Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
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 ultimately 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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Here’s yet another writer, or group of writers, who equate a Monetarily Sovereign nation with a monetarily non-sovereign business, thereby coming to the same diametrically wrong conclusions as the rest of the austerity buffs.
The Daily Bell
Now They Tell Us: China Debt Levels ‘Unknown’
By Staff ReportA senior Chinese official said on Friday that the government did not know precisely know how much debt local governments had built up and warned that it could be more than previous estimates.
Fitch downgraded China’s sovereign debt rating in April.
Oh woe, a credit downgrading. We all know how accurate the credit reporting industry is. It gave AAA ratings to worthless securities and downgraded the U.S. debt, presumably because, as John Boehner lied, “We are broke.”
We didn’t understand how any economy could generate 10 percent growth per year for literally decades, but others seemed to feel that there were so many Chinese that normal economic rules did not apply.
No, that wasn’t the reason. Some of us “others” believed China understood Monetary Sovereignty, and was willing to keep pumping money into their economy. So long as inflation was controlled, the economy would grow.
Why? Basic algebra:
GDP = Government Spending + Non-government spending + Net Exports
In a modern central banking economy, the primary factor is monetary policy.
Actually, monetary and even more importantly, fiscal policy. But why quibble over semantics?
Earnings don’t matter; management doesn’t matter. In other words, you can have the best run company in the world with the number one product, but the real determinant of success at any given time will be the economy’s performance – subject to monetary policy.
We don’t mind the sarcasm. We do mind the ignorance that equates China with a company. The former is Monetarily Sovereign; the later is monetarily non-sovereign. Not understanding the difference equals not understanding economics.
China’s miracle was a central banking one, and monetary stimulation can cover up a host of sins.
True. Let the economy without “sin” (i.e. inefficiency) throw the first stone. All economies “sin.” All economies grow by so-called “covering up” — i.e. by increasing the percapita money supply. “All” meaning every growing economy in the history of the world.
The Chinese were printing money – lots and lots of it – and this was causing “all boats to float.” It was a kind of Potemkin Economy … Asian style. Now it seems the boats are sinking along with misconceptions about the realities of Chinese finance.
Ah, the old “printing money” epithet. Writers need only to utter the magic words “printing money,” and those who don’t understand economics will exclaim, “Ooooh,” and shake their heads in disgust.
But “printing money” is what Monetarily Sovereign governments do, must do, always do — unless they want recessions and depressions.
Whenever the U.S. has stopped, or even slowed, its so-called “printing” of money, we have had recessions and depressions, virtually all of which were cured by — yep, you guessed it — “printing” money.
(Never mind that money never is “printed.” It is created electronically by spending. Contrary to popular wisdom, a printed dollar bill is not a dollar.)
China’s localities have borrowed trillions. Vice Finance Minister Zhu Guangyao said Chinese banks have reported 9.54 trillion yuan in loans to local financing platforms.
Concerns have grown that the debts incurred could sour as many infrastructure projects in China are for public use and not profitable. Many local governments have also borrowed from companies in private arrangements at high cost, with the money often used in speculative real estate projects.
More fear-mongering out of ignorance. The Chinese central government could, if it wished, pay off all that local debt in one electronic instant. It simply could credit all debtors’ accounts by the amounts of their debts. Bingo! No local debt.
But wouldn’t all this so-called money “printing” cause inflation? Nope. Borrowing creates money and paying off loans destroys money.
If all the local borrowers somehow paid off their loans (say, by selling assets), the Chinese economy instantly would lose the above-mentioned 9.54 trillion yuan — a disaster.
However, if the central government “printed” the 9.54 trillion yuan to pay the loans, there would be no net increase in money supply, and no reason for inflation.
(And anyway, inflation can be controlled by increasing interest rates, which increases the value of money.)
The cycle hasn’t turned for China, or not fully. But it will. And so we say to Zhu … Just wait.
Waiting isn’t a bad idea. Learning is a better idea.
What is a bad idea? IMHO, taking economics advice from the Daily Bell staff.
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. Click here
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%
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
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:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports
#MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
Mr Mitchell, I’m learning.
The US, China, Japan and the other sovereigns will hit a wall with unsustainable debts. The market is bigger than the Central Banks and when the market says this 30 bond bull is done, it’s done. Now, when those rates turn around sir, I know what your excuse will be. To give a little background for reference, the US has been applying the Mitchell rule in the last 30 years of this bond bull. Every time the economy hits a rough patch, pump more credit into the economy and lower the rates a few basis points. It’s a win win situation, the banks get to borrow and issue credit at cheaper rates, the government can spend much more on “helping” the poor, their rich buddies and themselves, and the economy appears to recover. But as we all know that the rates are now at zero. There is nothing the Fed or the government can do. They can’t lower the rates as rates are already zero. They’ve basically given money to the banks and the banks are simply dumping the money back in their Fed account. The government has increased their spending dramatically to combat the recession (this is a lie from the history books – the government needs to replace private spending in a recession). A dunce can see that by every dollar the government spends into the economy, a dollar of capital is removed from the private industry. I guarantee anyone reading this that the government can double, triple, quadruple their spending, and the more they spend the more the economy is destroyed.
There are 2 bullets remaining:
1) the government allows the market to take over, wipe out tons of debt and restore balance, which honestly, will be extremely painful at this point. It would have been less painful in 2000 or 2008, but hey, we looked for it and we deserve it at this stage. But this will restore trust and reset the system.
2) the government prints currency and hands out to the population (the fed has only issued credit, not currency). This will destroy the economy as the producing capacity will flee to other countries where their capital is not being stolen outright and devalued to shreds. Although it may look like a sensible solution at first glance, the government will figure out that this only makes matter worst very soon. Shortly after, the government will be renewed by the people. The reset becomes much more painful and includes death to many citizens.
Here is what I think your excuse will look like sir:
If option 1 is applied: The government is using leeches to cure anemia. It is clear that all we need is more currency in the system. There is a lack of currency in the system.
If option 2 is applied: the inflation you see is from oil prices. You see, a month ago oil was 100 a barrel, today it’s 50,000 a barrel. The fact that the money supply has been increased 500 fold has nothing to do with prices. Supply and demand don’t exist.
How did I do sir, thank you so much for your insights Sir Mitchell!
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Mr. MItchell will do. I haven’t been knighted.
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The velocity of money in the United States has plunged to an all-time low. It is extremely difficult to have an “economic recovery” if banks are not lending money and people are not spending it…
http://research.stlouisfed.org/fred2/series/M2V/
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Rodger, the FRED economic data graphic is meant for DannyBoy, or Flash, or whatever weak attempt at a reborn disguise this person wishes to present himself as today. If you think his comments here are nuts, you’ve got to see the lunacy he expresses elsewhere!
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“I guarantee that the government can double, triple, quadruple their spending, and the more they spend the more the economy is destroyed.”
>>I agree. We need less government spending, i.e. more austerity. In fact, since the less spending the better, we should have ZERO government spending. Taxation and a trade deficit yes, but no federal spending whatever.
Average Americans have far too much money. They must be punished with more austerity. That’s the way to end this depression.
(The rest of your comments are equally brilliant.)
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Want to bet that countries with less government spending have a faster growing economy relative to their peers? Government spending steals money from producers. It’s theft.
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Last month, the federal government sent my wife and me a little over $3,000 in Social Security benefits. It will do the same thing this month and in future months.
Please explain how that will steal money from producers.
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First I would like to thank your family for all the years of service which has contributed to making this country better.
Second, although I disagree with social programs and although it was a program forced upon the American people, Social Security is not theft to producers. The reason is simple, when I got my current job, I was told I will pay social security taxes. Without getting into semantics, the 3000 credit that hits your account at the end of the month gets debited from working Americans.
Yes, the government may debit my account and destroy the money, and than credit your account. I will digress on technicalities, but will say that at the end of the day, purchasing power (capital) which I had to work to obtain was removed from me and given to someone else. And there is the trick, I worked and produced something to obtain that purchasing power, a % of that something is being transferred to someone else. So this is not removing capital from anyone other than people who agreed to pay into the system. All in all, working Americans are now 3000 poorer, while you are 3000 richer. It’s a wash out.
Personally, I just think it’s a bad deal. You are today getting 3000 a month and perhaps you would have invested what was taken from you during your working years and could have made better investment decisions. Perhaps you would have started another business and created some more jobs than you ended up creating and enhancing the lives of some other Americans. Perhaps you would have fared worst, who knows. But it should have been your decision on how to manage your capital. I do know that the majority of business are created by people like me and you, not the government. And as we all know, there is always an administrative cost when you add a middle man, you may be getting 3000, but a middle man is probably skimming a nice % of what’s collected from Americans.
What I was referring to above is spending dollars without collecting them (debt). It’s not a doubling of the money supply (that would be too obvious and damaging), but it’s nonetheless a tax, by force, on hard working people and people on fixed income.
Having said that, social programs are destroyers of societies. These programs are forced on people for a reason… When you dig a little bit on the intent of the programs, it’s not people. These programs are nothing but monopolization of industries with the intent to funnel funds to government buddies. Just name it, food, medicine, education, military, the government forces taxes on it’s population and hands it over to their friends on those industries. Why would you try to improve your quality if there is no competition and your income is guaranteed?
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Danny, apparently you don’t understand Monetary Sovereignty. If you did, you would know that federal taxes do not pay for federal spending.
That is the fundamental difference between Monetary Sovereignty and monetary non-sovereignty.
Thus: Your FICA payments did not pay for my Social Security. (However, your state and local taxes do pay for state and local spending.)
Try to learn the difference.
I won’t take the time to explain it to you further. There are 1100 posts in this blog that do exactly that, and if your really want to learn, rather than pontificate, I suggest you read them.
However, if you prefer to pontificate, you might wish to start your own blog, rather than writing lengthy (and embarrassingly wrong) comments on this blog.
Just a thought.
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Excellent post. Your line “But wouldn’t all this so-called money “printing” cause inflation? Nope. Borrowing creates money and paying off loans destroys money.” is something not enough people realize.
What would happen if the Fed forgave the debt that the Treasury owes it? Nothing of course. But if that happened we would read about hyperinflation, taxpayers being on the hook, the Fed “booking losses”, and other garbage that mean nothing.
If the entire US debt was paid off tomorrow by crediting accounts of its creditors nothing would happen imminently. I don’t recomend this because the creditors don’t want their principal back before it is due to them. For example, Social Security would have to look for a new investment for its $2 Trillion Trust fund.
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You are confusing 2 different things. Currency has many form, credit works the way you state above, not currency. When banks lend, they lend credit which essentially comes out of nothing. You spend it, and than you pay it back with interest. Therefore, credit is essentially a short on the dollar and a long on credit, you are pulling demand forward. After spending it, you work and than you pay it back. Banks get the credit they had lent you back, which gets destroyed, and interest on top of it.
If the government printed 5 trillion of currency and credited everyone’s account, that will not have to be paid back. You would regret it very much if the government did this. Why would producers spend their capital to have it stolen outright?
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Danny Boy, thanks for responding. My serious suggestion is for the Fed to forgive the Treasury for the debt that it owes. I pointed out a problem if the entire US debt is paid off with printed money. I didn’t suggest the govt printing $5m and crediting everyone’s account, however if it did, why would I regret it?
Lets assume the $5 Trillion gave 100 million taxpaying families $50,000 each — a one shot deal for this example. If this occurred, I would expect aggregate demand to increase, This would create jobs. That demand caused a scarcity of some goods, and prices of those goods would rise. A lot would depend upon how much of that money would be spent and how much would be saved.
So we increased everyone’s income, created jobs and perhaps had some inflation. It would be good for unemployed people who now have jobs. It would be good for people with debt. It would help people pay bills. Businesses would have higher profits. Investments, such as real estate and stocks would rise. But it would be bad for Danny Boy who has money stashed under his mattress.
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What you are saying is correct in theory, in practice things tend to work a little differently.
In your example, it may not seem like a lot, 50,000 per family, what could go wrong with that? Well, let’s focus on the 5 trillion figure first. Our currently monetary base is about 3 trillion. So, by “forgiving” the 5 trillion and crediting the accounts of Americans, you are introducing 5 trillion and more than doubling our monetary base (this money will be deposited on savings and checking accounts). Well, this is good, isn’t it?
What do you think will happen to banks who lent out trillions out 30 years? What do you think 5 trillion they collect after this will buy them? A piece of bread? More than double the money supply will be chasing the same goods and services. Families that could not spend 50,000, now can and will. Would you lend or invest again if you went through this experience? What would stop the government from doing it in a month down the line, 2 months, a year? So guess what would happen to trust, lending and investing in this scenario? Yes, these would collapse overnight. So by essentially trying to “help” people you are destroying the trust in the banking sector and you are running away your investors.
The second issue I see in your statement is that you think currency is the same as purchasing power/capital. It is not the same. A working man in the 60s was wealthier than his grandson today. Did a person in the 60s make more money than a person today? No, he was just able to purchase more with his salary. He had a house paid for, a car, and was able to send both his kids to college without taking on an ounce of debt. The reason is simple, instead of your real income growing, the fiat system allows you to take on more debt. Your income does not increase because there is no incentive for corporations to increase your salary, they are earning more profits (from more debt) without having to give you a raise. Not the company’s fault, but there is your issue. If all your spending came from your income, companies would be forced to pay you higher wages in REAL terms, not nominal. Meaning, you would be much wealthier every single day.
The solution is 2 fold.
1) Remove the Federal Reserve and peg the dollar to a real currency, gold and enforce sound money policies (one dollar capital across banks), which prevents banks from lending money they don’t have and money that’s not theirs. If banks and the government cannot spend money they dont have, they dont have the power to destroy your income without your consent. The government would have to tax you to spend. Banks would have to risk their own capital to lend (not people’s capital as they do now).
2) The US government should default on all it’s debts and allow for the default of anyone else in the system. Perhaps this comes out to 50,000 per family, but at least there is no preferential treatment to anyone. You screwed up, you default, you were responsible, you don’t.
This will essentially reset the system and allow for trust to return. Nope, it won’t be pretty as the money supply will likely contract, but that’s not something you can prevent anyway.
The above is not what will happen, what will happen is likely what you are saying. Some genius will come along and pass some regulation to forgive some debt and hand out money. This will in turn makes matters worst and will destroy the little faith that’s left. That same politician will likely blame it on the “free market” and Americans will likely believe his BS. But at the end of the day, all faith will be lost and we will end up with the 2 items above. It will just be a while before we get there. But get there we will.
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“…A dunce can see that by every dollar the government spends into the economy, a dollar of capital is removed from the private industry…”
Care to explain exactly how this “dollar” is removed?
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Sure,
You produce a corn which costs you capital to produce. Say you spent 90 cents and add your labor on top (say 5 cents), plus your profit, which comes out to a dollar. You exchange your corn capital for 1 dollar of capital. This is yesterday.
Today, say the government doubles the money supply, you just lost a huge % of your capital. Your dollar can only buy half a corn that you sold yesterday. Even if you try getting the corn you sold, the dude that bought it won’t sell it to you under 2 bucks.
Congratulations, your government has just stolen half your capital in one swoon.
It’s simple mathematics my friend, simple mathematics.
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Too simple, my friend, too simple.
Sadly, it is just your intuititon and not supported by fact. See: Federal spending doesn’t cause inflation. Oil does.
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I will respectfully disagree that it’s oil that has caused inflation. If you look at the higher rates of inflation in the last 40 years, it was in the 80s and 90s, yet I remember seeing a barrel of oil for 13 bucks in 2000. So oil was dropping during high inflation periods. I just know this from reading, I don’t think I have to refer to data for this.
Although it’s not purely the government’s fault, it’s our banking system fault as well as the government for allowing a Fed in the first place. There is no need for a Fed.
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Dannyboy said, “I just know this from reading, I don’t think I have to refer to data for this.”
That just about tells it all.
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This is the problem we have in the US. Most of the people are not reality based and too lazy to look stuff up. Unlike DannyBoy I looked up the data (took less than 1 minute) and the facts are just the opposite of what he thinks they are.
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Mr Mitchell,
Prove that I am wrong, the data is out there. What was the price of a barrel of oil in 1970, 1975, 1980, 1985, 1990, 1995, and 2000. Let’s see if I am wrong.
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I will provide the data I guess. In 1970 oil was under 20 bucks, by 1975 it was around 40, by 1980 it was around 100 per barrel. This makes sense as we know there was high inflation in the 1970s.
By 1985 prices were around 50 bucks, half the price in 1970. In the 1990s it was between 13 bucks and 30 bucks. Still much lower than the 1970s. This makes no sense, why was there high inflation in the 90s if oil prices had dropped significantly?
I think we all know what happened in the 2000s, where prices spike to 150. With oil prices still at over 100, where is the inflation?
I suggest that the cause of inflation is manipulation of the money supply. What happened in the 1970s that caused that high inflation were 2 things. The US essentially defaulted on the gold peg and issued an embargo on oil producing countries. The default on gold caused a run on the dollar and the dollar began to collapse at a phenomenal rate (the data proves this). To defend against the collapse, Volcker had to increase rates dramatically. People think he had a choice? The market forced the Fed to increase the rates, not the other way around. The stupid embargo caused the supply of oil to drop dramatically in the US. We all know what happens when the supply of something drops, don’t we?
Through the 80s banks continued issuing credit while the government continued deficit spending. We had some bubbles in the 80s which included savings and loans. These were bailed out by the Fed and set a moral hazard and precedent to what would continue to happen going forward.
Through the 90s we had still more bubbles and more government deficit spending. The Tech bubble culminated in 2000, with the Fed yet again bailing out irresponsible institutions.
In the 2000s it was housing that bubbled up while the government continued their irresponsible deficit spending. Housing blew up in 2007 and AGAIN, the Fed bailed out the banks.
In the 2010s we have the government bond bubble which appears to just have popped. It’s not clear what will be the outcome of this one, but I guarantee that we will hear the excuses as to how this was not foreseeable and how it is due to lack of money that we are having the issue. When I hear the word austerity it makes me cringe. Why isn’t austerity a word related to goods and services as opposed to money? I would rather have more food for the people of the world than stupid pieces of paper or digits in a computer. Everyone seems to be focused on the paper and digits, who is focused on the goods and services? Oh yeah, I keep forgetting, goods and services takes work to produce. We can’t produce those darn things out of thin air.
The growth of credit in the system is responsible for the inflation, not that oil is not important (it is), but it’s not the sole cause of inflation, it’s one component.
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” . . . not that oil is not important (it is), but it’s not the sole cause of inflation, it’s one component.”
Agreed. The most important component for the past 40+ years.
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Yes Rodger, energy costs are indeed the principle drivers of inflation — along with our economy’s over-dependence on debt and private finance (e.g. bank loans) rather than government spending.
Energy is needed for the production, processing, transport, and distribution of food. Food itself is energy, plus nutrients.
When the price of energy goes up (gas, petrochemicals, etc) the price of everything else goes up. Energy is crucial to every aspect of life. Electricity, food, fuel, human labor — it’s all energy.
In fact, I consider money to be a scoreboard of energy. He who controls the money controls the energy, and thus the world. (Natural resources are useless if there is no energy to obtain and use them.)
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Good article: Warren Mosler
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