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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, and the motive is the gap.
The U.S. dollar is both the lifeblood and the measure of our economy. Gross Domestic Product (GDP) is a dollar measure. The equation, GDP = Federal Spending + Non-federal Spending + Net Exports is a dollar measure.
Federal government deficit spending (Spending – Taxing) adds dollars to the economy, which helps grow the economy. The euro nations have had difficulty recovering from the Great Recession, because they practice a more extreme form of austerity (reduced deficits) than does the U.S.
Five years ago, this blog published “The low interest rate/GDP growth fallacy.” Here are a few excerpts:
The Fed raises interest rates to fight inflation. To fight recession, the Fed does the opposite. It cuts interest rates.
This may sound logical except for one, very small detail. The opposite of inflation is not recession. The opposite of inflation is deflation. So doing the opposite of what you would do to counter inflation makes no sense when trying to counter a recession.
We could have a recession with deflation. We could have a recession with inflation, which is called “stagflation.” The history of Fed rate cuts, as a way to stimulate the economy, is not a good one.
Declining interest rates correspond with declining GDP.
Why does popular faith hold that cutting interest rates stimulates the economy? Because popular faith views only one side of the equation. But, for each dollar borrowed a dollar is lent. $B = $L.
Cutting interest rates does cost borrowers less. A business might be more likely to borrow if interest rates are low than when they are high. Further, consumers buying on terms are more likely to buy when borrowing is less costly.
But, when interest rates are low, lenders receive less money. And who are the lenders? Businesses and consumers.
You are a lender when you buy a CD or a T-bond, or put money into your savings account. When interest rates are low, you receive less money, which means you have less money to spend on goods and service — which means less stimulus for the economy.
The Fed has not learned from experience, but stubbornly adheres to the popular faith that interest rate cuts stimulate the economy.
I urge you to read that 2009 post before continuing. It serves as background for the article I saw today:
Yellen: Job-Market Shifts Complicate Interest Rate Decision
The Associated Press
Federal Reserve Chair Janet Yellen’s remarks to an annual Fed conference in Jackson Hole, Wyoming, offered no signal that she’s altered her view that the economy still needs Fed support from ultra-low interest rates.
Yellen repeated language the Fed has used at its last meeting that record-low short-term rates will likely remain appropriate for a “considerable time” after the Fed stops buying bonds to keep long-term rates down. The Fed’s bond buying is set to end this fall.
The Fed chair noted that while the unemployment rate has steadily declined, other gauges of the job market have been harder to evaluate and may reflect continued weakness. These include high levels of people who have been unemployed for more than six months, many people working part time who would like full-time jobs and weak pay growth.
Translation: The patient has been suffering from anemia since 2008. We’ve been drawing his blood and applying leaches, but still he has anemia. The only solution is to keep bleeding the patient with leeches.
This false belief about low interest rates, along with Congress’s ongoing campaign to reduce federal deficit spending (aka “austerity,”) which also limits money supply growth) has been responsible for our current economic troubles.
The moral of the story, according to the Fed, is: If something does not work, never has worked and never can work, keep doing it, again and again and again. Never admit you were wrong in the first place.
Just keep drawing blood out of the economy, and hoping that in some unknown way, its current anemia magically will cure.
Rodger Malcolm Mitchell
Ten 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. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (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. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here)
10. 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
THE RECESSION CLOCK
Vertical gray bars mark recessions.
As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.