1. The Value of a currency is based on the Supply and Demand for the currency vs. the Supply and Demand for goods and services.
2. The Demand for a currency is based on Risk and Reward.
3. The Reward for owning a currency is interest.
That is why, to fight U.S. inflation (i.e. increase the value of the dollar) the Fed increases the Reward for owning dollars (i.e. increases interest rates), which increases the Demand for dollars.
4. A growing economy requires a growing supply of money.
That is why, to stimulate the economy, Congress and the President increase deficit spending, which pumps more dollars into the economy.
Carefully balancing the creation of dollars with interest rates stimulates the economy without inflation.
Keep those 4 points in mind as you read the following excerpts from an article in CNN Money:
Brexit rescue: Bank of England slashes interest rates
by Mark Thompson
The Bank of England has cut interest rates for the first time in seven years, and will revive a broader economic stimulus program to try to limit the damage from June’s Brexit vote.
Rates were cut to a record low of 0.25%, which should reduce mortgage rates for some homeowners and make it cheaper for companies to borrow.
Savers, pension funds and banks, on the other hand, are likely to suffer.
“Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly,” the bank said Thursday. “
The Bank’s concern is: The exchange rate has fallen. So what does the Bank do? It reduces the reward for owning pounds, thereby guaranteeing a further decline in the exchange rate. Counter-productive and non-sensical.
The bank also said it would pump £70 billion ($92 billion) into the economy by printing money to buy bonds issued by the British government and companies.
The bank’s program of quantitative easing — already worth £375 billion — has been on hold since July 2012.
Bonds issued by the British government were purchased by the public. The money used to purchase those bonds did not disappear. It was deposited in bond accounts owned by the public.
These bond accounts are very much like bank savings accounts. Just as money continues to exist when it’s deposited in a savings account, money also continues to exist when it’s deposited in a government bond account.
When the bank of England buys those bonds from the public, it merely transfers existing pounds from the public’s bond accounts back to the public’s checking accounts. No new money is “printed.”
By purchasing those bonds from the public, the government reduces the amount of interest money it would have pumped into the economy.
Contrary to what the Bank of England (and the Fed) claim, “Quantitative Easing” is anti-stimulus. It moves money around without adding any, and in fact, reduces the stimulus that government interest payments provide.
Recent surveys of business activity, confidence and optimism suggest that the United Kingdom is likely to see little growth in GDP in the second half of this year.”
There’s a 50% chance of a recession over the next 18 months, according to the National Institute for Social and Economic Research.
Based solely on the BOE’s efforts, there is a 100% chance of recession, and it may come sooner than 18 months.
Rather than uselessly buying its own bonds, and adding nothing to the economy, the government should cut taxes and increase spending, according to some version of the Ten Steps to Prosperity (below).
The Monetarily Sovereign British never can run short of its own sovereign currency, the pound. In theory, this should provide a huge advantage over the euro nations, which are monetarily non-sovereign, and cannot control their money supplies.
Sadly though, the British government promotes the false notion that its debt is unsustainable, and austerity (deficit reduction) is the path to economic growth.
Taking money from an economy, in an effort to grow that economy, is like applying leeches to cure anemia.
One only can pity the British people, who are forced to live under such misguided rule. Of course, we Americans are exposed to the same Big Lie from our leaders.
Rodger Malcolm Mitchell
Ten Steps to Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich afford better health care than the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE AN ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA, AND/OR EVERY STATE, A PER CAPITA ECONOMIC BONUS (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:
Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012
Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONEFive reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefiting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE CORPORATE TAXES
Corporations themselves exist only as legalities. They don’t pay taxes or pay for anything else. They are dollar-tranferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the government (the later having no use for those dollars).
Any tax on corporations reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all corporate taxes come around and reappear as deductions from your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and corporate taxes would be an good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.