–naked capitalism blog almost, but not quite, sees the light about the euro

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.


One of my favorite blogs, “naked capitalism,” this week included an article about the euro. It comes to essentially the same conclusions I voiced back in 2005, when I told a class at UMKC, “Because of the Euro, no euro nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the euro.”

The euro requires every euro nation to be monetarily non-sovereign, similar financially to every U.S. state, county and city, you and me. None of us uses a currency over which we are sovereign.

So to survive long term, we must have net income (which the U.S. government does not need).

For a government, income has three sources: Taxes, borrowing and exports. But taxes and borrowing are not net income. Taxes merely circulate money within the government’s borders, and borrowing must be repaid.

That leaves net exports which includes anything that brings in money from non-residents.

The resultant mathematical problem is quite basic: All nations cannot be net exporters. So long-term, monetarily non-sovereign governments survive is by receiving money from Monetarily Sovereign governments.

U.S. states survive either from exports or from a positive balance of payments with our Monetarily Sovereign national government. The same is true for our counties and cities, which also may receive some of that federal money through an intermediary – their state.

The euro nations, not being able to create euros, are slowly growing broke – at least those who have a negative balance of payments.

The so-called solutions, recommended by economists everywhere, are to tax and borrow more, and to spend less. Since taxing and borrowing more do not add net money to the economy, the impoverished euro nations have begun to rely on spending less – less on food, less on housing, less on education, infrastructure, health – less on everything that supports the middle- and lower-income groups – a prescription for economic disaster.

European Pundits Starting to Give Up on the Eurozone
08/03/2013 – Yves Smith (Susan Webber)

We’ve been pointing out for some time that Germany has refused to budge from wanting contradictory things relative to the Eurozone.

Germany wants to continue to run trade surpluses, which are now predominantly with other countries in Europe. That means it needs to finance its trade partners’ deficits.

But Germany simultaneously does not want to do that. The only way to square that circle would be if the euro were vastly cheaper, so that Germany’s trade surplus was more with the rest of the world than with its fellow Europeans, and that countries like Spain could achieve a trade surplus with the rest of the world.

No one has entertained that as a solution, since the required level of euro depreciation would be so large as to invite retaliation from Europe’s major trade partners.

Translation: The euro nations could survive if somehow they found a way to have an positive trade balance with Monetarily Sovereign nations, like the U.S., Canada, China, Japan, Australia et al.

But despite the fact that MS nations have the unlimited ability to support the euro nations, no MS nation acknowledges it is MS.

The whole premise of the EU/Eurozone project was successive crises would force further integration.

Translation: Financial integration, in which the EU gives (not lends) euros to needy euro nations, is one of the two possible solutions to the euro mess (the other being for each nation to re-adopt its own sovereign currency).

However, only a crisis of even greater magnitude than the current crisis, will allow for financial integration. The rich don’t want it. They want the middle- and lower-income groups to suffer. They want the gap to widen, and provide a larger servant class.

European officialdom has managed to pull off years of “barely enough at the last minute” salvage operations to keep things from falling over. But the Germans have also insisted on crushing and failed austerity, and refuse to relent even as compliant periphery countries keep missing their targets and in the case of Greece, the result of breaking a country on the rack is a failed state.

Translation: It is the wealthy of Germany, in cahoots with the wealthy of the world, who want the other euro nations impoverished so the gap can be widened.

James Galbraith said, “Integration has a lot of efficiencies associated with it. In any event it creates a world in which there are cross-border interdependencies. And if you want to break them up, you can, but the price is on the order of 40%.

So that’s a good benchmark for what might happen to living standards if you suddenly went back to capital controls and trade barriers and national industries.

Galbraith predicts that if the euro nations returned to their sovereign currencies, there would be a loss of exports, resulting in a reduction in GDP. What he does not take into consideration is the fact that a Monetarily Sovereign nation always can create its sovereign currency, so does not need exports. A Monetarily Sovereign nation can be self sufficient.

Despite the considerable cost of a Eurozone breakup, that the experts are struggling to find a resolution that is acceptable politically to Germany.

Translation: Experts are struggling to find a resolution acceptable to the very rich.

“The idea of a common currency union is a big mistake, an adventurous, reckless and mistaken goal which will not unite Europe but, instead, divide it”. Lord Dahrendorf, 1995.

The good Lord Dahrendorf is 100% correct. They should have listened to him.

I now believe that Lord Dahrendorf was right. Right not only then but, even more so, today.

I had observed how a small economy which had totally collapsed could be successfully turned around in only a few years with the right domestic economic leadership and the right support from abroad. And I thought the same could happen easily in Greece. Well, it’s not happening in Greece because the country does not have the right economic and political leadership nor the right support from abroad.

Actually, collapse is exactly what the political leadership wants. It creates a larger pool of the servant class. Anyway support need not come from abroad. It could have come from the EU in the form of spending, not lending.

The eye opener was the book “The Euro-Liars” by Hans-Olaf Henkel, whose argument is, like Lord Dahrendorf said almost 20 years earlier, that the Euro does not unite Europe but, instead, it splits it. Henkel argues that the Euro not only limits (if not destroys) economic potential in the South but also in the North.

The Euro, as it was designed, does not fit the cultures of countries like Greece, Portugal and Spain (Henkel also adds Italy and France!). Neither is today’s Euro suitable for the North because it makes it too easy for Germany & Co. to export.. If Germany & Co. were not in the Euro, they would have to become even more innovative and productive to remain competitive in the world and their surpluses would most likely come down.

The problem is not so-called “culture,” (a euphemism meaning northern Europeans like to work harder than southern Europeans). It’s a matter of Monetary Sovereignty, or rather, the lack of it, that dooms all euro nations.

My original optimism about Greece was based on the following logic: a long-term economic development plan (at least for 10 years) would be necessary to build up domestic economic value creation (and/or repatriate it through import substitution);

A shift of the necessary foreign funding from loans to direct investment by foreign private sectors in the Greek private sector; EU-incentives to facilitate that (such as guarantees for the political risk including a Grexit);

Possibly temporary ‘infant industry protection’ (incentivating the repatriation of monies held by Greeks abroad and/or limitations on capital outflows).

This is not happening (and I no longer have the hope that it will happen) because the EU never thought in those terms and Greek leadership never showed the will or, more importantly, the capability to effect the necessary reforms.

Translation: “I blame Greece for its problems, when I should blame the EU and the demand for loss of Monetary Sovereignty, which makes long-term survival impossible”

As Prof. Galbraith argues, austerity alone is not the solution; neither is stimulus alone the solution. It would require a ‘European Initiative’ comparable to what the US government might do in a similar situation.

A United States of Europe with a federal government? Who would elect that government? Would national governments appoint it or would voters Europe-wide elect it? A Finn campaigning for election in Greece? A Greek in Germany?

The present EU as a role model for a future federal government? An EU which currently seems more outside of Europe than part of it? An EU which tells us which shape cucumbers must have; what kind of light bulbs we can buy; what kind of bathroom fixtures?

Since I have about 10.000 qm of grass to take care of, I am particularly interested in the latest EU regulation which will tell me what type of machinery I can use during which hours of the day/week!

One can imagine thousands of such objections, but the original 13 colonies faced exactly the same problems. The result was the United States of America.

So, I admit defeat in my belief that ‘European policy-makers would come to grips with fundamental economics’. They seem incapable of that.

All those ideas which aim at solving the Eurozone’s problems through generating aggregate demand are pipe dreams. They might work in the United States of America with a strong federal government but they are pipe dreams in a Europe of administrators, technicians and bureaucrats focusing on national interests, all speaking in different languages and different directions.

Translation: Although 13 colonies, run by administrators, technicians and bureaucrates, focusing on state interests, having different beliefs and fighting a war with a dominant foe, were able to create the Unites States of America, the European nations can’t do it.

Perhaps, what Europe needs is a dominant foe that could unite them.

Note to Europe: The United States of America exists. The model exists. The solution exists.

Sadly, your will does not exist. Your rich are too greedy. They want that gap widened.

Rodger Malcolm Mitchell
Monetary Sovereignty


Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone (Click here)
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 (Click here)
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)

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


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