclear reactor was made inoperable. In the one case many people died, many more suffered radiation sickness, and many square miles of land were contaminated such that they are still unfit for human habitation. In the other case radiation releases were minor, no one died, the only harm to a person I’ve heard about is one technician getting burned while working on some equipment to fix or rectify the problem. Had Chernobyl negative feedback loops in its design, the reactor incident might never have been bad enough for anyone but the operators to know it happened. Had Three Mile Island positive feedback loops in its design, much of the land downwind and the river downstream would have been uninhabitable for years or even decades.

    So an economist or calls positive feedback loops negative feedback loops because the consequences are negative needs to relearn his terminology or get out of the profession.


  2. In a perfect world, the following people would have comprised President Obama’s inaugural economic team:

    Secretary of the Treasury – Rodger Mitchell
    Chairman of the Federal Reserve – Warren Mosler
    Secretary of Labor – Randall Wray
    Secretary of Commerce – Stephanie Kelton

    If this had been the team, we’d probably have a poverty rate below 10 percent by now. Oh well. We humans eventually get things right. Always have, always will.


    1. But the Secretary of Treasury wouldn’t dispurse the funds for the Secretary of Labor’s programs 🙂 hahaha.


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