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.
●Everything in economics devolves to motive.
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Back in 2009, this bog carried the post, Fool’s Gold, in which we said:
Gold is one of those commodities, the value of which is based solely on faith. Just as there have been real estate bubbles, stock market bubbles, oil bubbles, tulip bulb bubbles, sugar bubbles, coffee bubbles and diamond bubbles, there have been gold bubbles, the biggest coming in 1980 and perhaps again, today.
For reasons beyond my ken, many people believe gold, the value of which is supported by nothing, somehow is safer than dollars, the value of which is supported by the full faith and credit of the United States government.
While I don’t have great faith in our government’s full faith (especially with the unusually low quality of today’s political leadership), I still think it is better than nothing, exactly what gold provides. Which brings me to this article from Associated Press:
Gold plunges to lowest in more than 2 years
2:10 PM ET, 04/15/2013 – Associated Press
NEW YORK — Gold plummeted to its lowest level in more than two years as traders rushed to sell their holdings following a big price drop on Friday.The precious metal has plunged almost $200 over the past two days and is trading below $1,400 an ounce for the first time since February 2011.
The sell-off started Friday when the U.S. government reported that wholesale prices fell in March by the most in 10 months. Investors had been buying gold in anticipation of a pickup in inflation. With prices now falling, the attraction of the metal as an alternative investment has waned.
All kinds of interesting stuff, here. First, gold that supposed paragon of financial stability, fell 13% in just two days. Some stability!
Second, consider all the debt-hawk hand-wringing that the federal debt is “unsustainable.” Those deluded folks say federal money “printing” is causing inflation or even hyper-inflation. They compare the U.S. with Zimbabwe and the Weimar Republic, which resemble the U.S. the way the moon resembles green cheese, i.e. not at all.
All this while the real danger is deflation.
The gold market was also rattled by a proposal last week that Cyprus sell some of its gold reserves to support its banks. Traders worry that Spain, Italy and other weak European countries might follow suit, flooding the market with excess supply just as demand for the metal is weakening.
The euro nations very well might sell gold in order to pay bills. Having given up the single most valuable asset they have — their Monetary Sovereignty — they have run short of euros.
Unlike the U.S., which can create unlimited numbers of its sovereign currency, the dollar, the euro nations have no sovereign currency at all. They chose to become monetarily non-sovereign, putting them on a par with our struggling states, counties and cities.
Gold peaked at $1,900 an ounce in September 2011 during the market turmoil that followed a downgrade to the U.S. government’s credit rating.
The credit agencies (those same guys who gave top ratings to worthless debt instruments) downgraded the U.S., a Monetarily Sovereign nation with the unlimited ability to pay any bills of any size. But they didn’t downgrade euro nations, whose bill-paying ability is limited. This is what passes for fiscal prudence in today’s financial world.
Gold has been declining from a recent high of $1,792 on Oct. 4 as the outlook for the U.S. economy improved, diminishing the metal’s appeal as a safe haven investment.
And pray tell, what is the definition of a “bubble”? (A useless product, whose price has been bid up by fools, hoping to sell it to bigger fools.)
Some Federal Reserve officials have also been calling for an early end to the central bank’s bond-buying program [Quantitative Easing]. If that happens, it would likely cause U.S. interest rates to rise, resulting in an appreciation of the U.S. dollar. That gives traders another reason to sell gold, since they see the metal as an alternative to holding dollars.
The U.S. is sovereign over its currency, and sovereign means total control. It can create as many dollars (by spending) or destroy as many dollars (by taxing) as it wishes.
The U.S. also can set dollar interest rates at any level it wishes. This doesn’t even require an end to QE. It simply could be done by fiat, i.e by charging banks more for reserves. Dollar interest rates are not derivatived from supply and demand; they are set.
Meanwhile, gold bugs tremble in panic their supposedly “safe harbor investment,” sitting in a vault somewhere, costing storage fees every month, is crashing, while “dangerous” dollars earn interest every month.
In all fairness, the price of gold has risen about 50% in the past five years, earning a nice profit for those who bought low and sold high. But wasn’t gold supposed to be non-speculative? Wasn’t that the whole point?
Anyway, a friend of mine actually made a profit on Beanie Babies. That’s the way it is with bubbles.
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 
1.) Since gold is physical, most people falsely think it has intrinsic value, transcendental to any monetary system. This is stupidity, which some people camouflage with smugness. Other people cling to their delusion because of greed and fear. They continually claim that all fiat systems are about to collapse, and that only gold will have value. They will claim this forever, like religious cultists who claim that the End Is Near. Forever. Meanwhile, all gold traders are essentially hucksters and fraudsters who foment greed and fear. Many are insane. Many end up in jail.
The truth is, no matter how much gold you have, you remain a servant of those who control the money system, and who burst gold bubbles whenever they like. If the fiat money system does collapse, gold will be utterly worthless, since gold cannot be worn, driven, eaten, or planted.
Since oligarchs no longer rule by “divine right,” they rule by controlling the money. Control the money system, and you control all. That’s why Troika bankers pushed for a single currency in Europe. However, if society breaks down, then the money system breaks down, along with the oligarchs. A mountain of gold becomes worthless.
In the late 1970s and early 1980s, Nelson Hunt and William Hunt tried to corner the world silver markets, gaining the rights to more than half the world’s deliverable silver. Their monopoly created a bubble that caused silver prices to rise 712 % from $6 per troy ounce to $48.70. Then the money masters popped the Hunts’ bubble, causing silver to fall back to below $6-an-ounce in a single day (27 March 1980). The billionaire Hunt brothers filed for bankruptcy in 1988.
Gold is no different.
Actually the US Treasury still gives gold “certificates” to Fed banks, which trade them among themselves, but these are not paper certificates, nor do they have any connection to physical gold. They are symbolic digital entries, like everything else in our money system.
Outfits like Goldman Sachs trade in gold, but only to fleece suckers. They know that gold has no intrinsic value, except as an electrical conductor, or as decorative flakes in a bottle of Goldschläger (Swiss cinnamon schnapps).
2.) Some banks will accept gold in trade, just as they will accept land or auto titles, but gold is not a currency, since it is not backed by any government.
There are “virtual” currencies backed only by bubbles and speculation, but they always collapse. During the first three months of 2013 there was a ten-fold increase in the dollar value of “bitcoins” (an online “virtual currency” backed only by speculation). “Bitcoins” have even spawned derivatives (futures contracts) as every fool hopes to fleece a bigger fool. Yesterday, however, bitcoins dropped from $266 to $105, a 61 percent decline. This delighted other groups of fools and hucksters, such as gold traders.
3.) Speaking of bubbles (beanie babies, baseballs cards, etc.) don’t forget the art market. Picasso rarely spent more than an hour on any painting, and yet many of his “works” have sold for over $100 million each. They will be worth even less than gold or beanie babies if our system of money and government collapses.
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Non speculative? Isn’t gold priced in dollars Mr Mitchell?
This should be telling you something Mr Mitchell. And no, the government doesnt chose the rate of interest. Volker didnt raise just because he wanted to be the cool kid on the block.. he raised them because he was forced ti by the market.
Markets lead, central banks follow.
The market is telling you that assets are being sold due to margin calls on debt. Cyprus is thinking of selling? Let me remind everyone that although gold is and will forever be a currency, it is not an accepted medium of exchange by any government. The only thing cyprus has left with possible market bids for a sovereign currency is gold. Let me repeat that… the only thing of value cyprus has is gold, all else is garbage. If the cipriot people have any brains they would hang anyone discussing the selling of gold to bailout irresponsible banks.
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WHO FAVORS AUSTERITY?
A Huff Post item says there are two paths to deficit reduction. One is austerity. The other is by “investing in America,” which means tax increases, and “having larger deficits than the austerity-mongers want, during the next two years. Then, as we restore growth, the deficit actually declines faster than it would if we pursued slash-and-burn, as the Republicans want.”
My question is, “Why reduce the deficit at all? Why not INCREASE IT?”
If you favor deficit reduction in any form, then you favor austerity. Spare me your rationalizations. They are all lies.
Who else favors austerity? YOU DO, if you…
So much as mention the words “entitlement,” “trust fund,” “government costs,” or “government savings.”
Treat the “national debt” as a negative thing.
Deny any of Mitchell’s laws.
Claim that tax revenue pays for any aspect of the federal government, including SS and Medicare.
Claim that politicians and bureaucrats mean well, but are “misguided.”
Support federal taxes on any party, rich or poor, corporate or individual.
And so on.
In short, if you use ANY WORD OR PHRASE from the austerity lexicon, then you favor austerity. You favor bankers, Wall Street, and despair. You favor cutting social programs. You favor an ever-worsening depression. You favor poverty for yourself and the 99%.
You also favor austerity if you engage in SLOPPY THINKING, since any contradiction, any flaw in logic, and any lack of consistency leaves the door wide open for austerity maniacs. You may present the facts of MS, but you will undermine them with one stupid move.
Here’s an example of sloppy thinking from Michael Hudson of the UMKC, who starts off great with this…
“When the government printed $13 trillion to give to the banks after the 2008 breakdown, nobody complained about the fact that the government can simply print the money and pour it into the economy. Nobody complains about the increased war spending that we’re doing. Why does everybody complain about one particular small part of the budget, Social Security and medical care? The reason is pure, naked class war. You can’t believe that people are being honest when they’re focused only on how we pay retirees less.”
Agreed!
Regarding the “national debt,” Hudson says this….
“When people start by talking about $16 trillion, you know that they’re not being honest. The Federal Reserve and the Treasury can simply create money on their computer keyboards, just like banks can do electronically. It doesn’t cost a penny for them to create the money to pay Social Security recipients. They could simply print greenbacks.”
Agreed! Keep going!
“The national debt is never paid back, but becomes part of the money supply. Already in 1776, Adam Smith wrote that no government ever has repaid its debt. The debt doesn’t have to be repaid. It’s not like a private-sector account book where, if you run into debt, you have to keep paying the banks more on your credit card and your bank loan.”
Agreed! You’re batting a thousand!
But then Hudson strikes out, thereby discrediting everything he just said above.
QUESTION TO HUDSON: There are two sides to this. There’s the side of the money the Fed just simply creates. And then there’s the part where the government borrows money from outside sources by selling T-bills. At the moment this borrowed money is costing the government practically nothing, but that could change at a point.
HUDSON: “Yes it could.”
Awwww! No, Hudson, it COULDN’T! The Fed sets whatever interest rate (i.e. “borrowing costs”) it chooses. And here you imply that the federal government borrows its money, when a moment ago you admitted that the government “prints” all it wants on its computer keyboard.
That’s contradictory. Contradiction surrenders everything to the austerity maniacs.
Further, Hudson implies that tax revenue pays for the federal government…
“We’re running a probability of giving a huge amount of money to the wealthiest 1% in the future. In case we indeed do have to pay them more, we have to screw the Social Security recipients, screw the Medicare recipients, and screw Medicaid. We have to squeeze the 99 percent more to pay higher interest to the 1% that are the bondholders.”
No we don’t, Michael. Screwing the 99% is a function of politics, not financial necessity.
Please get it together. Otherwise you can do more harm than good.
By the way, the Hudson interview appeared in the Naked Capitalism blog, which is a bastion of sloppy thinking.
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It is you that is applying faulty logic here. Though it could be as you see it, in reality it is not the case. The changes necessary to put the system you support into the realm of reality requires very substantial legislative changes which are not currently in place. You imply the necessary changes in legislation have already taken place and are currently in place; this is not the case. MS is perscriptive, not a real descriptive analysis of oue current monetary system. Though I may support many of MS’s perscriptive policies, I in no way believe the real monetary system is as it is portrayed on this blog. Sorry, sir, the real world is not as you believe it is; though I agree that it should be so.
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When the world is full of morons and idiots, the wise man is a “freak.”
So be of good cheer. At least you’re not a freak.
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y’know, i’ve always wondered what hudson’s up to, like, what is he trying to accomplish?
he’s at UMKC, he’s talked to the MMT’ers there over and over and over again, he’s referenced them in his interviews, he’s on panel discussions with them and yet he still continues to put out this “out-of-paradigm” nonsense as though he hasn’t heard a single word his MMT-friends have been telling him all this time.
i just would love to know what exactly is he trying to do…
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