Trade War! Oh, woe is US ?

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

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It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders..
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I just received an Email from FT Exclusive. Here is the entire text:

White House civil war breaks out over trade

A civil war has broken out within the White House over trade, leading to what one official called “a fiery meeting” in the Oval Office pitting economic nationalists close to Donald Trump against pro-trade moderates from Wall Street.

According to more than a half-dozen people inside the White House or dealing with it, the bitter fight has set a hardline group including senior adviser Steve Bannon and Trump trade adviser Peter Navarro against a faction led by Gary Cohn, the former Goldman Sachs executive who leads Mr Trump’s National Economic Council.

At the centre of the debate is Mr Navarro, a firebrand economist who has angered Berlin and other European allies by accusing Germany of exploiting a “grossly undervalued” euro and calling for bilateral discussions with Angela Merkel’s government over ways to reduce the US trade deficit with Europe’s most powerful economy.

The officials and people dealing with the White House said Mr Navarro appeared to be losing influence in recent weeks. But during the recent Oval Office fight, Mr Trump appeared to side with the economic nationalists, one official said.

When evaluating the above, the key thing to remember is the U.S. government is Monetarily Sovereign. It creates unlimited dollars at will.

Bannon et al want the other nations to make our imports more expensive and our exports less expensive, so we can export more and import less. That leaves us with two questions:

  1. Should we want our Net Imports to be more expensive?
  2. Should we want to increase Net Exports?

Question #1 seems like a no-brainer.  Do you really want all the things you import to cost you more? Do you really want inflation?

No? Well, that’s the way to reduce imports, which is what Bannon and Trump want. (Though not even Trump knows what Trump wants, today. Tomorrow’s 4:00AM tweet could change everything.)

Which gets us to the meat of the argument, question #2. Should we want to increase Net Exports?

That is a no-brainer too, but not in the way you may think.

The fundamental effect of increased Net Exports is to increase the money supply, which on the surface would seem to be a good thing.

But remember, the U.S. government is Monetarily Sovereign. It has the unlimited ability to increase our money supply.

Congress controls the money supply by spending, which it has the unlimited ability to do. So, there is no money-supply need to increase or to decrease imports or exports.

Some may argue that increasing Net Exports by weakening the dollar helps American businesses that exportbut it hurts American businesses that import, as well as hurting consumers who will need to pay more dollars for imports.

And if our government really wants to help American business, it simply would reduce or even eliminate business taxes. Then there would be no need for silly trade conflicts like the Bannon, Cohn, Navarro, Trump ado about nothing.

Ah, but if the government reduced or eliminated business taxes, the populace first would complain about business not paying its “fair share,” as though business expenses somehow benefit the populace.

And then after the “fair share” argument ran its course, the populace might come to see that the federal government neither needs nor uses the tax dollars anyway.

Imagine the kerfuffle when government flunkies try to explain why our Monetarily Sovereign government does not need tax dollars, but has been collecting them all these years.

Here is the teapot on this tempest:

  1. A Monetarily Sovereign nation does not need to export. It can control its money supply, and can support its industries, endlessly.
  2. Importing benefits the nation. When we import we exchange dollars, which cost essentially zero to create, for goods and services which cost time, materials, and labor to create.

In effect, when a Monetarily Sovereign nation imports it gives nothing and gets something.

For instance, when we import from China, we give them dollars we create at the touch of a computer key, and they give us products and services that cost them the blood, sweat, and tears of their workforce along with their precious raw materials.

So who comes out the winner? Clearly, the importer. That so-called “grossly undervalued euro” benefits America.

Those are the simple facts of import/export for a Monetarily Sovereign nation.

Now, sit back and watch the fighting dispassionately, and shake your head in wonder at the treachery of our leaders and the ignorance of the populace.

Rodger Malcolm Mitchell
Monetary Sovereignty

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THE RULES

•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..

•No nation can tax itself into prosperity, nor grow without money growth.

•Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

•A growing economy requires a growing supply of money (GDP = Federal Spending + Non-federal Spending + Net Exports)

•Deficit spending grows the supply of money

•The limit to federal deficit spending is an inflation that cannot be cured with interest rate control. The limit to non-federal deficit spending is the ability to borrow.

•Until the 99% understand the need for federal deficits, the upper 1% will rule.

•Progressives 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 the rich and the rest.

•Austerity is the government’s method for widening the Gap between the rich and the rest.

•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..

MONETARY SOVEREIGNTY

14 thoughts on “Trade War! Oh, woe is US ?

  1. ‘Imagine the kerfuffle when government flunkies try to explain why our Monetarily Sovereign government does_need tax dollars, but has been collecting them all these years.’

    _NOT_need?

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  2. We get something for nothing…

    I think you are right in a way and wrong on another.

    We get something for nothing in the form of lower prices. The seller nation also gets higher wages for their people which translates into higher quality of life.

    However, the fact that dollars are used does not mean its free. As a matter of fact, the seller may never get a single dollar at all. The fact that the transaction occurs in one currency does not mean you have to get paid in it. Various sellers use dollars to settle the transaction and exchange to local currency to purchase raw materials. Larger organizations may have a mixed portfolio of dollars and various other currency.

    Dollars are the currency of choice for world trade givens its stability – but none of it is “free”. Zero in fact.

    We pay for all of it. Im confused as to how you end up summarizing that its free.

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    1. The U.S. federal government has created many trillions of dollars merely by pressing computer keys.

      If your argument is that pressing those computer keys has a cost in human labor, I’ll accept that. Otherwise, the trillions of dollars were free to the government.

      Even the electricity to run the computers was free to the government, because it was purchased using free dollars.

      The government has the unlimited ability to press computer keys and never can run short of dollars, even if all taxes were $0.

      As for the use of other currencies, the federal government has the unlimited ability to create free dollars for exchange with unlimited numbers of foreign currencies.

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  3. Imagine the kerfuffle when government flunkies try to explain why our Monetarily Sovereign government doesn’t need tax dollars, but has been collecting them all these years.’

    This would require coming clean. No flunkies. Someone respectable with knowledge, guts and power would have to invoke Monetary Sovereignty, then begin it’s application minus federal taxation–a sudden pay raise for all.

    Knowledge, guts and power ….hmm can’t think of anyone outside this site. Remember they almost killed Copernicus (or was it Galileo) for fearlessly revealing that Earth wasn’t the center of the universe. We have NO Copernican politicians. They’re all scared for their electability and easy paycheck.

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  4. You are right from an economic standpoint, but from a social standpoint, more work is required to produce goods that are exported as compared to goods that are only used within the US. And there is a sense of fulfillment among workers vs those who are unemployed.

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  5. 1.“Congress controls the money supply by spending, which it has the unlimited ability to do.”

    I’m not sure that is an accurate statement. Congress may have unlimited ability to spend in theory, but their current actual practice is to maintain a good old accounting ledger of amount receivables (tax receipts) vs. amount expendable (spending proposal). And they have sufficiently convinced themselves that the only way those budget deficits could be funded is by issuing gov’t bonds.

    2. “When we import we exchange dollars, which cost essentially zero to create, for goods and services which cost time, materials, and labor to create.”

    When Walmart, for example, imports a container full of consumer goods to be sold in its stores, does the monetarily sovereign federal gov’t pays the tab or the Walmart corporate headquarters issue a check?

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  6. Interestingly, nineteenth century populist economic reformer Henry George recognized the danger of a weak dollar in his book “Protection or Free Trade?” He wrote asking rhetorically why it wouldn’t it be better to have countries export things to us for less than they are worth in dollars? Why wouldn’t we want to take that deal: to buy stuff cheap and sell them dear?
    Of course, that didn’t go over so well with his progressive mostly working man and woman supporters. Many think it cost him his support after he narrowly lost the 1886 race for Mayor (some say he was unfairly “counted out” by a corrupt Tammany Hall).

    But there is a problem with Trump’s “vision” which as usual is so cloudy it’s incoherent.
    He wants to devalue the dollar, to make it worth less. Yet he’s doing everything he can to make the gov’t spend less, slashing everything but the military. This will make the dollar worth MORE simply because there’ll be less of them. If he really gets his way, we’ll have a nice deflationary depression. Maybe people will understand then, but I doubt it. Elections are short-term lagging indicators: Republicans from Reagan forward basically screw up the economy, then Democrats come in and rescue it and the people in it, then people get giddy again and think Democrats are taxing them too much and spending too much, and they vote in new Republicans who do the opposite and the cycle repeats. The American people have no long-term memory.

    But Trump and his labor supporters are right about one thing: jobs have been exported to cheaper countries, along with our future and present ability to produce. It’s not enough to collect dollars from abroad if those dollars just go into assets for the few: stocks, bonds, land, and other things the 1% have a vast disproportion of (Of course, here Trump supports the 1% in reality, while pretending, perhaps even to himself, to be for the working class. It’s hard to tell where Trump is lying and where he’s just delusional). If we don’t tax the Rentier class and put those proceeds back to work in the real economy, how will we ever fix the great inequality that’s destroying America (Thomas Picketty has made a compelling case that when inequality is extreme as it is now, that progress slows to a near stop; the rich rentiers just want to collect rent, they don’t want innovation that could end their rent monopolies).

    We COULD and SHOULD produce dollars by spending from the Federal Gov’t, but the administration truly believes we are running out of dollars, even though people like Monetary Reformer and Greenbacker and rabid pro-Trump supporter Bill Still have got their ear. Trump has been so convinced by Goldman Sachs people like Steve Bannon and Steve Mnuchin, that we are running out of dollars that he is gutting the economy of its only source of real stimulus (corporations are mainly buying back their own stock instead of expanding, and the rich poor money into asset classes having nothing to do with lifting the economy), the government itself.

    What will it take to get Trump to actually spend on the economy?

    Trump the builder, doesn’t even want to spend on infrastructure. He wants the governments to borrow, paying double or more, when it could simply create the money to pay for infrastructure.

    What will it take for people to stop believing the Federal Budget is like the budget of the corner Bodega?

    Even those who rail the most against the “banksters” that Trump denounced in the campaign, but then went on to hire, can’t seem to get that without government spending, they are beholden to the unspending rentier class (I doubt many of them even know what “rentier” means).

    MMT has utterly failed to convince the masses or even to reach them.
    Even somewhat more populist Greenbackers have failed, even though we have the example of president Lincoln and his Greenbacks (and Henry George) on our side.

    What will it take?

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    1. Good comments, though I have a couple of quibbles:

      ” . . . jobs have been exported to cheaper countries, along with our future and present ability to produce.”

      This is not showing up in the unemployment figures.

      Also, the jobs that have been “exported” mainly are lower level manufacturing jobs that do not “affect our future ability to produce.”

      “. . . corporations are mainly buying back their own stock instead of expanding”

      This is incorrect on two levels:
      1. Corporations are not “mainly” buying back their own stock. Relatively few corporate dollars are spent this way
      2. Dollars spent on stock do not disappear from the economy. They merely change ownership. If you own corporate stock, and that stock is purchased from you, then you have more dollars to spend in the economy, which is stimulative. The dollars do not disappear.

      We often have discussed the “first use” myth in which the first use of a dollar is decried as that having destroyed the dollar. But dollars are destroyed in only two ways:
      1.Federal taxes and
      2. Loans being repaid.

      Also, 3. they functionally are destroyed for any one nation, when they are sent out of the country (Imports).

      If one of those three things don’t happen, a dollar continues to circulate within the economy.

      Of course, you are correct that a Monetarily Sovereign government merely can replace any lost currency, at will.

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      1. I too have a couple of quibbles:
        1. While the unemployment rate has remained healthy on its surface, a statistician John Williams points out on his site, shadowstats.com, the way unemployment (and inflation) is measured has been greatly altered from the way it was measured until the early 1990s or so, so that if we measure it the same way as it used to – e.g. counting those who stopped looking for work after 6 months – it would be twice as high, or even more.
        2. The replacement jobs are mostly in the under-paying service sector, with fewer if any benefits, and no unions to get them.
        3. Most people do not own stock to any significant degree, so the corporation buying back its own stock (Economist William Lazonick says over 90% of corporate profits are spent in buybacks and dividends) does them no good, and it does deprive them of jobs from an expanded business.

        Well, it almost doesn’t matter what we say here when one has the Washington Post reporting today:
        ““Unfortunately, we have no alternative but to reinvest in our military and make ourselves a military power once again,” National Economic Council Director Gary Cohn said on “Fox News Sunday.”

        “If you’re doing that in an area where you have to balance the budget and you cannot create a further deficit, you have to make cuts. It’s no different than every other family in America that has to make the tough decisions when they need to spend money somewhere, they have to cut it from somewhere else.”” – https://www.washingtonpost.com/business/economy/through-his-budget-a-bottom-line-look-at-trumps-new-washington/2017/03/12/29739206-05be-11e7-b9fa-ed727b644a0b_story.html

        Right, the government is like the family that has to balance it budget. I think I’ll crank up that money-printing machine in my basement, and then raise some taxes, starting with Gary Cohn’s, since he doesn’t seem to be doing anything useful to earn that salary he’s getting anyway. Oy….

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  7. Scott,

    1. You are correct that the measure of unemployment has changed (which Trump likes or doesn’t like, depending on the numbers). Perhaps a more significant measure is Civilian Employment to Population Ratio, which is more factual than subjective measures like “stopped looking for work,” has shown a slow-but-steady increase since the end of the Great Recession:

    The level, however, is well below levels during the 1990’s, which reflects more women working then.

    2. Average wages also have gone up:

    The problem, as you state, is there is too large a difference between the high and the low (the Gap).

    3. The comment, “over 90% of corporate profits are spent in buybacks and dividends,”,B> if true, would indicate a Gap widening problem, though not a problem with the overall economy.

    You are correct that the upper-income groups are the primary beneficiaries of buybacks and dividends. However, the dollars do remain in the economy and continue to be spent on goods and services, and function as a stimulus to economic growth.

    And yes, that intentional or unintentional ignorance about the difference between Monetary Sovereignty and monetary non-sovereignty remains the reason for the growing Gap between the rich and the rest.

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    1. One last quibble: The rich can’t spend all their money in the real economy (so admit the most honest of them), so they plow that money back into asset classes, which produce useless and ultimately and destabilizing bubbles (e.g. stocks, bonds and land). It doesn’t benefit the masses on the way up (except for blind investments in 401ks, houses (read: land) by them). It certainly hurts them on the way down, since they lose value in whatever they do have in asset classes they lack full (insider?) information about, and they also lose their jobs and suffer gov’t cutbacks etc. while the 1% is bailed out (OK, now I’m just ranting).

      Trump says he wants to spend on infrastructure, but he’s really talking about tax-free investments by private companies – who actually make most of their killing on related real estate deals near the improvements. The history of those is terrible with 11% ROI expected, and virtually all going bankrupt after they’ve cleaned up on land appreciation and deferred maintenance. This leaves the state taxpayers – not usually the monetarily sovereign federal gov’t – to pick up the tab. Some deal!

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  8. The real crime is the so-called “public/private” effort, aka “privatization.” It changes the goal from “providing services to the people”, and instead makes it “providing profits to the investors, and screw the people.”

    Trump will push very hard for this because that is exactly what the rich want.

    We discuss Trump’s scam HERE.

    Like

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