●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.
●Cutting the deficit is the government’s method for taking dollars from the middle class and giving them to the rich.
●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.
President Obama is breaking is own arm, patting himself on the back for applying leeches to an anemic patient (i.e. draining billions of dollars from our sick economy).
He has given the upper .1% income group the increase in FICA (the worst tax in America) they wanted. No, not wanted for themselves. They don’t pay FICA. They wanted it for the 99.9%, to increase the income gap.
Just in this way alone, Obama has damaged America far more than Osama ever did.
Fortunately for the economy, raising the top rate on people making above $400 thousand per year, will collect so little money as to be essentially meaningless. (Those people know how to stay out of the top rate. Ask Warren Buffett.)
So while the tax increase on the rich does no good for anyone, it scarcely does any harm, either. It took Congress and the President all these months to create a nothing. And the Champagne glasses are lifted on high.
(And who cares about that FICA tax increase on the middle class anyway? After all, isn’t the federal government running short of dollars? And the middle and lower classes have plenty of dollars to spare, don’t they?)
The first myth of economics is: Federal deficits are too high. It is a myth promulgated by politicians, who are paid by the upper .1% income group to widen the gap between them and the rest.
The second myth of economics is: Social Security will run out of money. Also promulgated by that same nefarious group, who are paid by that other nefarious group. It’s all about the income gap.
My estimate: About 99% of the nation believes these myths, putting lie to the notion that you can’t fool all the people all the time. (Hey, even I have dear friends who tell me they are proud to pay taxes to support America. And these are advanced-degree-smart people.)
This blog has provided repeated proof of the myths’ fallacies, so we needn’t deal with them further, here. Instead, let’s deal with another myth: Federal deficits are harmful while private borrowing is helpful.
The Fed, Congress, the President, and most of the sages commenting in the media are convinced that all things private are superior to all things public. I often read how “the government doesn’t create anything,” which I suppose almost, but not quite, is true if one eliminates from consideration all federally funded projects that are executed by the private sector.
That is, the government does not build roads, bridges and dams. Private contractors do. The government doesn’t do much research, doesn’t grow much food, doesn’t create many medicines, doesn’t cure diseases, doesn’t do much educating, doesn’t build many ships and planes — the government doesn’t do much except fund these activities — activities that wouldn’t happen without federal funding.
So perhaps, for a new year’s resolution, the wags can vow not to say during all of 2013, “The government doesn’t create anything.”
Sadly, the Fed, an agency of the government (yes, it is), seems to believe the myth, for it repeatedly lowers interest rates (that’s what QE is all about) in a silly effort to get the private sector borrowing, at the same time, advocating less deficit spending by the federal government.
In their upside-down world, deficit spending by an entity with the unlimited ability to create dollars, is unsustainable and should be reduced, while deficit spending by entities that repeatedly run short of dollars and go bankrupt, should be encouraged!
The graph below shows annual changes in Federal debt (blue line) and annual changes in business debt (red line). Does it strike you how these two lines relate to recessions?
Business debt rises in advance of recessions and predictably, falls during recessions. Federal debt falls in advance of recessions and rises during recessions. Again and again and again. (I stress “again and again” to give the “correspondence doesn’t prove cause” deniers something to chew on.)
How do you explain this phenomenon? My explanation is that as businesses borrow more, they becomes overextended. Meanwhile, as the federal government, which never can be overextended, deficit spends less (probably because of Congress and the President), the economy suffers from a lack of funds (the anemic patient being bled by leeches).
These two processes meet at a recession, at which time business borrowing virtually stops and federal deficit spending must be increased to end the recession. Funny, how the much-loathed deficits are necessary to rescue a dying economy.
The following graph shows essentially the same thing, except rather than showing absolute debt numbers it compares the ratio of federal debt to total debt vs. the ratio of business debt to total debt.
Again we see that as personal debt rises, here as a share of total debt, and federal deficits fall, also as a share of total debt — that’s when we have recessions. Further, recessions are cured when federal deficits are a rising share of total debt, and business debt is a smaller share.
Interestingly, we only seem to have recessions when the year-to-year change in the federal debt / total debt ratio is less than 0.00.
So what is happening today?
Today, Federal debt is falling as a share of total debt and business debt is rising — a recession scenario, with only one positive note: The year-to-year change still is above 0.00. So, that could mean another recession is not yet upon us. But, it’s coming soon enough.
Today’s scenario is what one would expect from a President and Congress that have been bribed by campaign contributions to reduce federal deficits and to increase private borrowing (via low interest rates).
As this is written, President Obama is strutting about his great “victory,” but barring unforeseen changes, history will judge him as mediocre at best — probably closer to the bottom than to the top.
And we had such great hopes.
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