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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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:
The Exchange
How China helps pay for Medicare, U.S. aircraft carriersChinese 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
Monetary Sovereignty
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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.
#MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
The reason this all is so depressing: Here is Deborah Lucas’s background:
But part of the explanation is this:
The U of C is notorious for acting clueless about Monetary Sovereignty.
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“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.”
Technically Rodger thats not true. Whether China’s US$ deposits are in securities = savings accounts earning interest or reserve = checking accounts earning no interest (current IOR notwithstanding), we “owe” them their own money back. Just like Chase “owes” me my money whether my money is in my checking or savings account.
The only time the USA wouldn’t owe China MONEY is if they withdrew all their money in cash, and then we would only “owe” them that amount of tax credits.
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Understood, and you are correct, but you missed the words, “at which time.”
Perhaps, I should have said, “After China transfers the balances in its T-security accounts to its checking accounts, we will owe them zero.” Does that make it clearer?
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Roger, it’s depressing for you because you are not acting on your understanding.
If i just read and write about playing guitar without actually playing guitar it’s depressing.
Form a band run for office on a MMT platform.
Play your instrument Roger 🙂
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I would pay money to see a dialog between you and Deborah Lucas. I wonder what, if anything, she could argue?
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I’m sure she would have plenty to say, but nothing about Monetary Sovereignty, I suspect.
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As I’ve stated before, no one in their right mind would take on an expert in MS before a camera and audience. They would get hammered and they know it. They will instead pretend to not notice MS or laugh it off, call you insane and quickly get out of the room before they’re engaged to respond.
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Rodger, it must be frustrating. I’m frustrated also. If China cashed in all its Treasuries tomorrow, a lot of things could happen, but a US bankruptcy is not one of them. Let’s look at what might happen:
Since the bonds have not reached maturity, China would have to sell the bonds on the open market, so interest rates on these bonds would begin to rise. Assuming the Fed does not act, as the interest rates rise, investors would leave other asset classes to purchase the bonds. So we might see a drop in the stock market, gold, oil, etc. However, it is reasonable to assume that China will invest the proceeds of the bonds in these same asset classes. So that event may actually be a non-event. If China holds on to the dollars it receives, we can expect deflation, as all those dollars were removed from circulation. Of course, CNBC will claim that the event will cause economic collapse.
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So the issue presented is how to challenge these Big Lies: how to respond to Rick Newman’s statements in the most public way. Is it possible to post replies for his article? Talking to ourselves isn’t extremely effective.
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Some “economic analysis” from an out-of-paradigm Harvard MBA (among the best that the Ivy League has to offer apparently):
Watch out for hyperinflation!:
http://www.johntreed.com/why-no-inflation-yet.html
http://www.johntreed.com/am-I-a-kook-for-warning-against-hyperinflation.html
http://www.johntreed.com/hyperinflationredlights.html
http://www.johntreed.com/Approaching-the-cliff.html
http://www.johntreed.com/Steve-Forbes-on-hyperinflation-danger.html
http://www.johntreed.com/hyperinflation-deniers.html
Are U.S. federal government bonds becoming junk bonds?:
http://www.johntreed.com/Why-US-bond-yields-low.html
http://johntreed.com/headline/2010/11/07/too-many-are-forgetting-the-u-s-bonds-that-have-to-be-paid-off-each-year/
http://johntreed.com/headline/tag/us-treasury-bonds/
Do we need more austerity?:
http://www.johntreed.com/growthvsausterity.html
http://johntreed.com/headline/2011/04/19/poll-confirms-americanss-ignorance-of-fiscal-arithmetic-leading-to-bankruptcy/
http://www.johntreed.com/EzraKlein.html
Will the U.S. dollar go poof! and disappear?:
http://www.johntreed.com/thedaythedollardies.html
http://johntreed.com/runondollar.html
And this little gem (what if nobody wants to buy U.S. federal government bonds?):
http://johntreed.com/headline/2011/08/09/it’s-not-morning-in-america/
And get this, Reed actually states in his website:
“I appreciate informed, well-thought-out constructive criticism and suggestions. If there are any errors or omissions in my facts or logic, please tell me about them. If you are correct, I will fix the item in question. If you wish, I will give you credit. Where appropriate, I will apologize for the error. To date, I have been surprised at how few such corrections I have had to make.”
http://www.johntreed.com/headlinenewsarticles.html
(I apologize if this post made your brain explode, but this is just another example among many of what MMT/monetary sovereign-proponents are up against.)
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He’s a “Henny Penny” sensationalist. Just one example. He said the U.S. has had “hyperinflation within the past 30 years.” Utter nonsense.
The highest inflation we’ve had in the past 50 years came in early 1980, when inflation briefly touched 14.6%.
A most common description of hyperinflation is a monthly inflation above 50%.
I began to look at some of the links you sent, and see that Reed is beyond help. He has been preaching hyperinflation for years, so it must be a great disappointment to him that right now, the Fed is most concerned about deflation.
The Harvard economics department is many levels inferior to the UMKC economics department. Harvard should stick to what it is best at: Collecting donations from the very rich.
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And in case anyone missed it, here’s Christine Lagarde’s take on the subject:
http://www.ft.com/cms/s/0/82d8e684-7e0d-11e3-b409-00144feabdc0.html#axzz2qmXYg92R
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See: https://mythfighter.com/2012/04/17/very-revealing-interview-with-christine-lagarde-managing-director-of-the-imf/
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There are two types of people who most push the Big lie…
1. Those who depend on the Big Lie to justify their hate and selfishness. Example: “We must cut Food Stamps because Blacks are lazy!”
2. Those who depend on the Big Lie for their material livelihoods. This includes politicians and media hacks. It also includes people like John T. Reed, who push the Big Lie in order to sell things like books, speaking enagements, shares in gold exchanges, etc. Mr. Reed wants to sell his books.
Since both groups utterly depend on the Big Lie, both are unreachable.
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Another mantra that is parroted mindlessly by the intellectually lazy and ignorant (from both sides, but most often by the right wing) that is very grating and annoying is that entitlements are socialism/communism and that they encourage sloth and destroy the work ethic among the people. These people need to at least look up socialism on wikipedia. A social safety net (like social security, medicare, etc.) does NOT equal socialism, communism, whatever. (Doesn’t Socialism start off with something like “ownership of the means of production…” or something like that? – which entitlements aren’t).
And most entitlements go to the elderly, disabled:
http://www.offthechartsblog.org/debunking-the-entitlement-society-myth/
With monetary sovereignty, America has a great tool to benefit our society and humankind. Just imagine what generous (or at least meaningful) funding of NIH, NASA et al. (which can work in tandem with a flourishing private sector) could achieve.
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@BJS Even if funding the NIH, NASA, etc (I would add all of the Cancer societies) caused some inflation, would it not be worth it? We are not talking about unlimited funds — just enough so they no longer need to raise funds. Maybe cancer could have been cured by now. In 2003, American families received a $600 check. There was no apparent inflation as a result. And millions were able to pay their bills for a month or two.
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–Off topic –
Nation after nation continues to stampede over the cliff.
On 1 Jan 2014, Latvia adopted the euro currency. On 18 Sep 2014 Scotland will commit suicide via a referendum on independence from the UK. (Scotland has been united with the U.K. for 307 years.)
In the Scotch parliament, the biggest pushers for independence are the Scottish Nationalist Party (SNP) led by Mr. Alex Salmond, who is also Scotland’s “first minister” (a kind of president).
Mr. Salmond wants an independent Scotland without Monetary Sovereignty. He claims that that this will mean less austerity. (!!!)
From 1990 to 2010, Mr. Salmond and the SNP said an independent Scotland’s new currency should be the euro. Now, because of the euro disaster, Mr. Salmond wants Scotland to keep the British pound as its currency.
Without Monetary Sovereignty, Scotland (pop. 5.3 million) will enter the death spiral of debt and austerity. The Scottish government will have to borrow all its money, which will mean ever-increasing debt, privatization, austerity, and inequality. Fiscal policy will continue to be decided in London, and not Edinburgh.
Incredibly, Mr. Salmond claims that an independent Scotland without Monetary Sovereignty will let Salmond give free day care to one-year-olds, and will let him raise the minimum wage! (Sounds like “Change we can believe in,” aye?)
Many British politicians oppose Scottish independence, but this is for show. The City of London has bought Mr. Alex Salmond, knowing that independence will further accelerate privatization and inequality in Scotland.
If you don’t think Mr. Salmond has been bought, then consider this…
Initially he said that an independent Scotland will “take on a fair share of the UK’s national debt.” This didn’t sit well with the Scottish masses, so last Monday (13 Jan 2014) the UK Treasury issued a “statement on debt” to Mr. Salmond, who declared that it has a “cast-iron guarantee” that the UK Treasury would take responsibility for all UK debt.
This was done to reassure the Scottish masses and encourage them to vote for independence and austerity. The UK Treasury (and Mr. Salmond) knows that the “national debt” is trivial and irrelevant. Like the US “national debt,” it simply represents the amount of money on deposit in Bank of England savings accounts. Without Monetary Sovereignty, an independent Scotland will have a TRUE national debt. It will enter the death spiral.
Mr. Salmond says an independent Scotland will no longer harbor the Trident nuclear submarine. (So what? This will simply eliminate jobs in Scotland).
He says that Scotland will get 90% of North Sea oil and gas reserves. However, without Monetary Sovereignty, an independent Scotland will have to surrender its oil and gas to pay its ever-increasing government debts.
Even now, Scotland has no energy independence. Scotland’s only refinery is privately owned by a Swiss company called Ineos. The refinery, located in the city of Grangemouth, processes 70 percent of Scotland’s fuel. When Ineos chairman Jim Ratcliffe demanded radical cuts and wages and benefits, his worker-slaves staged a strike. In response, Mr. Ratcliffe shut down the refinery, causing his slaves to submit to a three-year pay freeze, cuts to pensions, and a three-year moratorium on any strikes.
Alex Salmond praised the surrender. He knows that an independent Scotland without Monetary Sovereignty will make Scottish workers more enslaved than ever, while Mr. Salmond gets richer than ever. This is called “modernization” and “efficiency.”
To further kill any possibility of Monetary Sovereignty, Mr. Salmond has given infrastructure contracts to major companies with the promise that they will be paid only in British pounds (which will be borrowed from private investors and the Bank of England, while the debt and austerity are dumped on the Scottish masses).
The Scottish Green Party wants to keep using the British pound, but it hopes that an independent Scottish government would, “keep an open mind about moving towards an independent currency.”
The Scottish Socialist Party wants an independent Scottish currency, but says the currency should be determined not in the September referendum, but in the first elections to an independent Scottish Parliament. (Whatever that means.)
Jamie Searle, strategist at Citigroup, said markets have been unconcerned about the independence issue, because polls show the nationalists well short of a majority.
TRANSLATION: markets have been unconcerned about the independence issue, since investors know that the “national debt” is trivial.
Former British Prime Minister Gordon Brown admits that by keeping the British pound, Scotland will adopt a “self-imposed colonialism.”
Farewell Scotland. You have austerity now, but when you go independent without MS, your austerity will quadruple, and will keep worsening forever.
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Ian and BSJ,
This may be counterintuitive, but since we went off the gold standard, there has been zero relationship between federal spending and inflation. See: https://mythfighter.com/2010/04/06/more-thoughts-on-inflation/
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But we know that since one person’s spending is another person’s income, that if federal spending were high enough (ie 5x what it is today), incomes would rise. This would almost certainly cause high inflation. The idea would be to increase government spending until some inflation is showing up. I wouldn’t be worried if inflation gets too high, because then higher interest rates or higher taxes would keep inflation under control.
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Some inflation is actually beneficial to the economy:
http://www.investopedia.com/financial-edge/0509/inflation-its-a-good-thing.aspx
http://useconomy.about.com/b/2011/09/15/why-a-little-inflation-is-good.htm
http://www.federalreserve.gov/faqs/economy_14400.htm
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