Mitchell’s laws:
●The more federal 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 penalty for ignorance is slavery.
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“Austerity” is a reduction in the federal deficit, which is accomplished via reduced federal spending and/or increased federal tax collections.
According to debt hawks, the “ideal” condition is a balanced federal budget, where spending equals taxes. Under this “ideal,” balanced condition, a nation with a trade deficit (as the U.S. has), will send more dollars overseas than return to our economy. Under a balanced federal budget, the total dollars in the U.S. will decline by the amount of the trade deficit.
Recently, the U.S. trade deficit has averaged about $45 billion per month. So our federal deficit must be at least $45 billion per month for the economy to break even, not counting the effects of inflation.
A common measure of economic growth, Gross Domestic Product, equals Federal Spending + Non-federal Spending, less the Trade Deficit. Austerity requires federal spending to decline and/or non-federal spending to decline, with the later being negatively affected by tax increases.
Austerity always causes GDP to be less than what it would have been, had there not been austerity.
The question then, is what effect does GDP have on austerity? As shown, for GDP to decline, federal spending and/or non-federal spending must decline.
Reduced GDP causes non-federal spending to decline, which causes lower tax collections. If nothing else changes, these reduced tax collections will increase the federal deficit, which will demand further austerity.
To maintain a balanced budget, federal spending also would have to be reduced, but since federal spending is part of GDP, the reduction in federal spending would reduce GDP.
Thus, we have an “austerity death spiral” to depression. Reductions in deficits beget reductions in GDP, which beget more deficits, which can be reduced only by reducing GDP further – a never-ending downward helix, or in the vernacular, an austerity death spiral.
Aside from reversing the trade deficit into a trade surplus, the only way to end the austerity death spiral is to increase the deficit, via federal spending increases and/or reduced taxes.
Republicans want to maintain “low” taxes and to decrease federal spending. Democrats want to increase some taxes and to decrease some spending. Either approach will lead to an economic death spiral.
Can we avoid the austerity death spiral simply by running a trade surplus? Yes, but the world’s balance of trade always is zero. So, if we run a trade surplus, other nation(s) must run a trade deficit. We would avoid depression by impoverishing other nations, which would cause them to have recessions and depressions.
In today’s world economy, where no nation is an “island,” causing foreign recessions and depressions comes back to hurt our own economy, as witness the negative economic effects the euro nations’ own austerity-induced death spirals have had on us.
Straightforward arithmetic shows that deficit reductions (aka “austerity”) reduce GDP, which in turn begins an economic “death spiral” to depression.
Keep this in mind as the politicians in Washington, at the urging of the wealthy class, debate the best way to cause our economic austerity death spiral.
Rodger Malcolm Mitchell
Monetary Sovereignty
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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
#MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
Rodger – – – Can we repost “Death Spiral”: https://rodgermmitchell.wordpress.com/2012/11/24/the-arithmetic-of-austerity-its-not-a-fiscal-cliff-its-a-death-spiral/ ? John
John B. Lounsbury Ph.D. CFPManaging Editor Econintersect.comSenior Contributor TheStreet.comHighly ranked author Seeking Alpha
Date: Sat, 24 Nov 2012 21:47:57 +0000
To: jlounsbury59@hotmail.com
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Hi Rodger- As a clarification for newer readers of the blog, the trade deficit averages about $45 BILLION/month, as you’ve of course mentioned in past posts.
USDC (Census Bureau) Website:
Most recent #’s:
September 2012
Trade Numbers:
Deficit: $41.5 Billion
Exports: $187.0 Billion
Imports: $228.5 Billion
September 2012 Trade Highlights:
September exports of goods and services ($187.0 billion), exports of goods ($134.0 billion), and exports of services ($53.0 billion) were the highest on record.
The September services surplus ($15.9 billion) was the highest on record.
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I think the trade deficit is more like $450 Billion, unless you mean $45 Billion monthly. The total trade imbalance is at about $5 Trillion.
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Yes, thanks. You are correct. Should have clarified, “month.” My readers are my best editors.
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From a Hugo Salinas post at MIsh:
“In the old days of specie currency – gold and silver – this meant that specie would have flowed from Spain to Germany as the counterbalancing entry, and of course this flow created its own resolution. Less gold and silver in Spain relative to the size of its economy was deflationary in Spain and more gold and silver in Germany was inflationary there – until the point where the real exchange rate between the two countries had adjusted sufficiently because of changes in domestic prices to reverse the trade imbalances.
Read more at http://globaleconomicanalysis.blogspot.com/2011/07/hugo-salinas-price-and-michael-pettis.html#r2BjBFyFcqCHxsBF.99”
Gold would resolve a trade imbalance by causing lower prices in importing country versus exporting country. This would mean that the US would have stopped importing from China a long time ago and would have become a net exporter. Our issue now becomes that of lost skills due to so many years without manufacturing. But this would mean a return of jobs to the US.
Fiat does not work. Gold does.
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The Great Depression occurred while we were on a gold standard.
All a gold standard does is limit money growth to the accident of the amount of gold mined, a truly silly, meaningless, non-economic limit.
One might as well limit money growth to the number of pigeons sighted in Lincoln Park, for all the sense a gold standard makes.
Danny, I allowed your post out of charity, but there will be no more gold standard arguments cluttering up this blog. The gold-standard people are even more insufferably cement-headed than are the debt hawks, and no amount of logic or history will make a dent.
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Roger,
Yes,Raising taxes or lower spending is a double edged sword-it will kill you either way.
As for “A plan that could simultaneously (1) cut taxes, (2) end the budget deficit, and (3) increase spending.”
Please, show me where I am going wrong, or better yet, improve on the method, for surely, you would want the common bettering of mankind.
1. The Fed may purchase as many and as much of assets as it wishes or requires to control the quality and quantity of the currency with the only self-imposed restraint being hyperinflation and moral hazard.
Exp., QE 3 (a/k/a QE Infinity)
2. What if the Fed were to use QE as a means to “raise revenue somewhere else rather than raise federal income taxes ?
Rather than allow the “private for profit banks” to make the profit from the compound interest, let that profit go to the US Treasury as income for funding as perscribed by congress.
Why not tax (charge interest) on our own money as issued instead of taxing earned income ?
I await your profound reply, and your consideration that this may be applied to:
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%
But justaluckyfool says, “Delete 3, 7 and 8, redundant since Federal income taxes being reduced to zero would really make them a non issue.”
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The federal government does not need to “raise revenue.” Being Monetarily Sovereign, it creates dollars ad hoc, by paying bills.
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Roger, there is no question of “need”.
Please can question is, Would it be possible ?
Would it: ” cut debt, cut deficits, increase medicaid, increase medicare, increase social security, increase spending, cut taxes, balance the budget, eliminate FICA, reduce income gap” ??
One simple silver bullet; taking the profit banks make from taxing our money and using that profit for the common bettering of the people.
“justaluckyfool”, I await your reply.
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I feel it has become useless answering this question, since you don’t want to hear the answer, but I’ll try one last time:
The federal government does not use income. All dollars going to the federal government are destroyed upon receipt. The government spends by crediting bank accounts, a process that is irrelevant to any dollars coming to the Treasury.
Period.
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@ justaluckyfool — Imagine being able to turn on your computer at home, access your checking account at your bank, and change the numbers in your account. You want a hundred million? No problem. Just change the numbers in your account. Would you ever need income? Of course not.
This is essentially what the U.S. government does. It’s how all fiat money systems operate in Monetarily Sovereign nations.
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The question is not “need”.
The Fed has proven that need does not exist. A partial audit proved they had “credited” $16 trillion with a click of their keyboard.
This is a fact,you can even get online the names and address of who got what.
The question is, Can the Fed purchase assets and turn the profits over to the US Treasury? We agree the Fed amounts could be unlimited if they wish to release their self imposed restriction.
Could the Fed purchase $1 trillion worth of “State Bonds for Sandy Disaster Relief (0.25%/36yrs)?
Simple question? Please a profound answer.
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*Under a balanced federal budget, the total dollars in the U.S. will decline by the amount of the trade deficit.*
The dollars in the US don’t decline by the amount of trade deficit. Those dollars just turn into liabilities/ loans or simple IOUs of US federal reserve to rest of the world. Had say oil trade not denomiated in US$ but say instead in SDRs and say US could not export War at will, then federal reserves endless dollar printing spree would have ended long ago.
Regards,
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What do these “liabilities/ loans or simple IOUs of US federal reserve” promise in return?
Even without the reserve currency status or petrodollars status, the US will still be the world’s largest consumer, which means, the trade deficit will continue, leading to increasing demand for US dollars.
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That will happen until something breaks, which eventually it will. Please see:
http://searchlight-is-on.blogspot.in/2012/11/a-taker-nation-dollar-addiction-and-its.html
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“What works for a family, works for a country too.”
The person who wrote this is ignorant of Monetary Sovereignty.
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“eventually” – There’s that the mythical word again. That’s like saying, Eventually this world may end, so let’s all gather now and commit suicide.
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In today’s column, Paul Krugman validates the wisdom of MS theory.
PK and Rodger teaming up to counter the lies of deficit scolds? Yesss!
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Yes, Krugman is more truthful than usual in that article. This is understandable, because in the current situation, Krugman’s standard “deficit dove” approach would make him look ridiculous even to laymen.
(Deficit doves claim that the U.S. government’s budget deficit must be cut…only not right now. They say that cutting the deficit “too much” is worse than not cutting the deficit at all. If they are asked what is “too much,” they always change the subject, since they have no answer. All deficit doves are morons or liars. All deficit hawks are gangsters.)
Krugman correctly notes that people who are push hardest for U.S. austerity are those in the private equity industry like Mitt Romney and Pete Peterson. What Krugman doesn’t say is that these same creeps made their billions by imposing austerity on companies, destroying them for fun and profit. I could explain exactly how, but my comment would become too lengthy.
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Mark, I love reading your comments. I hope Michael adds you as a guest blogger to this site so that you can post those lengthy comments 🙂 It took me more that 2 years to finally begin to understand Monetary Sovereignty. Reading and commenting on this blog was a big factor. Thank you both.
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