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•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..
Almost every day, you read about some politician, economist or media writer bemoaning “the deficit” and/or “the debt.” Your own friends may do the same.
The word “deficit” merely means more money goes out than comes in. When one side runs a deficit, the other side runs a surplus. Always.
So when the federal government runs a deficit, who runs the surplus? The economy.
Visualize this scenario:
You are an employee of, say, Costco. They pay you a salary. You use some of that salary to buy from Costco, food, clothing, pharmaceuticals and hard goods.
So dollars flow back and forth, from Costco to you and your fellow employees (salaries), and from you and your fellow employees back to Costco (spending).
Which of the following is better for employees:
1. Costco pays it employees more than what the employees spend at Costco. In this example, Costco runs a “deficit” vs. its employees.
2. Costco pays its employees less than what the employees spend at Costco. Here, Costco runs a “surplus” vs. its employees.
Which of the above is better for the employees, #1 or #2?
The answer is obvious. It’s better for employees to receive more money from Costco than they give back to Costco. It’s better for employees when Costco runs a “deficit” with them.
And, in fact Costco, and almost every business, runs a deficit vs. its employees. Costco is able to do this, because Costco has additional income from other customers. That is the way business works.
In #2, if Costco ran an ongoing “surplus” vs. its employees, i.e. if Costco employees spent more with Costco than they received from Costco, the employees eventually would run short of money and go bankrupt.
Now let’s make some substitutions: Instead of “Costco,” use the words, “the federal government.” And instead of “employees,” use the words, “the economy.”
Which of the following will grow the economy:
1. The federal government pays the economy more than what the economy pays the federal government. The federal government runs a “deficit” vs. the economy (the current situation).
2. The federal government pays the economy less than what the economy pays the federal government. The federal government runs a “surplus” vs. the economy (the politicians’ proposal).
Which will grow the economy? Again, the answer is obvious. Economic growth is more likely when the economy receives more money from the federal government (federal spending) than the economy sends back to the federal government (in taxes).
The economy is more likely to grow when the federal government runs a “deficit.”
And, in fact, the federal government almost always runs a deficit vs. its residents. The federal government is able to do this, because the federal government, being Monetarily Sovereign, creates its own income. That is the way a Monetary Sovereignty works.
In #2, if Costco ran an ongoing “surplus” with its employees, i.e. if Costco employees spent more with Costco than they received from Costco, the employees eventually would run short of money and go bankrupt.
There have been companies that have run surpluses with their employees. Coal mines, for instance, with their company stores, are infamous (“I owe my soul to the company store.”) for impoverishing their workers.
Similarly, governments that run surpluses with their residents are infamous for impoverishing their residents, which is why austerity (i.e. deficit reduction) always produces economic hardship.
Rather than bemoaning the federal government’s deficit, we should encourage the economy’s income. The federal deficit is one of the two primary sources of economic income (the other being Net Exports).
It mathematically is illogical to speak against federal deficits while hoping for economic growth.
Consider the irony of politicians railing against “big government” and for private economic growth, while simultaneously wanting more net dollars to flow to the government and fewer net dollars to flow to the private economy.
Costco runs a deficit vs. its employees. So must the federal government run a deficit vs. its residents.
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 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.
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
Recessions come after the blue line drops below zero.
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.
One thought on “–Why Costco always runs a deficit.”
Over here in the UK, Labour’s shadow chancellor John McDonnell has just announced his plan to oppose George Osborne’s ‘Fiscal Charter’.
Could be good news…