Twitter: @rodgermitchell; Search #monetarysovereignty
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Mitchell’s laws:
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The more federal budgets are cut and taxes increased, the weaker an economy becomes. .
●Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
●Austerity is the government’s method for widening the gap between rich and poor.
●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.
●Everything in economics devolves to motive, and the motive is the Gap.
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Here is an equation you should understand:
CRFB + Debt/GDP = BS
CRFB = Committee for a Responsible Federal Budget
Debt/GDP = the ratio of federal debt to Gross Domestic Product
GDP = Federal Spending + Non-federal Spending + Net Exports
BS = Ceaseless, constant, unrelenting bullsh*t
Now for the latest from the masters of deception, the CRFB (with assistance from the federal government).
CBO’s Analysis of the President’s FY 2016 Budget
March 12, 2015Today, the Congressional Budget Office (CBO) released its re-estimate of the
President’s FY 2016 budget, using its own economic and technical assumptions.According to CBO, debt held by the public in the President’s budget would reach 73.1 percent of GDP by 2025, 1 percentage point lower than in 2014 (and about what OMB estimated), but 1 percentage point higher than in 2020.
What does this mean? It means the total of deposits in T-security accounts at the Federal Reserve Bank will reach 73.1% of: Total spending by the federal government, plus spending by everyone else in America, plus Net Exports.
That’s the GDP = Federal Spending + Non-federal Spending + Net Exports equation.
If you are perceptive, you may wonder why Total Deposits in T-security accounts at the Federal Reserve Bank should be compared with everyone’s spending. Why, indeed?
The Committee for a a Responsible Federal Budget would like you to believe that for some mysterious reason, there should not be lots of deposits in T-security accounts, especially when compared with U.S. spending: The ultimate apples/oranges comparison.
CRFB’s Debt/GDP fear-mongering would be ludicrous if it weren’t so harmful.
Why then, do government agencies even bother to publish this meaningless fraction? The only reason I can imagine is: For a similar looking fraction, Deficit/GDP, has some value. That is, there is some value to comparing federal government deficit spending with total spending.
But federal deficits and federal debt debt are quite different. We could have deficits without debt (Simply stop accepting T-security deposits). And we could have debt without deficits (Continue to accept T-security deposits, while running a surplus).
For our Monetarily Sovereign U.S. government, that thing misleadingly called “federal debt,” isn’t what ordinary people would call “debt.” It’s really just the total of deposits in specific bank accounts, in this case, T-security accounts at the Federal Reserve Bank.
While technically, all bank account deposits are forms of debt, I doubt whether you spend many sleepless nights worrying about the amount of deposits in your neighborhood bank, and even fewer nights worrying about the amount of deposits in the Federal Reserve Bank.
But that is exactly what the CRFB wants you to worry about: The size of T-security deposits in Federal Reserve Bank accounts.
Now, if we were talking about monetarily non-sovereign state and local government borrowing, that would be a different story. For any monetarily non-sovereign entity (including you and me), debt and the repayment of debt, can be a real problem.
But for the Federal Reserve Bank, repayment of deposits requires only a transfer of existing dollars from T-security accounts to checking accounts. No problem at all, and no new dollars needed.
And the story gets even worse for the CRFB nonsense. They compare a non-problem, Federal Debt, to an unrelated figure, Gross Domestic Product.
Even for monetarily non-sovereign entities, the Debt/GDP fraction makes no sense.
For example, consider you and your cousin. You both are monetarily non-sovereign. You do not use your own sovereign currency, but rather you use the sovereign currency of the United States government, the dollar. Unlike the U.S., you cannot create dollars out of thin air.
Say you and your cousin both spend the same amount of money (i.e. your personal Gross Domestic Product), but you have half the debt your cousin has.
That is, your personal Debt/GDP is half of your cousin’s.
Who will have the easier time paying their debt, you our your cousin?
Answer: It’s a nonsense question, because you don’t pay your debt with your spending but rather with your income. And in the Debt/GDP fraction, there is no mention of income.
And while your monetarily non-sovereign income is limited, the Monetarily Sovereign federal government neither needs, nor uses, income. It creates dollars out of thin air, ad hoc, when it pays bills.
The CRFB article continues for six long pages, all pounding on the “high” debt and “high” debt/GDP ratio, and ends with this sentence:
In additional to tax reform and spending cuts, such entitlement reform will be necessary to put the county on a sustainable fiscal course for this and future generations.
First, as we have discussed, CRFB conflates “debt” with “deficit,” and demands decreases in the deficit to reduce the so-called “debt.” It doesn’t work that way.
And second, they love to use euphemisms to hide their economy-crushing suggestions:
“Tax reform” is a euphemism for “tax increase.” Any tax increase takes dollars out of the economy, and so is recessionary.
“Entitlement reform” is a euphemism for “cut benefits to the poor and middle income people. This serves to widen the Gap between the rich and the rest.
Here are some of the “entitlement reforms” the CRFB advocates:
–Reduce spending on prescription drugs
–Raise Medicare means-tested premiums and cost-sharing (i.e. punish the sick)
–Reduce spending on post-acute care (i.e. punish the recovering sick)
–Reduce farm subsidies (punish farmers)
–Increase Pension Benefit Guaranty Corp. premiums (make pensions riskier)
–Enact immigration reform (i.e. punish immigrants)
So, in addition to teaching nonsense, the CRFB advocates cruelty to the not-rich — and then complains it’s not enough.
What manner of people are these?
Rodger Malcolm Mitchell
Monetary Sovereignty
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The 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. Federally funded, 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. (Refer to this.)
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 and here)
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
Initiating The Ten Steps sequentially will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.
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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.
1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)
2. All deficit spending grows the supply of dollars
3. The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
4. The limit to non-federal deficit spending is the ability to borrow.
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.
#MONETARYSOVEREIGNTY
#Monetary Sovereignty - Mitchell 
What manner of people are these? I’ll give you a hint. They’re the SAME kind of people who saddled Germany with an impossible war reparations repayment plan otherwise known as The Treaty of Versailles, which inspired Hitler and WW2. They look for any and every way possible to stick it to everybody on earth like roaming vampires in 3 piece suits.
They can’t make it on there own, so they take it from all of us. And when everything goes wrong they point their finger at us. We are the ones who fight their wars and pay through the nose generation after generation…..and it’s all legal!!
Just like the spoiled kid who when told to behave and apologize simply spits in your face and kicks you in the crotch then tells you to go to hell. And we say “OK.”
We keep “turning the other cheek” and they keep slapping and kicking all four of them while chuckling up their sleeves on the way to their bank.
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Hello Mythfighter
What do you think give currency value?
1) Limited Supply
2) Demand for currency to get goods
3) Other
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All 3.
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Hi Roger thanks much for your “continuing education”. I have a “stupid” question. I don’t quite understand the “Treasury deposits at the Fed” point. If, for example, I own a $100 U.S. savings bond (part of the “debt”), are you saying that there is an account at the Fed with $100 in it – which will be debited when I wish to cash in my savings bond? My understanding had been that when I cashed in my bond, the Fed would – at that point – create $100 out of thin air to credit my “checking account”. I realize my question is a “distinction without a difference” in the big picture but I was not quite clear on this transaction. Thanks for any thoughts.
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When you own a T-security, you actually own a T-security account at the Federal Reserve Bank.
It has some similarity to a bank CD or a bank savings account, wherein you own a CD account or the savings account at the bank.
The CD and the savings account are debts of the bank as is the T-security.
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And the inquirer is now more confused…
If I’m not mistaken, the question is what happens to the 100 dollars when you hand over the $ and you get the IOU?
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The $100 is deposited into your T-security account at the FRB.
What happens to the $100 deposited into your bank savings account?
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Common sense, the bank will pay me interest, while they re-lend the money at a higher rate and pocket the difference, minus operating costs. It costs the bank money to keep my money there. They have to pay various maintenance costs.
The money doesn’t stay with my bank – it’s re-lent.
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Rodger thanks much for your explanation!. got it.
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To can’t think:
That is not how fractional reserve lending works. Deposits become part of reserves, and yes, the bank is limited to lending a fraction of its reserves, but:
1. Reserves are easily available to all banks via the Fed or other banks or other lenders. No bank ever runs short of reserves.
One of my companies used to lend our bank reserves every evening, and retrieve the money the following morning. Those were known as “overnights.”
2. So, bank lending actually is limited by bank capital.
3. BANKS DO NOT LEND THEIR RESERVES; They lend an amount equivalent to a fraction of their reserves. Big difference.
The reserves do not disappear when the bank lends. The reserve account is reduced only when depositors take out their money or when the bank pays back those who lent them reserves.
4. The bank lends simply by increasing the balance in the borrower’s checking account, not by transferring dollars from the bank’s reserve account.
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1) I don’t think so. I wor at a bank and guess what the top priority is? To make sure we maintain a tightly controlled environment to avoid any mishaps that could push us to be in the regulators radar. I recall that during the crisis banks getting funding from the fed window were considered bankrupt and we’re under the feds scrunity. Banks NEVER get reserves from the fed, NEVER..
I am fully aware of what overnight loans, banks do it daily.
2) Yes, bank lending is ultimately constrained by bank capital – that’s a given. What you are saying here is that banks will lend money as long as their capital support daily operations. But that doesn’t mean they don’t lend deposits.
3) I am not sure what you are referring to when you say “reserves”, in banking, reserves are the portion of deposits that banks keep after lending the rest. Reserve accounts are kept at the fed and working in banking I know full well that banks borrow to fulfill reserve requirements.
If by reserve you are talking about deposits, which are not reserves in my view because this is a bank liability, those are re lent in its entirety. This is common sense knowledge.
4) Please tell me you are joking. To lend, banks first debit their Nostro account, next the banks account at the fed is credited and then debited. Finally the beneficiary account is credited. End of transaction. Yes, there is defiantly a transfer. There is no difference between you pulling money out of your account, handing over to me and me depositing it in my account other than the fact that we are bypassing the fed.
It’s childish to think banks can credit an account without first dediting one. If they did, they could never, ever go bankrupt. All they have to do is credit their nostro, voila, all the money they want. Of course, in real life the occ, the fed, and sec would be breathing down their necks.
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Wrong in every way.
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As I said, I work in banking and I know how banks operate. People that think banks just credit accounts for the heck of it are in lala land. Banks not only use internal audit folks, they have independent organizations auditing them. The point? Preparing for a government led audit.
Banks are audited by the government constantly. This is what keeps the big auditing agencies in business. Banks do have some breaks in their accounting – and those breaks will need to be addressed constantly – because the government has mandated that they be addressed.
I also know that transactions coming out of banks occur just like transactions outside of banks – with the exception that the Fed has a copy of the ones moving electronically via the Fed. Records of ALL electronic transactions end up at the Fed.
I also know that the Treasury uses a Fed account that is actually kept in a private bank to process pension payments – and that those pension payments are processed like any other payment – they are debited from the government account at a private bank and credited at the beneficiary bank. Money is NOT created during the processing of payments. I can prove to you anytime that this is the case, whether you want to believe it is another matter. I have a feeling these facts don’t jive with your theory.
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How do you think dollars are created?
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Banks are never reserve constrained! Banks are always capital constrained. This can best be seen in countries such as Canada where there are no reserve requirements. Reserves are used for only two purposes – to settle payments in the interbank market and to meet the Fed’s reserve requirements. Aside from this, reserves have very little impact on the day-to-day lending operations of banks in the USA. This was recently confirmed in a Fed paper: see below
Fed Paper
“Changes in reserves are unrelated to changes in lending, and open market operations do not have a direct impact on lending. We conclude that the textbook treatment of money in the transmission mechanism can be rejected
Loans Create Deposits’
When we say ‘loans create deposits’, we mean at least that the marginal impact of new lending will be to create a new asset and a new liability for the banking system – typically for the originating lending bank at first. A bank makes a loan to a borrowing customer. That is a debit under bank assets. Simultaneous, it credits the deposit account of the same customer. That is a new bank liability. Both of those accounting entries represent increases in their respective categories. This is operationally separate from any notion of reserves that may be required in association with the creation of bank deposits.
In another version of the same lending transaction, the lending bank presents the borrower with a cheque or bank draft. The lending bank debits the borrower’s loan account and credits a payment liability account. The bank’s balance sheet has grown. The borrower may then deposit that cheque with a second bank. At that moment, the balance sheet of the second bank – the deposit issuing bank – grows by the same amount, with a payment due asset and a deposit liability. This temporary duplication of balance sheet growth across two different banks is captured within the accounting classification of bank ‘float’. The duplication gets resolved and eliminated when the deposit issuing bank clears the cheque back to the lending bank and receives a reserve balance credit in exchange, at which point the lending bank sheds both reserve balances and its payment liability. The end result is that the system balance sheet has grown by the amount of the original loan and deposit. The loan has created the deposit, although loan and deposit are domiciled in different banks. The system has expanded in size. The growth is now reflected in the size of the deposit issuing bank’s balance sheet, with an increase in deposits and reserve balances. The lending bank’s balance sheet size is unchanged from the start (at least temporarily), with loan growth offset by a reserve balance decline.
Why is it that most people do not understand the money system we have?
Reason 1: It’s complicated and counterintuitive.
To get a good grasp of the monetary system you have to be fairly comfortable with math and able to understand complex relationships. That’s going to be a stumbling block for a lot of people. (Really it is not that ‘Complex”—basic math)
Reason 2: For many people, it’s uninteresting.
Although it’s important, it’s hard to attract people’s interest in understanding the monetary system. Most people would prefer to focus on controversial, emotional political issues or scandals…or who the celebrity of the week has been sleeping around with.
For one thing “the money system” could refer to more than one concept. One money system concept that is not obvious is “the multiplier effect” where there is a lot more wealth, measured in dollars, than the number of actual dollars in the system. It works something like this:
I create an item, and sell it to you for a dollar. Therefore the item is worth a dollar, so you have a dollar of wealth represented by the item; and I have the dollar. Thus there are two dollars worth of wealth in our system even though there is only one physical dollar. I then buy something you created that is worth a dollar, so that now I have a dollar worth of wealth represented by the item you created, and you have the dollar plus the item I created. Now there are three dollars worth of wealth in our system, but still only one physical dollar.
One confusion many people don’t realize is that dollars measure wealth, not just the amount of gold or paper dollars that are available.
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You are correct.
See if you can convince “Monto” and “Cant think,” who claim expertise from working in banks, but perhaps are bank guards or in charge of the Xerox machine.
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Hi LW,
I agree with you on a number of counts, but I think we have an issue in terms of what credit is, in my opinion. I think we are mixing up the “reserves” item as well. I also don’t understand what you are trying to say with the section titled “It works something like this:” Although I believe I know where you are headed, the logic is missing the part that articulates how the dollars are created – it doesn’t. Below are simply my opinions, you are welcome to prove me wrong – I can prove it is correct.
Which comes first:
I know full well that lending comes first and “reserves” come second in our current system. I highlight reserves, because in my opinion, there are no reserves – there is just a myth that there are. Bank deal with reserves after making the loan. This, however, does not mean that banks do not follow the normal accounting process, which I see you agree with. As you say, originating banks debit their accounts and receiving banks credit their’s – so accounting wise – it’s a wash. A debit reduces the balance on one bank and increases it on the other.
Float:
Your understanding of the float concept is a bit confusing to understand – there is never duplication anywhere. A float is when a bank creates a check on someone’s behalf, debits the account immediately – and the credit does not happen until a later day. The time frame between the debit and the crediting of the check on the receiving bank is the float. This means that one of the banks has use of funds until the transaction settles. Once the check is received by the receiving bank and processed, the originating bank will have to transfer the funds immediately and the credit will take place on the receiving bank. Again, there is never a duplication. I believe you have your description correct, with the exception of the notion that there is duplication – there isn’t. To your point, banks are nothing but balance sheets – and for the most part – they are always in balance, except when there is a proof break.
Complexity:
I agree that the money system is not difficult. Some people just don’t care about it like you say, but I think the understanding of technicalities confuses those who are interested. Specifically the use of the word money versus the word credit/debt and the concept of reserves.
Real life example:
If you create something worth a dollar and I have a dollar and want to purchase it, I simply use my dollar. I transfer the ownership of the dollar to you, you transfer your goods to me. Now, if we both have created goods and services and there is only one single dollar of currency – the goods can only be worth up to 50 cents each, so says the law of supply and demand. Notice I said “up to”, the reason is that the fact that there are 2 items – it doesn’t mean you may be willing to pay the maximum amount you have. There is only 1 dollar still and nothing more. So no, there is no new dollar created when wealth is created. Zero, nothing, nada, zilch. Credit, no hard cash, is created via the design of the fractional reserve system.
How can you disagree that dollars are created during wealth creation, but also believe dollars are created?
There is a difference between money and credit, although they both spend the same exact way. You fail to make that distinction and I believe that is the reason it’s pretty hard to explain how dollars are created with that perspective. Physical money as you say is a mere fraction of the money supply, credit is upwards of 95% of the money supply.
If we consider the topic of ownership, technically there should only be one owner for a dollar, but that’s not the case on the current system. To this end, there could only be one owner of a car, a house, a horse, etc… 2 people cannot have ownership of the same item.
If you deposit money into a checking account, that money should be always available on demand and it should always be yours – but it currently isn’t. It’s known that money on savings accounts is re-lent, but it’s also the fact the same is done for money on checking accounts.You can look this up, Greenspan implemented changes to ensure this was the case.
Money from those savings account is lent to another bank – who takes that money and re-lends it to another bank, who takes that money and re-lends it to another bank. The multiple lending of the same dollar is what creates money in the system, since as I said, only one person should have ownership to the money – but in this example, multiple do.
Real life example:
I deposit $1 million into a savings account at Bank A.
Bank A keeps 10% reserve and lends $900,000 to Bank B.
Bank B keeps 10% reserve and lends $810,000 to Bank C.
Bank C keeps 10% reserve and lends $729,000 to Bank D.
I can keep going, but so far $2.4 million has been created out of $1 million. Plus, let me ask you, who owns the million? What about the $900,000? What about the $810,000? What about the $729,000?
You see how this is not confusing or complex at all. The answer as to how money is created and why it’s killing the regular folk is not a hidden mystery of any sort – it’s flat out in your face common sense. Everyone knows this, but don’t understand how this process ends has a negative impact on their purchasing power.
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Actually, it works like this:
1. You deposit $1million into a savings account at Bank A.
2. Bank A lends whatever amount it wishes (by crediting its borrower’s checking account) up to the legal fraction of its capital.
3. Simultaneously, Bank A borrows its necessary reserves from other banks or from private lenders.
The dollars in Bank A’s savings accounts are irrelevant.
Even if there were zero dollars in all of Bank A’s savings and checking accounts, Bank A still could lend millions or billions, up to its capital limit.
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2) where does the corresponding debit go? Crediting an account without debiting another will cause an out of balance condition, a proof break.
3) Lending is indeed constrained by bank capital, in the sense that banks can lend as long as they can keep the lights on. Banks have to repay loans, depositors, vendors, etc… they will continue to lend as long as their capital allows them to do that. Banks do indeed lend deposits.
If money was only created when they lent capital, our money supply would be a fraction of what it is.
So although bank lending are constrained by bank capital, they do lend deposits. If banks could just credit accounts, how would any bank go bankrupt?
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Monto,
2. When a bank lends, it credits the checking account of the borrower and debits its own deposits account, which is a liability.
3. You are confusing deposits with bank capital. Capital is the difference between assets and liabilities. Deposits are liabilities. The bank does not own deposits; it cannot lend them. Depositors own deposits.
Money is not “only created” when banks lend, although that is a big part of money creation.
Money also is created when the federal government pays a bill. It sends instructions (not dollars) to the creditors’ banks, telling the banks to credit the creditors’ checking accounts.
At the moment the bank obeys, dollars are created. That is how the federal government creates dollars from thin air.
A bank can go bankrupt when their liabilities exceed their assets, meaning they can’t pay their bills.
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2) loans are assets, not liabilities. Deposits are liabilities.
3) i’m not confusing deposits with bank capital. I agree that deposits are liabilities. I disagree that they aren’t lent, however. Not only are deposits lent, they are lent for longer terms, which creates duration mismatches. And the same money is lent multiple times.
Agree that banks go bankrupt when current liabilities exceeds current assets, in which case the bank cannot pay their current bills.
There is an issue with fractional reserve that many miss. If rent an apartment for a year and turn around and sub lease it, it’s fraud and I would end up in jail. If I own a gold depository with 1 million worth of gold and lend out receipts of 10 million, it’s fraud. Finally, banks can never honor all their agreements in a fractional reserve system. Again, that is fraud.
The money creation by the banks is what cheapens the dollar and gives the same bank and the wealthy an unfair advantage. The wealthy have prime credit and always borrow early in the game (think real estate in 2000) ride the wave and sell high when the masses finally jump in (think real estate 2007). The banks also rode the wave of profits up, the losses were dumped on the tax payers. And we are talking trillions here, a massive amount.
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Meant sub lease it for 2 years, it’s fraud.
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