●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
The so-called (originally by Ben Bernanke) “fiscal cliff” is, to quote Wikipedia;
. . . laws which, if unchanged, will result in tax increases, spending cuts, and a corresponding reduction in the budget deficit beginning in 2013. These laws include tax increases due to the expiration of the so-called Bush tax cuts and across-the-board spending cuts under the Budget Control Act of 2011.
Translation: The fiscal cliff results from reduced deficits.
Some analysts have argued that “fiscal slope” or “fiscal hill” would be more appropriate terminology because while the cumulative economic effect over all of 2013 would be substantial, it would not be felt immediately but rather gradually as the weeks and months went by.
Translation: Whatever the fiscal cliff is, it will be “substantial” and felt over weeks and months –actually, for years.
The Congressional Budget Office reported an increased risk of recession during 2013 if the deficit is reduced suddenly, while indicating that lower deficits and debt over time improve long-term economic growth prospects.
Translation: Sudden deficit reduction will cause a recession, but through the unfathomable magic of political mathematics, slower deficit reduction will improve economic growth.
How does that work? No one seems to know, or if they know, they aren’t telling.
Nearly all proposals to avoid the fiscal cliff involve extending certain parts of the 2010 Tax Relief Act or changing the 2011 Budget Control Act or both, thus making the deficit larger by reducing taxes and/or increasing spending.
Translation: As we said, to avoid a recession, increase the deficit, but to grow the economy, reduce the deficit. You may find this confusing, but the voters seem to understand it perfectly, as the vast majority favor reducing the deficit while avoiding recession.
What does the Congressional Budget Office (CBO) say?
Large budget deficits would reduce national saving . . .
Uh, er, excuse me, CBO, but how can lower taxes (taking less money from the people) and increased federal spending (sending more dollars into the economy) reduce savings? The actual formula is Federal Deficits – Net Imports = Net Private Savings
Interest payments on the debt would consume a growing share of the federal budget, eventually requiring either higher taxes or a reduction in government benefits and services.
Translation: Raise taxes, cut benefits and destroy lives now, so we don’t have to raise taxes, cut benefits and destroy lives later. (The lives already will be destroyed; no need to do it twice.)
By the way, CBO, but what is that weasel word, “eventually”? Federal spending already has grown massively without tax increases. So why would future spending require tax increases, especially for a Monetarily Sovereign government having the unlimited ability to create its sovereign currency?
Bottom line: Cutting the deficit reduces GDP, and is unnecessary, because the government can create unlimited dollars (and for you debt hawks, no, this does not cause inflation.)
Then, there is this from Fox News (My bible for facts):
Boehner calls on Obama to ‘lead’ on averting ‘fiscal cliff’
Published November 09, 2012
WASHINGTON – House Speaker John Boehner on Friday put the ball in President Obama’s court over the so-called “fiscal cliff,” calling on the president to step up with a solution to avert the double-whammy of spending cuts and tax hikes that threatens to trigger another recession.
“This is an opportunity for the president to lead,” Boehner said late Friday morning. “This is his moment to engage the Congress and work towards a solution that can pass both chambers.”
Translation: We dare you to try to do anything that will benefit the country and make the Democrats look good. We double dare you. Remember your last term? Our filibusters still wait at the ready.
Boehner had already telegraphed that he wants the president to be in the driver’s seat on a deal, and not pass the tough decisions to Congress. “We’re ready to be led,” he said.
Translation: You may be in the driver’s seat, but my foot is on the brake.
The Congressional Budget Office said failing to avert the spending cuts and tax hikes would send the nation into another recession and drive up the jobless rate to 9.1 percent by next fall.
But trust us, in the long term, recession and unemployment actually will be good for America. The higher the jobless rate, the better things will be for the Republicans in 2014. We did it before; we can do it again.
The CBO analysis says that the cliff would cut the deficit by $503 billion through next September, but that the fiscal austerity would cause the economy to shrink by 0.5 percent next year and cost millions of jobs.
Translation: That’s our plan: Cut the deficit; cause a recession.
Democrats continue to demand that the Bush-era tax rates lapse for those making $250,000 and up. Republicans continue to insist on keeping tax rates stable for everyone.
Translation: Taking dollars from the rich, somehow does not take dollars from the economy. No one knows how that works, but it’s great demagoguery, especially to influence clueless voters.
Boehner, though, has said he’s willing to accept “new revenue” in exchange for serious entitlement cuts.
Translation: This has been our goal all along. Cut Social Security. Cut Medicare. Cut Medicaid. Cut aid to the poor. Do everything possible to increase the income gap between the rich and the rest.
Many of his Democratic allies hope Obama will take a hard line when he addresses the matter Friday. Republicans warn that a fight could poison efforts for a rapprochement in a bitterly divided Capitol and threaten his second-term agenda.
Translation: If you sacrifice the benefits to the poor and middle classes — benefits Democrats have struggled to achieve for 70 years — we promise to help you with voters. Really, we do. Would we lie?
A new study estimates that the nation’s gross domestic product would grow by 2.2 percent next year if all Bush-era tax rates were extended and would expand by almost 3 percent if Obama’s 2 percentage point payroll tax cut and current jobless benefits for the long-term unemployed were extended as well.
Translation: Cutting taxes grows the economy. Amazing. Who could have predicted that. Next you’ll try to tell us that increased spending (the other way to increase the deficit) also grows the economy.
Voters can be made to believe anything. So let’s admit that cutting the deficit hurts the economy, but tell them we need to cut the deficit to help the economy. Then, we can cut benefits to the middle and lower classes, increase unemployment and widen the income gap — and the voters actually will believe we’re trying to help them!
Instead of causing a fiscal cliff, we’ll cause a fiscal slide. Both will push the lower 99% income groups to the bottom; one will just do it a little slower.
Ah, the voters, bless ’em. We tell them white is black, and black is white, and they believe it. Anyone want a ride down the fiscal slide?
Rodger Malcolm Mitchell
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%
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 Imports
14 thoughts on “–The cure for the fiscal cliff: The fiscal slide”
From what I’ve read, the deficit and the debt poll quite low on lists of voters’ concerns; politicians and pundits are the ones who can’t stop hystericizing about that non-issue. So, what do we do to put some pressure on the President? How do we get him to say, “Taxes the same or lower; increased spending to reduce unemployment, promote recovery and start to reverse our trend of declining infrastructure and education; reduced deficit: short-term, it’s mathematically impossible to have all three. We won’t give on the spending, so, taxes or deficit, Republicans, take your pick.”
Amazing huh? Austerity will destroy us. We don’t want that. So let’s slow down the destruction a bit. We will still be destroyed, but at least we will avoid being destroyed.
Orwell would be proud. Freedom is slavery. Ignorance is strength. Austerity is prosperity. Leeches cure anemia. I just read a report from the European Commission which claims that the reason why austerity has been so disastrous is that austerity has not been nearly harsh enough. The European masses believe this, yet the masses do not want more austerity. Like average Americans, they live with the anxiety of cognitive dissonance, and they become angry if you offer them relief by explaining the truth. They are not happy unless they are miserable. Perhaps this the only way that humans can form societies in the first place. Perhaps kings and rulers have always known this. “You think me selfish because I rule them, but every time I have tried to make them happier, they went haywire. Since they are only comfortable in slavery, they only want to hear that which maintains their slavery. They only want lies and contradiction. If you do not believe me, then try telling them the truth yourself, and see what happens.”
SIDE THOUGHT: the CBO claims that lower government debt improves long-term economic growth prospects. Nonsense. As Rodger says, the “government debt” is simply the amount of T-bonds that have been purchased. The Fed can pay any interest rate it chooses on those bonds, including zero interest for newly issued bonds. The interest paid on U.S. bonds is the third largest expenditure after the military and HHS (e.g. Social Security), but so what? The government creates money out of nothing. If the government wanted, it could stop “borrowing” altogether (i.e. stop paying interest on T-bonds sold). It could pay off the national debt instantly and effortlessly by transferring all Fed deposits from interest-paying “savings” accounts (i.e. T-bond accounts) to non-interest-paying checking accounts. If people grasp this, they fall back into delusion. “If we were to change things, and have the government create money by keystrokes, then we would have hyper-inflation.” If you then tell them the government already does that, they call you an idiot and they walk away. They shut down.
Yes, perhaps they deserve to be enslaved and impoverished. Just a thought.
You are looking at it incorrectly. Who does not want money? Everyone does…
Money is the last thing you should focus on. We survive and live because someone produces something. We then live in it, we eat it, we drive it, wear it, etc…
Would you produce if the government took it from you after you had spent your money and sweat producing it? Of course not.. You would not…
Your focus should than on those producers… Because money is useless if there is nothing to buy with it. You should focus on how to provide incentive to producers…
GDP is a useless measure when it expands via deficit spending. Output is what you should be looking at. What good is a growing GDP when your output is collapsing?
Wake up folks, time is running short…
How do you measure output?
We have a nation of people who want to work, and a nation of work that needs to be done (e.g. infrastructure repair). However nothing happens, since there is not enough money in circulation. In today’s world, money is our primary means of economic exchange and communication. You, however, say that “Money is the kast thing we should focus on.” Brilliant!
I keep saying you should run for office. You could crush the public with austerity. You could deny people money to pay their mortgages. You could do all manner of evil things. If anyone complained about your selfishness and stupidity, you could tell them that money is the last thing they should think about. Sweet!
Average people don’t care about “evil dictators,” or the “war on terror,” etc. Average people just want jobs. Hence the only distraction that politicians have left is to claim that the U.S. government has a permanent and everlasting “debt and deficit crisis.”
The “fiscal slide” is part of this dance. It lets politicians forever claim that they want to cut the deficit, while they avoid cutting it. My fear is that rthey may actually be planning to let the cliff happen, so they can use the resulting disaster to give Social Security to Wall Street. Amind a brutal depression, politicians can say, “Since the U.S. government is broke, the only way to save Social Security is to privatize it.”
On the other hand, if politicians really do want to avoid the ciff, and have deficit spoending, they can have that, as long they don’t call it deficit spending. Instead, politicians say, “We will fix the fiscal cliff, and address the longer-run fiscal issues.” Translation: “We won’t let the economy crash altogether, but we won’t create more jobs either, since the U.S. government has a permanent and everlasting debt and deficit crisis.”
What else can politicians tell the public?
Most corporate CEOs are politicians. For example, Jamie Dimon , CEO of JPMorgan Chase, says that, “If we solve the short-term fiscal cliff and the longer-run fiscal issues, the economy can boom.” [http://www.cnbc.com/id/49762930 ]
At this point the lower-level stock and bond traders don’t yet know what to do. Will Congress “fix the fiscal cliff,” in which case the traders should go long? Or will Congress impose more austerity, thereby worsening the depression, in which case the traders will want to short the market?
Of course, the traders with the best inside connections know exactly what will happen. They will reap the biggest profits either way.
One of the issues I can’t get my head around is the interest paid on the debt. As the debt grows, there will come a point where the amount of dollars needed to pay interest will start growing exponentially. I agree that there’s been no real correlation between inflation and deficits/debts, but if you create a sufficiently large amount of money in a short enough period of time (like sending a check for a million bucks to everyone), then it will have an effect on inflation.
Help me understand.
Also, Krugman has a good article if you haven’t seen it: http://www.nytimes.com/2012/11/09/opinion/krugman-lets-not-make-a-deal.html?_r=1&
I think he makes a good point, and I hope Obama doesn’t offer up another “Grand Bargain”. This is the kind of pressure that we should all be putting on him.
Krugman is a puzzle. Every time I start to believe he understands Monetary Sovereignty, he says something really, really ignorant. Here is a line from the article you referenced:
“. . . they want to extend the Bush tax cuts for the wealthy, even though the nation can’t afford to make those tax cuts permanent . . . “
Yikes! Completely wrong. Why can’t the nation “afford” tax cuts for the wealthy? Will the nation run short of dollars to pay its bills? His entire article is skewed by the false belief that some measure of deficit reduction is necessary.
The only reason Krugman won a so-called Nobel award, is the award-givers are as economically ignorant as he is.
A Monetarily Sovereign government cannot run short of its sovereign currency. Period.
@ Bropelini: You are assuming that the U.S. government is like a private household, and therefore must have an “income,” and must borrow to keep going. You are also assuming that infinite fiat dollars are somehow finite. The 1% and their puppet politicians want you to assume this, so that you submit to needless poverty. If you could legally print money in your basement, then would you care about debt? NO! However, like politicians, you might pretend that you must borrow, and must have an income, because when millions of people depend on you running your printing press, and you falsely tell them, “We are broke,” then those millions will grovel before you. You run your printing press only enough to keep them alive and groveling, but not enough for them to realize that you have a printing press. As long as people believe your lies, you have godlike power over them. This is what happens in the real world.
The U.S. government has a printing press, so to speak. It is Monetarily Sovereign, meaning the government creates its own currency out of nothing, simply by changing the numbers in computerized ledgers. A Monetarily Sovereign government can never have a “debt crisis.” If it sells T-securities, it does so by choice, not necessity, and it decides what interest rate it will pay on those securities. As of 1 Nov 2012, various investors have purchased an aggregate $16.261 trillion worth of T-securities. This is the “national debt,” i.e. the amount of money on deposit at the Fed, which means that the Fed can boast of having $16.261 trillion in assets. But since this asset money is owed back to investors, the assets are also debts. The U.S. government could effortlessly pay off all this “debt” (i.e. give back all the assets) simply by changing the numbers in computerized ledgers. If it wants to, it can stop selling T-securities altogether.
Unfortunately, most people are not happy unless they are miserable. They enjoy groveling. Hence, most people defend the lies about the U.S. government’s “debt crisis.” And since most people are selfish, they also defend the lies about the “deficit crisis,” so that they can demand that the government spend less money on everyone (except themselves).
Just remember, if I have a printing press, and you do not, then you might have a debt crisis, but I never will.
@Rodger: PAUL KRUGMAN is Lucifer. He is a deceiver, a “deficit dove” — i.e. an elitist who pretends to be a populist. These liars are the most pernicious of all concerning U.S. government finances, since they seduce the masses so easily. They attract readers like mice to a trap by referring to the “deficit hoax,” which for them means that there really is a “debt and deficit crisis,” but there is a “hoax” as to why there is a “crisis.” In this way they ensnare people who might otherwise learn about Monetary Sovereignty.
Seducers like Krugman confirm that politicians are liars, while they insist that politicians are truthful about the “debt and deficit crisis.” Hence they satisfy both the 1% and their slaves (the public). This is why Krugman gets tremendous “screen time” in the media. He is an enslaver who falsely tells the public that “I am on your side,” while he makes it easier for politicians and the 1% to rape the public. His articles consist of affirmation that there is a “deficit crisis,” couched in meaningless gibberish that serves as lubrication for the rape.
When the police want to break someone, it is common to send a “bad cop” and a “good cop” into the interrogation room by turns. The “bad cop” issues threats and beatings, after which the “good cop” enters and says, “I HATE that other guy! Submit and confess, so I can protect you from him!” This back-and-forth process continues until the victim is broken. Paul Ryan and Pete Peterson are examples of “bad cops.” Obama and Krugman are examples of “good cops.” All share the same goal of breaking their victims. The Nobel Committee even gave Krugman a prize for his evil, just as the Committee gave a prize to European Commission tyrants for promoting “peace and goodwill” (i.e. austerity).
Krugman says, “We have a debt and deficit crisis, but the way to cut the deficit is to raise taxes on the rich.” He has been spewing this honeyed venom for so long that no matter how much I expose him as an odious liar, people react by saying, “I think you are too hard on him.” Thus, most people are like victims broken in a police interrogation room who say of the “good cop” that, “You’re being to hard on him.”
It’s a mass Stockholm syndrome.
I’m not assuming the US Gov’t is a household or anything. I’ve been around this site for a bit, so I understand all those fundamentals. I’m just talking about the rate of growth of the money supply.
“Krugman is a puzzle. Every time I start to believe he understands Monetary Sovereignty, he says something really, really ignorant. ”
I feel the same way. I think he might be getting it, but slowly.
“PAUL KRUGMAN is Lucifer. He is a deceiver, a “deficit dove” ”
I don’t know where you’re getting a lot of this. He’s been saying we don’t have a crisis, and has been advocating practically the same thing that MMT’ers and the like have. I don’t think he’s being nefarious, he’s just a Keynesian.
“I agree that there’s been no real correlation between inflation and deficits/debts. . .
” sending a check for a million bucks to everyone. . . “
Monetary Sovereignty preaches that the only restriction on federal spending is inflation — or more specifically, an inflation that can’t be cured by raising interest rates.
If we sent “a million bucks to everyone” we might have such an inflation, so the prevention is: Don’t send a million bucks to everyone.
Meanwhile, since there is no need to issue T-securities (i.e. create debt), the cure to the problem of debt growing exponentially is simply to stop issuing T-securities.
There is no direct relationship between deficits and debt. We could have debt without deficits and we could have deficits without debt. The two are only tangentially related via an obsolete law.
@ Bropelini: “If you create a sufficiently large amount of money in a short enough period of time (like sending a check for a million bucks to everyone), then it will have an effect on inflation.”
The ordinary rules of supply and demand apply only to limited physical commodities like food, oil, gold, or land. You can lower demand (i.e. lower the perceived value of commodities) by increasing supply (i.e. flooding the market with commodities). If demand becomes zero, then the commodity becomes worthless.
Fiat money is different. It is infinite, since it is created in the same way that you create numbers on your computer monitor: by keystrokes. Hence fiat money has its own rules of supply and demand. You can increase demand for fiat money (i.e. increase the perceived value of it) by taxing money out of the economy (making money scarce) and / or by playing with interest rates. If investments denominated in dollars pay you a higher return (pay higher interest), then you have a higher demand for the U.S. dollar system (i.e. you attribute more value to the system, and have more faith in it).
Keep the word “system” in mind, since money is not physical. The paper dollar in your hand is a unit of account that represents a digital value in the monetary system, which itself is like a spreadsheet. Thus, monetary inflation is an erosion of faith in the overall system. In most cases, price inflation only causes monetary inflation (i.e. loss of faith in the system) when alternate currencies are available, or when the money supply becomes so low that the entire system collapses.
THE POINT is that monetary inflation is only tangentially related to the money supply. (In my opinion, Rodger is the only person online who fully understand this. Most MMT people don’t fully get it.) Under the right circumstances, inflation can happen whether we give to each person a single dollar, or a million dollars. It is a question of faith in (or demand for) the entire social, monetary, and governmental system. If faith evaporates, then a government can issue billions of units of currency, and it will make no difference. If you, Bropelini, issue money via computer keystrokes, and I do not accept your authority, then you can type the words, “One quadrillion dollars,” and I won’t care.
So don’t listen to people who condemn MMT as “inflationary.” First, MMT describes the system as it actually works in the real world. Second, the detractors give absurdly hypothetical and extremist examples to support their nonsense. Third, they don’t understand what inflation is. Fourth, there is no universal consensus on how to measure inflation anyway. The USA uses the Consumer Price Index, while the U.K. uses the Retail Price Index. These and other means supposedly measure the “purchasing power” of dollars by hinging everything on prices. How can this be truly accurate, when more dollars can be created?
In my opinion, inflation figures are mainly political gimmicks, designed to manipulate public opinion. They are like unemployment figures. They are like those endless “nationwide polls” that no one participates in.
Yes, inflation is real. So are love and hate and unemployment. However, precisely tracking them is a matter of perspective and opinion. If the corporate media wants you to support a national leader, then the media says that his nation has low inflation.” If the media wants you to hate a national leader, then the media claims that he (or she) is causing high inflation. The media attacks Argentina’s president Fernandez, because she is too much of a populist for the IMF and the U.S. government to tolerate. They say she is causing “high inflation.” (They may be setting up Argentina for another “color revolution” to being Argentina back under the heels of the IMF and Washington.)
Anyway, Rodger is right. His detractors are wrong.
I track inflation by looking at sales receipts.