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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.
Who is Rick Newman? I’ll let him tell you about him:
I’m an award-winning journalist and author covering many of the most pressing issues of our time. As a columnist for Yahoo! Finance, I explain how the momentous changes sweeping through the economy affect ordinary people–and what you can do about it.
I was Chief Business Correspondent for U.S. News & World Report, where I worked as a writer for more than 20 years. I’m also a frequent commenter on networks such as CNN, MSNBC, and Fox, plus a lot of local radio stations.
I’ve ridden on submarines, flown on Air Force jets and tromped through mud with soldiers while covering the Pentagon. I’ve walked the halls on Capitol Hill and interviewed many of America’s top political and business leaders.
I won the Gerald R. Ford Prize for Distinguished Reporting on National Defense. I’ve also won awards from the National Press Club, the Society of Professional Journalists and the International Association of Firefighters. And I’ve been a finalist for the Livingston Award for Young Journalists and the National Magazine Award.
With (my book) Rebounders, I shifted to socioeconomic issues that directly affect millions of Americans.
Wow! Rick Newman is an Expert — which is why I’ve decided to show you excerpts from a column he just wrote for Yahoo Finance:
Chinese holdings of U.S. federal debt hit a new record high toward the end of 2013. We should probably be grateful.
China has been the largest foreign holder of U.S. debt since 2008, when it overtook Japan, which is now No. 2.
Chinese holdings of U.S. debt strike some people as a national-security vulnerability, but that’s largely a myth fed by fear-mongering xenophobes.
Exactly right. This guy really seems to know his stuff.
Chinese holdings of U.S. debt (T-securities) are nothing more than deposits in China’s T-security accounts at the Federal Reserve Bank — essentially identical with deposits in bank savings accounts.
Pay back is no problem for banks or for the U.S. government. To pay back, they just transfer dollars from savings accounts to checking accounts. Simple.
For one thing, the debt held by China only amounts to about 7.6% of the entire $17.2 trillion in U.S. debt. Overall, Uncle Sam’s portfolio of creditors is pretty well diversified.
Borrowing from all sources, including China, also helps Washington pay for more programs than Americans finance on their own through taxes.
Uh oh! Newman says dollars deposited in China’s T-security accounts pay for federal spending. He doesn’t recognize Monetary Sovereignty.
Those dollars in China’s T-security accounts don’t belong to us. They belong to China. Does a (legitimate) bank use depositors’ money to pay its bills?
A trenchant irony of China’s lending to the United States is it helps pay for aircraft carriers, fighter jets, missiles and other military hardware that would menace China if there were ever a standoff between the two nations.
Sure, Mr. Newman. The Chinese are so stupid, they are funding our military, which one day will be used against them. Too bad they don’t have economists as smart as you.
Funds from China also help pay for Medicare, highways, education grants, prisons, food stamps and most other things the federal government spends money on.
He doesn’t “seem to” understand the difference between monetary non-sovereignty (states, counties, cities and him) vs. Monetary Sovereignty.
He acts as though federal financing is just like his own personal financing!
A few programs — most notably, Social Security — have a dedicated source of funding. Medicare is partly funded that way, but money for some parts of the popular healthcare program for seniors comes from the Treasury Department’s general fund.
For the most part, money from taxes and borrowing goes into the same pool at the Treasury, with no distinctions on how dollars from different sources are spent. “Whether the payments are derived from debt or taxes, it’s all one big pot of cash,” says Deborah Lucas, a finance professor at MIT’s Sloan School of Management.
OMG! Now an MIT finance professor spreads The Big Lie?
Rick and Deborah, please listen closely. The Federal government does not maintain “a big pot of cash.” The U.S. money supply does not include such a pot. There is no pot.
If the pot existed, where would it be? The Treasury? If the entire Treasury building, and all those sheets of freshly printed dollar bills, burned to the ground, would the government be unable to pay its bills? No, that would have no effect on federal bill paying.
The government pays its bills by sending instructions (NOT dollars. Instructions.) to creditors’ banks to increase the balances in creditors’ checking accounts. When banks follow these instructions, which they always do, dollars come into existence.
The federal government neither has nor needs a big pot of instructions. It cannot run short of instructions.
Federal financing is different from your personal “kitchen-table” financing.
“When people ask ‘how bad would it be for the United States if China withdrew its money,’ the answer is, ‘how bad would it be for China if the United States went bankrupt?’” says Richard Kogan of the Center for Budget and Policy Priorities. “China has a big stake in the solvency of the United States. They want us to pay all their principal and interest and keep buying the stuff they make.”
And now Richard Kogan joins the ignorance parade. If China wished to withdraw its money, the U.S. government simply would transfer dollars from China’s T-security account at the Federal Reserve Bank, to China’s checking account, also at the FRB. No new dollars needed.
To pay the interest, the U.S. would instruct the FRB to increase the balance in China’s checking account.
As for the “solvency of the United States,” puleeze! The U.S. creates unlimited dollars ad hoc, simply by sending instructions. It is 100%, absolutely, positively impossible for the U.S. to become insolvent.
[By another definition, the U.S. is, and always has been “insolvent,” in that it has no dollars, but that’s just a semantic game.]
And as for “buying the stuff they make,” so long as China’s banks, here and abroad, are glad to accept U.S. Treasury instructions, we’ll be able to keep buying that stuff.
The vast scale of borrowing by the U.S. government is a different story altogether and a legitimate worry.
Why is the size of deposits in T-security accounts at the Federal Reserve Bank a “legitimate worry”?
Washington has made halting progress on its debt recently, with the annual deficit dropping from $1.1 trillion in 2012 to $680 billion in 2013.
There’s still no plan, however, for addressing federal budget gaps that are expected to explode starting around 2020. With luck, China will still have a lot of money to invest by then — and remain in an accommodating mood.
Or, if our luck is “bad,” China will transfer the balances in its T-security accounts to its checking accounts, at which time we will “owe” China zero.
And that will have zero effect on the U.S. government’s ability to pay its bills by sending instructions to creditors’ banks.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback to Success
If, like the U.S. Federal Government, you have the unlimited ability to pay bills, by all means buy his book. Make him rich. Otherwise . . . maybe not.
I can’t say whether Rick, Deborah and Richard are owned by rich employers or truly are ignorant of Monetary Sovereignty. But their comments demonstrate why the American-in-the-street remains aggressively ignorant about our economy, and why the money/power gap between the ultra-rich and the rest widens.
It’s hard to blame the public for mental anorexia, when the people are being fed garbage.
Rodger Malcolm Mitchell
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded 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) Or institute a reverse income tax.
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 federal deficit growth lines drop, we approach recession, which will be cured only when the lines rise. Federal deficit growth is absolutely, positively necessary for economic growth. Period.