–Why Detroit and Jonathan Tobin both are bankrupt

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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Why was Detroit forced into bankruptcy? Here are excerpts of what Jonathan Toban, writing for the right-wing blog, Commentary, said:

Why Liberals Won’t Face Facts on Detroit
Jonathan S. Tobin, 07.23.2013

Conservatives have rightly asserted that what happened to the Motor City was an inevitable result of liberal policies.

The example of liberal governance that Detroit (and Greece) provides shows that the liberal social welfare project is a one-way path to insolvency with desperate consequences not only for taxpayers and bondholders but to the ordinary citizens that liberals purport to want to help.

The above is 100% ignorance, but rather than explain why now, let’s first hear more from Tobin:

Detroit may be just the first of many other large cities that will find themselves in similar predicaments. Even New York, which unlike Detroit faced and overcame not altogether dissimilar problems involving debt and urban blight in the last generation, may eventually be put in the same position unless something is done to deal with a bill for retiree medical benefits that dwarfs that of Detroit.

Unlike Tobin’s previous paragraph, the above is 100% true, but continuing . . .

A bailout of Detroit (would) set a precedent that can’t be repeated elsewhere because there just isn’t enough money to pay for every city that will eventually face similar problems. Liberals would like us to ignore (this), because they are confident that the federal leviathan will always be able to squeeze enough cash out of productive citizens to pay for the left’s follies.

What Greece showed Europe and what Detroit tells Americans is that sooner or later the well of public funds will run dry if obligations to liberal constituent groups continue to grow unchecked.

Americans (must) do some hard thinking about a society where virtually everyone has their snouts in the collective trough of big government.

And so, once again, Tobin returns to ignorance, for it is clear he has not the slightest understanding of the differences between Monetary Sovereignty and monetary non-sovereignty.

As a hint to new readers, the U.S. government is Monetarily Sovereign. It is sovereign over the dollar, its currency. It can create an unending stream of its sovereign currency, the dollar, and it can determine the value of each dollar. That is what is meant by “sovereign.”

By contrast Detroit, New York and Michigan, and every other state, county and city in America, as well as Greece and all the other euro nations are monetarily non-sovereign. None of them can create an unending stream of their sovereign currencies, for one simple reason: None of them has a sovereign currency.

Detroit et al are not sovereign over the dollar. Greece is not sovereign over the euro. In essence, the dollar and the euro are “alien” currencies, used courtesy of the Monetarily Sovereign U.S. government and the Monetarily Sovereign European Union.

It is an absolute rule of economics that a monetarily non-sovereign entity cannot survive long-term without money coming in from outside its borders. You and I are monetarily non-sovereign. To survive long term, we must have income. We could not survive by paying taxes to ourselves.

Similarly, no city, county or state in America can survive long term by taxing itself. Nor can Greece.

What happens when a monetarily non-sovereign entity has insufficient money coming in from outside? It must borrow. And if the situation persists, it must borrow again. And again. And one day, it no longer can borrow, at which time it goes bankrupt.

This is true even if the entity is bare-bones frugal. Even if you were to live in a tent and eat garbage, you eventually would run out of money, unless you had an income. So to blame your bankruptcies on your spending “follies” would not only be ridiculous, but mean-spirited in a “blame-the-victim” sense.

So how do states, counties and cities survive the fact that all cannot have a positive balance of payments? Where do they get the dollars coming in from outside their borders? Clearly, Tobin doesn’t know.

The answer is: A few states may have a positive balance of payments vs other nations, but the primary source of outside money is federal deficit spending in each state — the very thing Tobin and his ilk wish to end.

And why do they wish to end federal deficit spending? Because they claim “the well of public funds will run dry.” This single oft-repeated myth demonstrates Tobin’s abject ignorance of economics, for a Monetarily Sovereign entity never can run short of its sovereign currency. Never.

Before someone compounds Tobin’s ignorance by shrieking, “Printing money would cause inflation,” remember two things:

1. By that shriek the “someone” has admitted the federal government cannot run short of dollars, and inflation, not running dry, is the “problem,” and

2. Only under the rarest of circumstances can dollar-creation cause inflation. In fact, despite massive deficits since 1971 (when the U.S. became Monetarily Sovereign), dollar creation never has been associated with inflation.

Why this counter-intuitive truth? The value of a dollar, and indeed the value of just about everything, is based on supply and demand. So while increasing the supply of dollars seemingly would cause inflation, this can be prevented by increasing the demand for dollars, which the Fed successfully has done by raising interest rates. So-called “debt hawks” always seem to focus on supply, conveniently forgetting about demand.

Return now to Detroit. What really happened to them? They were pretty much a one-industry town, and when they lost that industry, they lost their source of outside money. The people became jobless and needed even more help, but without an income, Detroit had to borrow and borrow, and finally ran out of borrow, while the people’s needs grew.

It was not the fault of “liberal policies” and it was not the fault of people who became needy, because they lost their jobs. These people were not sloths looking for freebies. They do not, as Tobin cruelly claims in comparing them to pigs, “have their snouts in the collective trough” — so casually mouthed by someone fortunate enough to have a well-paying job.

They are ordinary people, like the people you’ll meet in every town and village in America.

So whose fault is Detroit’s predicament? It is the fault of the federal government and the conservative Tea Party heartless agenda, which pushes spending cuts of benefits to the people.

The federal government could and should give (not lend) dollars to Michigan and indeed, to every state. And the states should dole out those dollars to their counties, and the counties to the cities, until every monetarily non-sovereign government in America has a net, positive balance of payments.

The government easily can create the necessary dollars, and the government easily can prevent inflation. There is no reason not to do both..

And what is the Tobin / conservative solution? Cut spending on all the things the less fortunate need: Food, shelter, education, health care, retirement security, police, etc.

The conservative solution is to chop these people down, so they starve in the streets, to teach them a lesson. It’s a solution typical of a rich man’s disdain for a poor man.

Ignorance is excusable. We all have it. But thoughtless and abject cruelty — the kicking of people when they are down — the sheer, stupid ruthlessness against helpless and innocent men, women and children — that is intolerable, Mr. Tobin.

May you, one day, fall victim to circumstance and be the subject of your own wrath, and may there be no government “trough” into which you can bury your snout.

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

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12 thoughts on “–Why Detroit and Jonathan Tobin both are bankrupt

  1. I read these missives of yours everyday in my email. I’ve never met you. I don’t know who you are. But you are doing a yeoman’s job. Thank you to Mrs. Mitchell for making you a happy man that you can concentrate on educating the rest of us. What you write daily is essential. Absolutely mofo essential.

    Your passion is infectious.

    P.S. Also thank you for coming to the same conclusion I seem to be coming to that we are not being told the whole truth about climate change (referring to something you wrote about a month ago).

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  2. > > “But thoughtless and abject cruelty — the kicking of people when they are down — the sheer, stupid ruthlessness against helpless and innocent men, women and children — that is intolerable, Mr. Tobin. > > May you, one day, fall victim to circumstance and be the subject of your own wrath, and may there be no government “trough” into which you can bury your snout.” >

    Thank you.

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  3. Just a small point of correction (albeit absolutely essential) on the above brilliant blog piece by your host:

    Rodger says, “It is an absolute rule of economics that a monetarily sovereign entity cannot survive long-term without money coming in from outside its borders.”

    Just a quick addendum-Rodger actually means “.It is an absolute rule of economics that a monetarily NON-SOVEREIGN entity cannot survive long term without money coming in from outside its borders.”

    refer: (Mitchell’s Laws #4)

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  4. Detroit’s main problem is it’s very high unemployment level RELATIVE TO the rest of the US. I don’t think that’s best dealt with by simply giving Federal money to Detroit. It’s best dealt with by encouraging firms or industries to move to Detroit.

    For most of the time since WWII, the UK has had measures in place to encourage firms to set up in high unemployment areas, and restrictions have sometimes been put on employment creation in low unemployment areas.

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    1. Companies will not move to where people can’t walk in the streets. Detroit needed a bankruptcy 30 years ago, and stick it to the union thugs. That would have left the money in its rightful place, the tax payer pockets. But, instead, Detroit chose to put the burden on those same tax payers which created the jobs. Borrowing has the same net effect, it’s a future burden on the tax payers. As the smart tax payers see this, they would be fools not to leave until they have a chance. And what did they do? They left, years ago….

      Socialists, Marxists, Liberals need to understand that in order for them to live, the producing class has to live first. You cannot suck blood out of a dead body.

      To all the union thugs, including those retirees with hefty pensions, you deserve what’s coming…

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  5. Rodger – – –

    You should correct the statement:

    It is an absolute rule of economics that a monetarily sovereign entity cannot survive long-term without money coming in from outside its borders.

    Should read:

    It is an absolute rule of economics that an entity which is not monetarily sovereign cannot survive long-term without money coming in from outside its borders.

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  6. Detroit in the 1950s was one of the most prosperous cities in the world. It had the highest per capita income of all cities in the US. Its source of outside income then was not the federal deficit, it was its trade surplus. It made virtually all the cars and trucks bought by the other 49 states.

    With all that extra income, Detroit could afford to have the best retirement and medical plans money could buy, in addition to the highest wages, for both the public and private sectors. And so it did.

    Over the years Detroit was largely priced out of the market for cars, in part because of its high cost of labor, and its outside income dropped. Some of the people footing the bill for best-of-breed public sector benefits were either laid off or moved to friendlier tax districts. Detroit must have a trade surplus even today, with the car companies doing well again, but not enough without the former tax base to afford its gold-plated benefits.

    So, if the answer is for the monetarily sovereign federal government to bail it out, what is to stop every other city and state from raising benefits and cutting taxes, living large until they drive themselves into bailouts? After all, the Feds can afford any lifestyle the cities choose.

    It’s very much like the TBTF banksters, creating unsustainable “profits” and living high on the hog, and then getting bailed out when the real costs of their strategy catch up with them.

    Being monetarily non-sovereign is a common situation. 99% of us exercise discipline in order to cope with it. 0.99% have to change their behavior. How is it that some of us are so privileged that they can live beyond their means for decades, and then be bailed out, and others not?

    If Detroit were to scale back its wages and benefits to be more in line with the rest of the country, and reform its corrupt local government, and then still had a problem, I would be in favor of federal help for the city, directed toward the poor and unemployed. Heck, I’m in favor of that anyway. But if the bailout money is used to continue to pay salaries and benefits that are out of line with the rest of the country – if the money goes to the “fat cats” of Detroit – then the bailout would be wrong, and harmful for Detroit as well as for others who decided to follow in their footsteps.

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  7. So let me get this, increase the supply of money so that you will have to raise interest rates which by your own definition removes money from the system. So why increase the money supply in the first place? I will answer that, no other reason than to steal other people’s money because printing is “free”.

    Back to reality – only one thing grows the economy and it’s not money. It may appear in the form of money, but the economy only grows when you create something, manufacture something or mine something. PERIOD. Nothing else… All else is false.

    The economy grows when people produce oranges, steaks, rice, houses, cars, etc.. and by grow I mean more than the previous year, not the same, not less. Otherwise your economy only APPEARS to be growing when in fact it’s shrinking. Only in a liberals/Marxist mind will it grow with more currency.

    Detroit only has one thing to blame, and it starts with it’s unions. The spending on local programs should have been cut years ago, when the majority of people left. If you spend 10 million on 2 million people and 1 million people leave, you should be able to cut spending to 5 million. There is no way around this. But… since Detroit is full of union thugs, these quickly hook up with their political buddies who will quickly give in and leave salaries and government “jobs” untouched. So now you have 1 million people, while spending remains at 10 million. So the tax burden on the people left goes WAY up. Here is where the lying starts, the teacher union will say it’s for the kids, the police will say crime will take off, even firemen will jump into the sleazy thuggery. The majority of people cant even figure out that they are being robbed so that a few government servants retire at 45 while they get to retire a good 20 years or 50% older.

    Not only do the union thugs retire at 45, they get a juicy pension. And it doesn’t stop there, as soon as they retire, they sell their homes, pack up, and move for a hakuna matata life in some beach in Florida. Of course there was an outflow of funds, hello????

    So, not only has Detroit ran out of money years ago when union leeches sucked the blood out of it, they continued to suck the blood for years on in until the borrowed blood ran out. Shall I say that if you somehow can print new blood, they will keep sucking it again and again and again and again. The issue is not lack of money, it’s continuing to issue more debt to keep thieves happy.

    The second blame goes to politicians for letting the unions ransack the people.

    The third blame goes to the people of Detroit for standing like fools while the looting took place. You should have taken to the streets 20 years ago as should have most of America. Chicago, you are next.

    Your quest, Mr Mitchell, should not be about endless printing of currency to keep union thugs, corporate thugs, and political thugs fat and happy. It should be to promote the production of the real economy, the creation and production of things. Issuing mountains of debt or printing money may look like the economy is growing, but I know you can see the flaw in the math.

    1 apple, 1 dollar
    .5 apple, 5 dollars

    Wow, our economy is now 5 dollars instead of 1. Our GDP just grew 5 fold. Except that now we have half an apple instead of 1. Are economists stupid or liars?

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  8. DannyBoy,

    You said, “. . . raise interest rates which by your own definition removes money from the system.”

    Sorry, but I always have said that raising interest rates adds to the money supply, because the federal government pays more interest into the economy.

    You said, ” . . . the economy only grows when you create something, manufacture something or mine something.”

    Correct. And in order to create things you need money — for startup and ongoing investment — unless you have invented a new way to start and grow a business without money.

    You said, “The spending on local programs should have been cut years ago, when the majority of people left.”

    Cut spending on schools, police, infrastructure etc., and even more people will leave, in an endless progression.. Spending cuts always depress an economy, which is why austerity never works.

    You seem to believe that creating money causes inflation. It does not. The value of money depends on supply and demand. You only have considered supply and have neglected demand.

    Today, despite massive spending during the past 5 years, inflation remains below the Fed’s target rate. In fact, there is no historical relationship between federal money creation and inflation. See: https://mythfighter.com/2010/04/06/more-thoughts-on-inflation/

    Aside from all of the above, I enjoy your comments, especially the one about economists. (I can see you are no economist.)

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  9. You are completely confused between currency and credit. The Fed has created credit to fill a hole. Credit was collapsing in other places (housing, bond market) at the same time the Fed was pumping. Actually, credit was collapsing at a higher pace than the Fed can issue credit, it’s the reason one of the biggest components in the economy was collapsing. Credit, although acts as currency, has to be paid back.

    But what you are asking for is not credit. You want the government to create currency, which does not have to be paid back. Two VERY different things sir, and outcomes are VERY different.

    And yes, the value of money does depend on supply and demand – what makes you think demand will go up when supply is increased? Try doubling the supply of oranges and wait and see if the demand will also double.

    Also, you don’t the government’s money or anyone else’s money to start up a business. You need to be able to keep your money to start a business. Leftists are a very interesting bunch. Why is it that you take things and flip them on people, as if people can’t think?

    Also, what austerity are you referring to? Spain has been the biggest complainer, and yet it has cut nothing in spending. It’s a shell game sir and you know it. The liars are those sucking the government tits.

    Leftists are either for up to the neck taxes to satisfy their lazy assess (Spain taxing solar panels up the wazoo) or, they prefer no taxes at all, but want the government to print as much as possible for the good of their pockets. Mr Mitchell, what is the difference between a government taxing 90% of your earnings or another devaluing 90% of you purchasing power?

    I am extremely happy not to be an economist, and would be insulted if i ever was called such a thing.

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  10. Classic ignorance. First he says, “I am extremely happy not to be an economist, and would be insulted if i ever was called such a thing.”

    Then he spouts of about . . . you guessed it . . . Economics.

    Well gee, I’m extremely happy not to be a physicist, and I think Einstein was completely wrong.

    I also am happy not to be a doctor. I plan to remove an appendix, tomorrow, because I know a better way than the doctors do.

    There is nothing more ignorant than a person who takes great pride in being ignorant.

    Like

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