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●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.
The Fed hinted it may possibly reduce Quantitative Easing, so the stock market tanked. Why?
Question I: What is QE (quantitative easing)?
Answer I: The Federal Reserve purchases billions of dollars worth of T-securities each month, to pump dollars into the economy and to reduce interest rates, so to stimulate the economy.
Question II: Where does the Fed get the billions it spends every month to purchase T-securities as part of its QE?
Answer II: It doesn’t.
Confused? Of course you are, but you’re no more confused than Congress and the media, because Answer I, though it is the official answer, is total bullsh*t.
The federal government is Monetarily Sovereign. It created the laws that created the dollar. The dollar exists only as a system of laws, which the government can change at will. There is no physical dollar. You never have seen or touched a dollar.
That dollar bill in your wallet is not a dollar. It is a bearer instrument, telling the world you own a dollar.
Just as a house deed is not an house, and a car title is not a car, and a loan document is not an loan, that dollar bill is not a dollar. So, what is a dollar? It is nothing more than an accounting notation that follows the currently obsolete laws created, and often revised, by the federal government.
Getting back to QE, how does it work? Let’s think first about bank Certificates of Deposit (CDs), which are similar to T-securities. When you buy a CD, your bank debits your checking account and credits your CD account. No money created or destroyed.
Later, when your bank buys back your CD, it credits your checking account and debits your CD account. Again, no money created or destroyed.
Your bank doesn’t need to spend any money to redeem your CD. The whole process was just a transfer of your funds from one of your accounts to another of your accounts.
It’s the same with T-securities. When you buy a T-security, the Federal Reserve Bank (FRB) debits your checking account and credits your T-security account at the FRB. Then, when the Fed buys back your T-security, it merely debits your T-security account and credits your checking account.
Neither the purchase nor the redemption of T-securities creates or destroys money. So the Fed doesn’t need any money to “buy” T-securities. It just transfers money from one account to another — both accounts owned by the same holder.
That $1+ trillion the Fed has “spent” on T-securities added zero dollars to the economy. So why does the Fed do it?
1. First, the Fed has created the “confidence fairy,” the belief that merely believing the Fed is supporting the economy, will in fact, support the economy. If you believe it, it must be so.
2. Second, by buying T-securities, the Fed increases the price of T-securities, which reduces interest rates. (Bond prices move the opposite of interest rates). The belief is that low rates cut business costs and thereby stimulate the economy.
As with many Fed beliefs this one is factually wrong. There is no relationship between low interest and economic growth.
There actually is a slight inverse relationship, because low rates require the government to pay less interest into the economy.
Federal Reserve pays government $88.9 billion
Martin Crutsinger, Associated Press 11:32 a.m. EST January 10, 2013
The Federal Reserve paid the federal government a record $88.9 billion in 2012.
The central bank earned the money from the Treasury bonds and mortgage-backed securities it has bought to drive interest rates lower and boost the economy.
[That’s $88.9 billion that would have been earned by the private sector, and really stimulated the economy, but now has disappeared from the economy. And this is stimulative??]
3. Third, to increase bank bank lending. Banks are able to lend 10 times their reserves. The vast majority of bank reserves are accounts at the FRB. They can be in the form of cash (i.e. accounting notations) or in the form of T-securities (also, accounting notations).
So, by increasing bank reserves, bank lending is encouraged, and this stimulates the economy. Right? Wrong.
Banks obtain all the reserves they want — from the Fed, from other banks and from private lenders. (My own company lent millions to our local bank for their reserves.) By law, there never can be a shortage of reserves available to banks.
Bank lending is based on credit risk and interest reward. Banks have several investments available to them; lending is just one of those investments.
Ironically then, low interest rates actually reduce the reward for bank lending, and so reduce the motivation to lend.
In total, QE is a fraud. A slight of hand. Under which shell is the pea? QE accomplished nothing good, and mathematically may do harm to the economy.
Somehow, it never seems to make the “experts” wonder how the Fed is “spending” billions every month, yet the money supply doesn’t multiply, the deficit doesn’t grow and the Fed has no source of income to spend all those dollars.
So why did the stock market tank, when Chairman Bernanke hinted he might slow that useless-probably-harmful QE? Because it went up when Bernanke said he would institute that useless-probably-harmful QE.
The stock market went up for the wrong reasons, then came down for the same wrong reasons.
QE is much ado about nothing. It is meaningless, probably harmful. It is like prescribing leeches to cure anemia. The wrong medicine is worse than no medicine at all.
Rather than engaging is shell games, the government could and should stimulate the economy by following the “Nine Steps to Prosperity” listed below.
Unfortunately, Congress and the President have been bribed by the upper 1% income group (via campaign contributions and promises of lucrative employment) to widen the gap between the rich and the rest. This is best accomplished by impoverishing the economy, while pretending to stimulate it.
Unless, by some miracle, an honest politician enters the White House, we are rushing headlong into a recession.
Yikes! Did I just use “honest” and “politician” in the same sentence?
Rodger Malcolm Mitchell
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D plus long term nursing care — 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. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
9. Federal ownership of all banks (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
THE RECESSION CLOCK
As the lines drop, we approach recession, which will be cured only when the lines rise.