–Baucus, Obama and Rivlin, oh my! Austerity is on the loose. Guard your wallet.

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.

The euro nations, being monetarily non-sovereign, are unable to create their own currency, the euro. So to pay their bills, they are forced to limit their spending to what they can tax and borrow. Economists have given this problem the benign name, “austerity,” and it has led to the economic disasters of Greece, Italy, Ireland, France, Spain and Portugal, with others soon to follow.

Austerity (deficit reduction) always means the slow death of an economy, and it particularly impacts the lower income groups. The wealthy never feel austerity. They still ride their yachts and limousines, and eat at the best restaurants. In fact, austerity increases the income gap between the upper 1% and the other 99%.

By contrast, the U.S. is Monetarily Sovereign, so can create its sovereign currency the dollar — in unlimited amounts. Its spending is not limited to taxes and borrowing, both of which could be eliminated with no effect on the federal government’s ability to pay its bills.

Unfortunately, the Max Baucuses of the world, care nothing about the euro experience (as well as a similar experience which caused the Great Depression.) They treat the U.S. as though it were a euro nation — monetarily non-sovereign — so with deficit reduction, the result will be the euro result. Economic devastation for America.

New York Times
June 11, 2012, 12:44 PM
Baucus Says Tax Overhaul That Raises Revenues Is Moving Forward
By Jonathan Weisman

Senator Max Baucus of Montana, the chairman of the Senate Finance Committee, said on Monday that an overhaul of the tax code was moving forward, but that any plan must raise more revenue, help reduce the deficit and address the nation’s growing disparity between rich and poor.

Translation: Actually, I don’t give a damn about the poor, but I use that “disparity” phrase to fool them into thinking its necessary to raise their taxes and cut their social benefits.

“Everyone needs to contribute,” Mr. Baucus said during a speech at the Bipartisan Policy Center, a centrist research organization in Washington.

Translation: Never mind that the lower 99% will contribute comparatively more, because they have less to spare.

Mr. Baucus said he had been moving forward on a tax code overhaul that would be a pivotal part of any long-term deficit reduction deal. Mr. Baucus participated on Wednesday in a secret dinner on the end-of-year “fiscal cliff” that included Democratic Senate leaders like Charles E. Schumer of New York and Richard J. Durbin of Illinois.

Translation: The “fiscal cliff” is a series of tax hikes and spending cuts (aka “austerity) set begin on Jan. 1. Economists know this could cause the U.S. economy fall back into another recession. Therefore, to prevent the fiscal cliff, I am proposing a series of tax hikes and spending cuts. I know this makes no sense, but the unwashed masses won’t understand that.

That plan is likely to stay under wraps until after the November election, unless broad support for it coalesces earlier. Mr. Baucus does not want partisan lines drawn around the plan during the campaign season.

Translation: In the unlikely event the public catches on to the idiocy of my plan, I don’t want Republicans to get kicked out of office. So we’ll spring it on the people after elections.

In January, the Bush-era cuts to income, capital gains and dividends tax rates are set to expire, and the first wave of automatic defense cuts are scheduled to go into force. A new article in The New Yorker asserts that President Obama, regardless of the election results, is willing to allow all the tax cuts to expire on Jan. 1 if Republicans refuse to compromise on his demands to allow tax cuts for the rich to lapse.

Translation: The President is willing to let the entire country go down the tubes. (“I’m going to hold my breath until I get my way.”)

Mr. Baucus said deficit reduction and tax reform could not be separated. “We simply don’t raise enough revenue.” Since the 1986 tax code overhaul, the American economy has grown by 88 percent, he said, “but the rising tide has not lifted all boats.”

Translation: Sure, cutting taxes has helped economic growth, and the stimulus spending has helped moderate the recession, but the rich still could do better, and I’m going to help them.

He also hinted at major changes to the corporate income tax code that would lower rates and curtail, if not end, the United States’ worldwide corporate income taxation, but would tighten rules that allow American companies to shift income to offshore tax havens. Instead of automatically extending dozens of temporary business tax breaks, he said, Congress this year must pick which breaks should live and which should lapse.

Translation: For corporations, the subject is: Which taxes to cut. For the people, the subject is: Which taxes to raise.

“Tax reform is a once-in-a-generation opportunity,” he said. “We can cement America’s preeminence.”

Translation: We can cement the 99%’s feet and drop them overboard.

“The tax piece of the debt puzzle is going to be given equal prowess with entitlement reform,” said Former Senator Pete V. Domenici, Republican of New Mexico, who, along with the Democratic economist Alice Rivlin, has his own broad deficit reduction plan. “You can’t have one without the other.”

Translation: “Entitlement reform” is our way of saying, “Cut Social Security; cut Medicare; cut Medicaid; cut aid to education; cut all the benefits to the 99%, but do not raise taxes on corporations or on the 1%. Alice Rivlin is part of the old-line, Brookings Institution, that to this day, has not understood what happened on August 15, 1971, when the U.S. became Monetarily Sovereign. She may be a dope, but she’s our perfect tool for fooling the 99%.

[Aside: Cutting taxes on corporations is a great idea, but the rest is bad economics.]

Wanted: One person in Congress who has the intelligence and the integrity to shout from the rooftops: “Cutting the deficit is the dumbest thing any Monetarily Sovereign nation can do. The more budgets are cut and taxes increased, the weaker an economy becomes.”

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


10 thoughts on “–Baucus, Obama and Rivlin, oh my! Austerity is on the loose. Guard your wallet.

  1. Very well said, Roger. Thanks for repeating the anti-austerity message day after day after day. It may seem redundant, but Fox News & company have great success with redundant messaging.


  2. Thanks Dan,

    When you consider all the politicians, economists, “think tanks,” and media who repeat the pro-austerity message, day after day after day, my bit of redundancy is like a sneeze in a hurricane.

    By the way, a reader kindly sent me this excellent commentary by George Soros, who also seems to understand the realities of Monetary Sovereignty — in this case, as it applies to the euro nations: http://www.project-syndicate.org/commentary/the-accidental-empire


  3. “Austerity (deficit reduction) always means the slow death of an economy”

    I agree that in instances where the private sector is reducing debt, the government can stabilize the economy by increasing public debt. However, this claim seems a bit strong if meant regardless of the level at which the deficit begins. In Ireland the deficit shot above 30% in 2010. Was any reduction from that point really sealing their fate?


    1. bubbles,

      Ireland is monetarily non-sovereign, meaning they do not have the unlimited power to create their currency. So large debt can be an unsupportable burden.

      The U.S. is Monetarily Sovereign, meaning it has the unlimited ability to create dollars. It can pay any debt of any size. If the U.S. debt doubled or tripled, the U.S. government still would have no difficulty servicing it.

      Deficit increases are economically stimulative, and deficit decreases lead to recessions and depressions.

      A quick description of Monetary Sovereignty is at https://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/ and throughout this blog.

      Rodger Malcolm Mitchell


      1. Rodger,

        Thank you for the quick response. I fully agree with the distinction made between Ireland and the US, but am not sure that resolves the question.

        Another example, the US deficit peaked at 6% of GDP in 1983 and did not reach that level again until 2009. Yes there were several recessions in between, but growth was otherwise pretty strong.

        Deficit increases, in the short-run, are almost always stimulative and the reverse is true as well. However, that does not mean deficit reductions always cause a recession or depression. I’m arguing that the initial size of the deficit, current economic environment and the amount of non-public debt, among other things, can alter the magnitude and even direction of growth stemming from deficit reductions.


  4. Rodger,

    Max Baucus is a Democrat, which shows that both parties are beholden to the false idea that a balanced federal budget is a desirable goal.

    I still can’t decide which presidential candidate would be worse for the country going forward, Obama or Romney. I think the best we can hope for is that neither party wins both the White House and Congress.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s