–The coming unnecessary, preventable recession: An exercise in ignorance

Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

Mitchell’s laws:
•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money.
•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.
•The single most important problem in economics is
the Gap between rich and poor.
•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.
•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..

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Since 1971, when the U.S. government made itself Monetarily Sovereign (i.e. disconnected from gold), America has had six unnecessary, preventable recessions — an average of one every six years.

It has been an exercise in ignorance.

And now, as our nation drifts toward yet another unnecessary, preventable recession, let me summarize for you, some of the facts this blog has presented over the years:

1. U.S. depressions tend to come on the heels of federal surpluses.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.

2. Recessions tend to come on the heels of reductions in federal debt/money growth (i.e. deficits)(See graph, below), while debt/money growth has increased when recessions were being cured.

Tax increases reduce debt/money growth. No government can tax itself into prosperity, but many government’s tax themselves into recession.. Spending decreases also reduce money growth.

Reductions in federal debt growth lead to inflation

Recessions repeatedly come on the heels of deficit growth reductions, and are cured with deficit growth increases.

3. The size of the above-mentioned reductions in federal debt/money growth, compared with the total economy (Gross Domestic Product), provides a clue to the arrival of an unnecessary, preventable recession:

Monetary Sovereignty

Recessions come after the blue line drops below zero.

Monetary Sovereignty

4. The greatest threat to the U.S. economy is not inflation, the federal debt or the federal deficit, but rather the increasing Gap between the rich and the rest.

Monetary Sovereignty
(0 = perfect equality; everyone earns the same amount. 1 = perfect inequality; one person earns everything.)

5. To prevent future recessions, we suggest 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. 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 Click here
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)

The Ten Steps will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.

Now, here is the ignorance part:

CBO report forecasts unsustainable debt in long term

The economy is sluggish but growing and inflation remains low, painting a decidedly mixed picture for the federal government, the Congressional Budget Office reported Tuesday, saying the fiscal situation is improving this year but will snap back by 2018 to swelling deficits and unsustainable debt.

The inflation rate is so low that Social Security beneficiaries probably won’t get a cost-of-living raise after this year, the CBO said. But tax revenue is up and spending has stayed pat (i.e. deficits are down), which is helping reduce the pool of red ink in the federal budget.

Combined, those numbers mean the government will run a deficit of $426 billion in fiscal year 2015, down about $60 billion from 2014 and marking the smallest deficit of President Obama’s tenure.

“The growth in debt is not sustainable,” CBO Director Keith Hall said in presenting the estimates. “At some point, it’s going to get to a very high level. Obviously, you can’t predict tipping points, but at some point this becomes a problem.”

CBO Director Keith Hall and President Obama are telling you several lies, which together form “The Big Lie”:

–Adding dollars to the economy (via spending) is bad for the economy
–Taking dollars out of the economy (via taxing) is good for the economy
–The federal debt is “unsustainable,” though what “unsustainable” means never is explained.
–All the data relating deficit reduction with recessions and depressions is meaningless
–There is no difference between the finances of our Monetarily Sovereign government vs. monetarily non-sovereign entities like you, me and local governments

Remember, President Obama is the man who brought us out of the Great Recession and grew the economy with increased deficit spending (aka “stimulus”). Now, he has reduced the deficit spending that saved us. He is leading us to another unnecessary, preventable recession — which probably will occur after he leaves office.

President Clinton did exactly the same thing: Reduced deficit spending, which caused a recession immediately after he left office. Clinton still boasts about that.

Democrats have called for tax hikes. New Jersey Gov. Chris Christie argues that (Social Security) needs benefit adjustments (i.e. cuts) to survive. Medicare and Medicaid, the government’s health care programs for the elderly and the poor, also are growing quickly.

And there you have it. The politicians, all of whom are supported and ruled by the rich, will cure the nonexistent “large deficit problem,” by cutting benefits to the middle and lower income groups (the “99%”) and by raising taxes, also on the 99%.

Thus, will the Gap between the rich and the rest grow — exactly what the rich want.

And the people never understand what is being done to them.

Rodger Malcolm Mitchell

10 thoughts on “–The coming unnecessary, preventable recession: An exercise in ignorance

  1. The jobs report today has been described as “ugly,” though it certainly didn’t, or shouldn’t have, come out of the blue: Layoffs in the energy, Big Tech, retail, and other sectors have recently mucked up our rosy scenario.

    “The third quarter ended with a surge in job cuts,” is how Challenger Gray, which tracks these things, started out its report yesterday. In September, large US-based companies had announced 58,877 layoffs. In the third quarter, they announced 205,759 layoffs, the worst quarter since the 240,233 in the third quarter of 2009!

    Year-to-date, we’re at nearly half a million job cut announcements (493,431 to be precise), up 36% from the same period last year. And they’re “on track to end the year as the highest annual total since 2009, when nearly 1.3 million layoffs were announced at the tail-end of the recession.”

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    1. Right. The books are cooked, as always, to widen the Gap between the rich and the rest.

      You referenced the Chapwood index. It shows price changes in the most frequently purchased 500 items such as:

      Starbucks coffee, Advil, insurance, gasoline, sales and income taxes, tolls, fast food restaurants, toothpaste, oil changes, car washes, pizza, cable TV and Internet service, cellphone service, dry cleaning, movie tickets, cosmetics, gym memberships, home repairs, piano lessons, laundry detergent, light bulbs, school supplies, parking meters, pet food, underwear and People magazine.

      As an example, the CPI rose 0.8 percent in 2014. But in Boston, the Chapwood Index shows that the real cost of living increase was 10.7 percent.

      Even the Chapwood index is not accurate, because it doesn’t allow for product improvements. For example:

      Oil changes: Today’s oil is better and cars need fewer changes
      Cellphones: Much better functionality, today
      Home repairs: New products and new techniques, make repairs faster
      Laundry detergent: Much improved so less is needed. Also, washing machines are better, using less detergent and less electricity.
      Lightbulbs: Longer lasting and use less electricity, but more expensive individually

      The problem with any pricing index is product change. There is no way to evaluate a “fixed basket” of products as formerly was done. I suspect that while CPI understates inflation, the Chapwood index overstates it.

      But bottom line, the government has fixed (pejorative term) the books to pay less in benefits to those who need benefits most.

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      1. “Even the Chapwood index is not accurate, because it doesn’t allow for product improvements.”

        Nor does it account for easily available substitutes or much cheaper alternatives for a high percentage of the 500 items.

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  2. Hmm, I have a theory as to why a recession follows when annual percentage change in federal debt reaches zero.

    If we take Hyman Minsky’s hypothesis that ‘stability is destabilizing’ then it would follow that periods of low volatility increase the risk of future recessions.

    Vox had an article on this:
    http://www.voxeu.org/article/volatility-financial-crises-and-minskys-hypothesis

    Investors are more likely to take on risk in periods of low volatility.Commercial banks will increase credit expansion also.

    If federal debt issuance is down, it could be a sign that investors are moving to riskier assets.

    Anyways good article, I hope MMT becomes mainstream within my lifetime!

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    1. Are you suggesting there is a relationship between volatility and recessions? A relationship between risk and recessions?

      Anyway, the amount of federal debt issuance is based on deficit spending, not on investor motivations.

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  3. Hi Rodger,

    Over at Cullen Roche’s Pragmatic Capitalism he has this to say about his “big disagreement” with MMT:

    “… we should be careful about viewing the government as the seed that gives life to the economy or supports the entire global credit structure. I would argue it’s quite the opposite. The credit structure of the global financial system is supported primarily by the strength and quality of private sector output.”

    http://www.pragcap.com/thinking-about-net-financial-assets-nerdy/

    I’m not sure if you have followed that debate and/or his “big disagreement with MMT. I hope you could weigh in on this. Thanks.

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    1. It’s the kind of silly argument only an economist could love. Federal spending creates dollars. Private bank loans create dollars.

      Dollars (and other forms of money) are what “give life to the entire global credit structure.” Reductions in federal spending and/or in bank lending, can cause recessions, and increases in both can stimulate.

      If you plan to ship something across the ocean, which is more responsible, the boat or the water?

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    2. Cullen is brilliant in many ways, but in his endeavor to differentiate himself from MMT and explain to us the importance of the private sector, he inadvertently diminishes the crucial role govt can play to avoid/mitigate economic contractions.

      It’s not that he doesn’t believe in the importance of gas stations when berating us with the importance of the car, it’s just that he ignores the need to stop for gas on occasion.

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  4. An awesome collation of FACTS that make obvious your conclusion. I will direct every skeptic I come across to this post!

    Just excellent!

    Thanks!

    Like

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