–Much ado about nothing. The end of the dollar as reserve currency Thursday, Oct 25 2012 

Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor,
which leads to civil disorder.
●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.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

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People often predict the dollar’s imminent demise as world’s “reserve currency,” and cite this as proof of something or other – i.e. U.S. bankruptcy, hyper-inflation, depression, global warming, the Chicago Cubs or anything else that’s bad in this universe.

The following article is an example:

Radio Free Europe Radio Liberty
China, Others, Urge Move Away From Dollar As Reserve Currency
March 24, 2009

(RFE/RL) — Should the world ditch the dollar as its reserve currency? It’s an idea that seems to be gaining ground.

The latest call came from China’s central bank governor, who said on March 23 there should be a new international reserve currency. And a UN panel this week is to recommend moving away from the dollar and adopting a shared basket of currencies instead.

Zhou Xiaochuan’s message seemed aimed at an international audience. His essay was published on the central bank’s website in English, as well as Chinese.

In it, the governor said the global financial crisis had revealed “vulnerabilities and systemic risks” in the current monetary system.

Instead, he said the world needed something more stable — what he called a “super-sovereign reserve currency.”

Zhou didn’t mention the dollar specifically. But his comments came two weeks after the Chinese Prime Minister Wen Jiabao expressed concern over the safety of China’s estimated $1 trillion worth of U.S. investments.

A “reserve” currency is nothing more than the currency most nations use in international trade. It is just a trading convenience. International trade is easier if nations quote the same currency when pricing goods and services, and nations use the same currency when paying bills. And that’s it: A convenience.

The euro was invented as a European reserve currency, and it functions quite well in that role, though it’s a screwed up mess in its role as a common currency. Any benefit that accrues to the U.S., as a result of the dollar being the reserve currency, is so minuscule as to be unworthy of mention.

Getting back to China’s “concern over the safety of China’s estimated $1 trillion worth of U.S. investments”:

1. China isn’t concerned about the safety of its financial investments.

2. It’s a political concern. China’s aspiration is to be viewed as the big dog of international economics, and ending the dollar as reserve currency is part of that political aspiration.

Let’s assume that a giant meteor selectively destroys the U.S., and the dollar, not just becomes worthless, but disappears from the world. Is this a problem for China and its $1 trillion worth of T-securities? Not a bit. China is Monetarily Sovereign. It can continue to buy goods and services as always, using its unlimited availability of renminbi. China would be no poorer for the loss of all its dollars.

And as for Chinese citizens who owned T-securities: The Chinese government merely could give them renminbi to make up for their losses, and everything would be as before.

The giant meteor might be a problem for the euro nations, because they are monetarily non-sovereign, so can’t create euros — except the EU could do what it should have been doing all along: Provide euros to all euro-using nations. It might be a problem for a tiny island nation that pegs its currency to the dollar (are there any left?), but they simply could peg to some other currency.

The whole reserve-currency brouhaha is silly, which is why government leaders pay attention to it. (Heaven forbid they address real economic issues.)

China Not Alone

The worry is that U.S. efforts to tackle the financial crisis — including printing money — could erode the value of the dollar and of China’s dollar-denominated reserves. Chinese officials are not alone in calling for a move away from the dollar as the world’s chief reserve currency.

Earlier this month, Russia said it would propose a new reserve currency for discussion at the G20 summit set for April 2. And a UN panel of experts is this week recommending a switch away from the dollar as part of an overhaul of the global monetary system.

If anything should send shivers of fear up your spine, it’s the thought that a UN panel of “experts” (experts at what?) has become involved. Are these related to the experts who created the disastrous euro, or the experts who run the International Monetary Fund, those austerity loving buffoons?

And if China is worried about a U.S. inflation that would result from erroneously called “printing money,” where is the inflation? The U.S. has “printed” more than a trillion dollars each year, for the past four years, and we are closer to deflation than inflation.

(In fact, money creation has not caused inflation in the U.S. The reason: The Fed controls inflation by controlling demand for dollars via interest rate changes.)

“Now is the moment to think seriously about a new reserve currency, a shared reserve currency,” panel member Avinash Persaud told Reuters. “When part of the world wants to save more than it did before, this won’t lead to a concentration of assets in one place, but more spread around the world. It’s good for those people who’ve got the savings, [because] their assets are diversified, and it’s good for those people where the money is flowing.”

A beautiful example of gibberish. A reserve currency has nothing to do with a “concentration of assets” or “where money is flowing.”

Zhou, the Kremlin, and to a lesser degree the UN panel — all are advocating an expanded role for the SDR, or “special drawing right.” That’s a kind of artificial currency created by the International Monetary Fund 40 years ago. Its value is based on a basket of “real” currencies — the dollar, the euro, and others.

And this is where it really gets squirrelly. A basket of currencies has a value based on the cumulative values of all the currencies in the basket. But that leaves the problem of weighting. Say you have a basket consisting of dollars, yen, euros, renminbi, zlotys, pounds and a few other currencies. How many of each will be in the basket? How will that be determined, and will that allocation always remain the same?

All forms of money are forms of debt, and all debt requires collateral. The collateral for the U.S. dollar is the full faith and credit of the U.S. government. What would be the collateral for a basket of currencies?

The basket of currencies is a complex, cockamamie solution to a non-problem — in short, a perfect “panel of experts” solution.

Zhou says the SDR could become a “widely accepted” means of payment in international trade and financial transactions. He also advocates creating financial assets denominated in SDRs. Such a move would, the argument goes, reduce the kind of “global imbalances” that contributed to the current economic crisis.

Chief among them are America’s huge current-account deficits and China’s equally huge surplus. China invested its surplus in massive purchases of U.S. treasuries, a factor blamed for contributing to low borrowing costs in America that fueled its housing bubble.

More gibberish. America’s current-account deficit merely means the U.S. imports more than it exports. Does the world really want America to import less? And China’s “massive purchases of U.S. treasuries” did not create low borrowing costs. It is the Fed, not the treasury market, that determines borrowing costs.

So the United States might even take a favorable view, says Vanessa Rossi, a senior research fellow in international economics at the Chatham House think tank in London. “Since they’ve complained so much about these problems about imbalances, and the flows of money associate with it, they might welcome some of the strain being taken off the dollar and the dollar markets in the future. Very immediately they might think that,” Rossi says.

“Imbalances,” “flows,” “strain,” blah, blah, blah. It’s all meaningless spouting, with no basis in reality. But I will allow that U.S. politicians might favor something ridiculous. They are good at that.

But Rossi says a new reserve currency would pose major challenges, and any move would be over the longer term. That’s because even if the idea picked up more steam, it’s likely to face huge technical, logistical, and political obstacles.

And it would clearly have negative implications for the dollar. Even those taking aim at the dollar wouldn’t welcome a sudden move, as this could trigger a sell-off of the dollar and erode the value of their holdings.

Perhaps explaining why Zhou said the establishment of a new reserve currency “may take a long time.”

Sergei Seninski of RFE/RL’s Russian Service contributed to this report

Yep — “huge technical, logistical and political obsticals — in addition to being foolish. Which probably is why it will remain a topic of discussion.

Bottom line: A reserve currency is just a convenience. It needn’t be an “official” reserve. The market naturally seeks a reserve just to make trading easier. In our ever-more computerized world, there very well may emerge a non-political currency — a currency of no specific nation.

But whatever emerges, let’s not give it more significance that it deserves. It’s just a convenience.

Rodger Malcolm Mitchell
Monetary Sovereignty

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Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%

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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports

#MONETARY SOVEREIGNTY

Knowing nothing about the role of the Federal Reserve, Trump hires a wrong-headed sycophant. Sunday, Feb 2 2020 

Trump’s knowledge of the Federal Reserve approximates his knowledge of men’s hairstyles, tie length, and the truth.

Trump Called Powell an ‘Enemy.’

“My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” Mr. Trump wrote.

Kevin Cramer, Republican of North Dakota criticized Mr. Trump’s attacks on Mr. Powell: “This is an area where I frankly disagree with the president. He’s forever attacking the Federal Reserve and particularly Jay Powell.

They are independent of politics, and they ought to remain independent of politics.”

To Trump, nothing is independent of politics. Trump has but one criterion in evaluating people: Do they express eternal fealty for him?

As for other criteria: Talent? No.
Knowledge” No.
Honesty? Are you kidding? In a Trump administration?
Intelligence? Only if it’s low.

Lawmakers from both parties routinely give the Fed chair high marks.

Their view of the chair matters, because while the president nominates members to the Fed’s Board of Governors, the White House has no other significant power over the central bank.

Monetary policymakers answer to Congress.

Sadly, the President does have the power to fire the Fed Chairman “for cause,” which with a slavish, timid, immoral GOP, “cause” would be any nonsense Trump could dream up.

Thank heavens Trump feels reluctant to take that step, or by now we would have had half a dozen Scott Pruits and Paul Manaforts as Fed Chairmen.

And yet::

Trump has recently nominated a Fed critic, Judy Shelton, to sit among the Fed’s leadership in Washington.

Her confirmation hearing could come as soon as Feb. 13, 2020.

True to form, Trump has nominated a useless sycophant:

Which Judy Shelton will the Fed get? Gold standard advocate or Trump defender?
By Sam Bell, Jan 29, 2020
Fed nominee has flip-flopped 180 degrees on monetary policy since Trump’s election; will she flip back?

After describing low interest rates as an assault on democratic capitalism during the Obama years, Shelton now embraces lower rates and suggests that the next Bretton Woods conference to reshape international monetary arrangements should be held at Mar-a-Lago.

Many have already written about her flip-flops, including the Wall Street Journal’s Greg Ip and Bloomberg’s Ramesh Ponnuru.

As Ip writes, “Having accused the Fed, under Mr. Obama, ‘of catering to the political class,’ she now says it should support Mr. Trump’s agenda by cutting interest rates to ‘ensure maximum access to capital.’”

If the above doesn’t send shivers up your spine, you have become far too inured to Trump’s own lies and incompetence.

Not only does Shelton have no consistent or coherent policy regarding interest rates, and not only is she an obvious fawner to a compulsive “fawnee,” but she wants to return us to a (fools) gold standard.

And not just an ordinary gold standard but . . .

A “Universal Gold Reserve Bank that would have the potential to become a sort of global monetary authority.”

Thus, does Shelton want the U.S. to surrender the single most valuable asset any government can have — its Monetary Sovereignty — but she also wants the entire world to give up Monetary Sovereignty to an unelected group of what? Honest bankers?

And she fleshes out this truly dumb idea, by making it even worse, if that’s possible:

Circa 2000 Shelton toyed with the idea of a common currency for North America.

“The common currency for this union could be an ‘amero,’” — and she even favored a global common currency.

She asked, “how can we ignore the parallel need for a common unit of account, a global form of money?”

Ah yes, a a global common currency, a cousin of the truly awful euro, which essentially has destroyed the economies of those nations that have adopted it.

The euro nations, having surrendered control over their own money, and given control to the new Masters, the European Union bankers and their billionaire patrons, have “had” to foist austerity on the masses.

For a monetarily non-sovereign government, austerity is necessary, because unlike a Monetarily Sovereign government, such a government needs some form of income. This income must be derived from taxes, which eventually requires net exports.

But because exports must equal imports, if some nations have net exports, other nations must have net imports, and net imports send money out of the country.

That’s fine for a Monetarily Sovereign government like the U.S., which has the unlimited ability to create its sovereign currency,  so it never can run short of money. But it’s not so fine for the euro governments, which gave away that power, and who now live at the mercy of rapacious EU bankers.

And that is what Shelton wants for America.

And she is what Trump wants for the Federal Reserve, An obsequious “yes” woman to run  an institution he feels is unnecessary, even harmful.

Trump’s ignorance is reflected in such headlines as:
Trump says the Federal Reserve has ‘gone crazy,’ and
Trump says the Federal Reserve caused the stock market correction, and
Trump says U.S. Federal Reserve ‘too proud to admit mistake’, and
Trump knocks ‘boneheads’ at Federal Reserve, says interest rates should be ‘zero, or less’ and the best one,
Trump: I Will Abolish The Federal Reserve

See the plan? When the economy and/or the stock market do well, it’s because of Trump. But if they do poorly, it’s because of the Fed. Perfect

The self-anointed “stable genius” has all bases covered. He can’t lose.

Judging by her record, a Shelton Federal Reserve would like nothing better than to end the Fed and hand the powers to a new global monetary authority, the Universal Gold Reserve Bank.

She believes that setting monetary policy to address domestic conditions is “selfish.” (Really.)

In the absence of a proper gold standard, she says she favors fixing the dollar to rival currencies or gold. (Never mind that this would put American monetary policy at the whim of gold speculators and European central bankers.)

For Shelton, limiting the Fed’s power is the point.

Of course, this all assumes she would show up for the job. The last time the Senate confirmed her for a position — U.S. envoy to the European Bank for Reconstruction and Development — she missed about half the meetings, as the Wall Street Journal reported in August.

If the lousy attendance record, the ceding of Monetary Sovereignty and the flip-flopping for Trump don’t disturb the Senate, perhaps Milton Friedman’s assessment of Shelton will.

In 1994, he wrote of then-colleague Judy Shelton’s op-ed, “It would be hard to pack more error into so few words.”

A few years ago Shelton supported a Virginia effort to study an alternative Virginia currency should the dollar collapse. Since then that effort has faltered.

Perhaps America would be better served if she focused on helping her home state of Virginia prepare for a catastrophe rather than causing one as a Federal Reserve official.

Because of Trump’s brilliance, his administration, indeed his entire life, has been famous for its revolving door of fools, toadies, liars, and/or miscreants. Consider this cast of characters:

HHS Secretary Tom Price
EPA Administrator Scott Pruitt
HUD Secretary Ben Carson
Campaign manager Paul Manafort

Image result for alfred e. neuman

Deputy campaign manager Rick Gates
National security adviser Michael Flynn
Personal Lawyer Michael Cohen
Commerce Secretary Wilbur Ross
Mobster Salvatore Testa
Mobster Fat Tony Salerno
Roger Stone
Jeffrey Epstein
Secretary of Labor Alexander Acosta
Foreign Policy Adviser George Papadopoulos
Kellyanne Conway
Konstantin Kilimnik
and now, Judy Shelton

What President ever has surrounded himself with such people?

November is coming. Can we survive that long?

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell

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The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

Federal Reserve Bank of St. Louis admits federal “debt” is not a real problem Friday, Dec 22 2017 

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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The Committee for a Responsible Federal Budget (CRFB), that notorious disseminator of economic fabrication, published yet another “Henny Penny, sky is falling” article about the federal debt.

But this time, they inadvertently referenced an article by the St. Louis Federal Reserve Bank that revealed the truth. (Oops!)

First, let’s introduce the Big Lies, after which we’ll get to the Federal Reserve Bank of St. Louis admits federal “debt” is not a real problem admission.

The CRFB article is titled: “Marc Goldwein: Debt Matters Even More After Tax Bill’s Passage, DEC 20, 2017
(Marc Goldwein is the Senior Vice President and Senior Policy Director for the Committee for a Responsible Federal Budget.)

His article is filled with charts and graphs “proving” what no one is arguing about: The so-called federal “debt” and the federal deficit are increasing.

Why should we be concerned? Here’s what Goldwein says:

With an aging population and rising health costs, debt is already rising unsustainably.

“Unsustainable” is the CRFB’s favorite word. You’ll see it in most of their articles.

Yet despite my frequent requests for clarification, no one at the CRFB will say what exactly is “unsustainable” about the so-called “debt” (which actually is the total of deposits in T-security accounts, similar to bank savings accounts.)

In 1940, the “debt” was $40 Billion. Then, and continuously since, it has been described as a “ticking time bomb, (i.e. unsustainable.) Today, that “unsustainable” debt has risen to $14 TRILLION — a gigantic 36,000% (that’s thirty-six thousand percent) increase, and that old time bomb still is a’tickin’, and the CRFB still is handwringing about its “unsustainability.”

“High and rising levels of debt slow economic growth . . .”

As always, with CRFB statements, there is zero evidence that rising levels of debt “slow economic growth.” Quite the opposite, in fact.

U.S. depressions tend to come on the heels of federal surpluses.
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
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.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

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

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. That’s what took us out of the “Great Depression” and the “Great Recession.”

“High and rising levels of debt reduce fiscal space . . .”

We think by “fiscal space,” Goldwein means that the U.S. government can run short of its own sovereign currency, the U.S. dollar. This is so patently false that he should be ashamed, but I suppose his salary soothes any shame.

That 35,000% growth of the debt is ample proof that the “fiscal space” claim is a fraud.

“High and rising levels of debt erode generational equality.”

High and rising levels of debt are what pay for Social Security, Medicare, Medicaid, aids to education, anti-poverty efforts and all the other social programs that narrow the Gap between the rich and the rest.

It’s the debt Henny Pennys who foster generational inequality.

“High and rising levels of  debt prevent thoughtful policymaking.”

No, actually, its the CRFB’s nonsense that prevents thoughtful policymaking.

“And debt cannot sustainably grow faster than the economy, meaning any tax cuts or spending hikes allocated to today’s votes will ultimately be paid for by younger and future generations.”

Now that the debt has grown 35,000% and reached $14 trillion, we continue to wait for younger generations to pay for it.

That never will happen, because the so-called debt (deposits) are not paid for by taxes.

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O.K., now that we have slogged once again, through the CRFB’s nonsense, we can look at how the Federal Reserve Bank of St. Louis admits federal “debt” is not a real problem.

The admission came in an article titled, What Is the Outlook for the Federal Budget?,
Tuesday, October 10, 2017, published by the St. Louis Federal Reserve Bank, and written by Senior Economist, Fernando Martin.

Fernando M. Martin

Fernando Martin

After a series of graphs and statements about the horrid dangers of rising debt, Martin provides us with a tiny paragraph of truth, almost unnoticeable ending his the thicket of statistics:

“However,” he added that if another big adverse shock hits the U.S. economy, this outlook might change for the worse.

“Even in this case, the U.S. has the advantage of issuing debt in its own currency, so outright default (as in Greece) is not a likely outcome, though inflation might be (as was the case during and immediately after World War II),” he concluded.

Get it? The U.S., being Monetarily Sovereign, has the advantage of issuing debt in its own currency, so it cannot run short of dollars.

THE U.S. FEDERAL GOVERNMENT, UNLIKE STATE & LOCAL GOVERNMENTS, AND UNLIKE YOU AND ME, CANNOT UNINTENTIONALLY RUN SHORT OF DOLLARS.

What are the implications of issuing debt in your own currency, so not running short of dollars? Contrary to the CRFB’s scare articles:

  1. No amount of debt is “unsustainable.” (We already have proved that with our 35,000% debt increase, that easily has been sustained.)
  2. High and rising levels of debt slow cannot “slow economic growth.” On the contrary, increasing debt is the federal government’s method for stimulating the economy.
  3. High and rising levels of debt do not “reduce fiscal space.” Fiscal space is the ability to spend. The federal government has the unlimited ability to spend as Martin acknowledged.
  4. High and rising levels of debt do not “erode generational equality.” Quite the opposite. Cutting debt results in cuts to benefits for the middle- and lower-income groups.
  5. Federal debt can sustainably grow faster than the economy and has been doing that for many years.
  6. High and rising levels of debt are the result of thoughtful policymaking.

And so the entire Henny Penny handwringing is all about inflation, the inflation that “high and rising levels of debt are sure to cause” — except for one minor truth: For the past ten years of extraordinary debt increases, the inflation has averaged below, the Fed’s target of about 2.5%.

Being Monetarily Sovereign, the U.S. government has the unlimited power to fight inflation (i.e increase the value of the dollar) at will.

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In Summary:

Even the St. Louis Federal Reserve Bank has admitted (though reluctantly, because they too spread the “unsustainable debt lie) that federal debt is not a problem — not a problem for the government, not a problem for the economy, and not a problem for taxpayers.

On the contrary, federal deficit spending adds spending dollars to the economy, and so, is necessary for economic growth.

An economy cannot grow without a growing money supply.
GDP = Federal Spending + Non-federal Spending + Net Exports.

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

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The most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

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 can afford better health care than can 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 A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) 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 EVERYONE Five 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 benefitting 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 FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce 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 business taxes would be a 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.

MONETARY SOVEREIGNTY

The “myth” of Monetary Sovereignty Friday, Nov 16 2018 

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Image result for bernanke and greenspan

Would someone please tell her the US doesn’t need to borrow dollars.

Alan Greenspan: “Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. A government cannot become insolvent with respect to obligations in its own currency.”

St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e.,unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.

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Reader Koen Hoefgeest kindly called my attention to this article: The myth of monetary sovereignty
By Frances Coppola – November 02, 2018

Here are some excerpts from an article that “proves” Monetary Sovereignty (MS) is a myth:

How many countries can really claim to have full monetary sovereignty?

The simplistic answer is “any country which issues its own currency, has free movement of capital and a floating exchange rate.”

I have seen this trotted out MANY times, particularly by non-economists of the MMT persuasion. It is, unfortunately, wrong.

“Trotted out” is a pejorative, that immediately displays a supercilious contempt for the many economists who each day provide ample proof of Monetary Sovereignty’s existence.

In any event (spoiler alert), at no time will Ms. Coppola prove the above-mentioned “simplistic answer” is wrong.

Instead, she will attack another “more complex” definition, from a “prominent MMT economist.”

This is a more complex definition from a prominent MMT economist:

1. Issues its own currency exclusively
2. Requires all taxes and related obligations to be extinguished in that currency
3. Can purchase anything that is for sale in that currency at any time it chooses, without financial constraints. That includes all idle labour
4. Its central bank sets the interest rate
5. The currency floats
6. The Government does not borrow in any currency other than its own.

This appears solid. But in fact, it too is wrong.

The big hole in this is the external borrowing constraint – item 6 in the list. If a government genuinely could purchase everything the country needed in its own currency, then it would indeed be monetarily sovereign.

But no country is self-sufficient. All countries need imports. So item 3 on the list is a red herring.

Hmmm . . . The “big hole” is #6, but #3 is a “red herring”?

Actually, #6 is not a requirement for Monetary Sovereignty, partly because MS nations do not borrow their own currency. They have no need to, because they have the unlimited ability to create their own currency.

(See the Bernanke, Greenspan, Federal Reserve comments above.

And #3, the “without financial constraint” definition, is absolutely, 100% correct.  An MS nation cannot unintentionally run short of its own sovereign currency.

A government may be able to buy anything that is for sale in its own currency, but that doesn’t include oil, or gas, or raw materials for industrial production, or basic foodstuffs.

To buy those, you need US dollars. Indeed, these days, you need dollars for most imports. Most global trade is conducted in US dollars.

Here, Ms. Coppola displays ignorance of foreign exchange, which is the device all nations use for imports.

Even the mighty U.S. cannot purchase all its goods and services using U.S. dollars. It exchanges its sovereign currency for the exporting nation’s currency.

Perhaps this would be clearer to her if #3 read, “Can purchase anything that is for sale in exchange for its sovereign currency at any time it chooses, without financial constraints.” 

The only country in the world that can always buy everything the country needs in its own currency, and therefore never needs to borrow in another currency, is the United States, because it is the sole issuer of the US dollar.

Completely wrong. Again she ignores the FX issue. Perhaps she never has traveled abroad, but what is the first thing many Americans do, when landing on foreign soil? Right. They exchange their dollars for the local currency.

Contrary to popular opinion, the United States government does not borrow, not dollars and not any other currency.

What erroneously is termed “borrowing,” actually is the acceptance of deposits into T-security accounts. The purpose of these accounts is not to provide the federal government with the dollars it can produce at essentially no cost (See Bernanke, above), but rather to:

  1. Provide a safe depository for dollars, which stabilizes the dollar, and
  2. Assist the Fed’s interest rate control, which helps it control inflation

The dollars deposited into those T-security accounts remain there — they are not used by the federal government — until the accounts mature, at which time the dollars are returned to the account owners.

Having the unlimited ability to create dollars, the U.S. has no need to borrow. It creates dollars ad hoc, by paying creditors.

The dollar creation system is this:

  1. In paying creditors, each federal agency sends instructions (not dollars) to each creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account. The instructions can be in the form of a check or wire (“Pay to the order of . . .”)
  2. At the instant the bank obeys those instructions, and not before, brand new dollars are created and added to the nation’s M1 money supply.
  3. The instructions then are cleared through the Fed.

This, by the way, is identical with how you pay your bills. You send instructions (checks) to creditors’ banks, and at the moment the bank obeys your instructions, new dollars are created.

Then, when your check clears, your bank deducts them from your checking account, and M1 dollars are destroyed.

The difference is the no dollars are destroyed when the Fed clears federal government checks, which is why federal paying of bills creates net dollars.

However, the dark side of this is that the US is obliged to run wide current account and fiscal deficits, because global demand for the dollar far exceeds US production.

When it attempts to close these deficits, global trade and investment shrinks, causing market crashes and triggering recessions around the world.

Sometimes, there is even a recession in the US itself. The US’s last attempt to run a fiscal surplus ended in the 2001 market crash and recession:

Not understanding the differences between federal financing and personal financing, Ms. Coppola believes the U.S. federal government needs to “close those deficits.”

But why would a nation, having the unlimited ability to create dollars, need to “close deficits”? What is wrong with deficits? America’s deficits already have accumulated to $15 Trillion in debt, and despite hand-wringing from debt hawks, the U.S. economy has not suffered.

For individuals and others in the private sector, deficits and debt are burdens. For the U.S. government, they are no burden on the government or on taxpayers.

As stated, that thing erroneously termed U.S. “debt,” actually is the total of deposits into T-security accounts, somewhat similar to bank savings accounts.

To pay off the so-called “debt,” the federal government merely returns the dollars in those accounts. It does this every day. No tax dollars are involved in paying off U.S. “debt” (deposits).

MMT adherents like to cite this as evidence that eliminating the government deficit in any country will result in a recession. But this is stretching things considerably.

FRED shows us that even in the U.S., only one recession in the last century has been preceded by a government surplus.

Ms. Coppola is confused again, this time between reducing deficits (while still increasing debt) and reducing debt (i.e running surpluses).

Here is what happens when the federal government runs a surplus:

U.S. depressions tend to come on the heels of federal surpluses.

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
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.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

While reducing federal debt tends to cause depressions, reducing deficit growth tends to cause recessions.

Reduced deficit growth leads to recessions (vertical gray bars), while increased deficit growth cures recessions.

The reason is rather simple. An economy either grows or shrinks. A growing economy requires a growing supply of money.

By definition: GDP = Federal Spending + Non-federal Spending + Net Exports. Thus, a growing GDP involves a growing money supply.

Federal deficit spending grows the money supply, which increases both Federal Spending and Non-federal Spending, thus increasing GDP.

Of course, many developed countries do in practice pay for imports in their own currencies. Governments, banks and corporations meet dollar  funding requirements by borrowing in their own currency and swapping into dollars in the financial markets.

This diminishes the need for dollar-denominated borrowing, either by government or the private sector. These countries therefore have a considerable degree of monetary sovereignty. But it is not absolute as it is in the United States.

Whether or not nations pay for imports in their own currencies is irrelevant to the question of Monetary Sovereignty. Of real importance is whether they have their own currencies, which they produce at will.

The euro nations do not. Cities, counties, and states do not. Businesses do not. You, and I, and Ms. Coppela do not. We all are monetarily non-sovereign.

We monetarily non-sovereign entities can run short of currency. Monetarily Sovereign entities cannot.

Sadly, Ms. Coppola does not seem to understand this fundamental difference.

It crucially depends on the stability of their currencies and the creditworthiness of their borrowers, both of which are a matter of market confidence.

For most countries, the need for external borrowing crucially depends on the external balance. If the current account is balanced or in surplus, then they will earn the dollars they need to pay for essential imports. But any country that runs a current account deficit inevitably borrows dollars.

Wrong. A Monetarily Sovereign nation creates its own currency, which if it chooses, it can exchange for dollars or other currencies. Stability and creditworthiness, merely influence exchange rates, not the fact of Monetary Sovereignty.

If the local currency depreciates significantly (see item 5 in the list), local banks and corporations can find themselves unable to service dollar debts, because dollars become far more expensive.

No. “Local banks and corporations” are monetarily non-sovereign. A Monetarily Sovereign nation can service any amount of dollar debts, merely by exchanging their unlimited sovereign currency for dollars.

If banks stop lending cross-border, as they did in 2008, local banks and corporations can find themselves unable to refinance dollar debts.

. . . because “local banks and corporations” are monetarily non-sovereign entities. They can run short of money. A Monetarily Sovereign nation cannot.

During the “Great Recession” of 2008, monetarily non-sovereign Greece, France, and Portugal ran short of euros. But MS Canada, China, and Australia never ran short of their own sovereign currencies.

The world is littered with examples of countries that have had to run down public sector FX reserves to provide dollar liquidity to local banks and corporations after they are effectively shut out of global markets by local currency depreciation.

A Monetarily Sovereign nation cannot unintentionally “run down” public sector FX reserves. It has the unlimited ability to create its sovereign currency. It can create all the reserves it wishes.

If the public sector doesn’t have sufficient dollar reserves, it must borrow them, or face financial crisis, widespread debt defaults and economic recession.

In an FX crisis, private sector external debt becomes public sector external debt.

Nonsense. The entire world running short of dollar reserves?? (Where would those dollars be???) In any event, the Bernanke “printing press” would immediately solve the problem.

Thus, when currencies are allowed to float freely (item 5), no government that runs a current account deficit can possibly guarantee that it will never borrow in any currency other than its own (item 6).

The list therefore contains an internal contradiction.

Again, she is confusing between a Monetarily Sovereign nation, which never needs to borrow its own currency, and a monetarily non-sovereign entity, which never can borrow its own currency (It doesn’t have one.)

Monetary sovereignty is perhaps best regarded as a spectrum.

No country on earth is completely monetarily sovereign: the closest is the US, because of its “exorbitant privilege”, but even the US cannot completely ignore the effect of its government’s policies on international demand for its currency and its debt.

She is correct that Monetary Sovereignty is a spectrum, but not because of the demand for dollars. Instead, the spectrum has to do with the nation’s own laws.

For instance, even the U.S. is not absolutely Monetarily Sovereign. We are hamstrung by our own ridiculous “debt limit” laws, which have the potential of reducing our ability to create dollars.

In general, the major reserve currency issuers tend to have more monetary sovereignty than other countries, because there is international demand for their currencies and their debt.

The primary reserve currency issuer is the US, but the Eurozone (for which Germany is the primary safe asset issuer), the UK, Japan, Switzerland, Canada, and – now – China, all fall into this category.

However, there is a hierarchy even among reserve currency issuers. High on the list comes Japan, because its debt is held almost exclusively by its own citizens (and its central bank), and investors regard it as a “safe haven” in troubled times.
There is a heirarchy, but it has nothing to do with Japan’s citizens. It has to do with usage. The U.S. economy is the largest in the world, so all international banks must hold dollars in reserve, to facilitate international trade.
That is why the U.S. dollar is the world’s premier reserve currency, though other currencies also are reserve currencies.
But the ostensibly similar Switzerland has less monetary sovereignty than Japan, because it has extensive trade and financial ties to its much larger neighbour the Eurozone.
The above borders on the silly. “Trade and financial ties” have nothing to do with Monetary Sovereignty.
The Eurozone countries have relinquished their monetary sovereignty in the interests of developing ever-closer links. However, the Eurozone as a bloc has a high degree of monetary sovereignty, because its currency is the second most widely used currency for trade after the dollar.
The European Union is MS because it, not its member nations, has the unlimited ability to create euros.

Ms. Coppola confuses Monetary Sovereignty with credit rating and currency demand. 

The fact that Japan’s yen may or may not have a better credit rating than China’s yuan has absolutely nothing to do with the degree to which either nation is Monetarily Sovereign.

Both are sovereign over their own currencies, subject to their own laws regarding the creation of those currencies.

The rest of her article drifts into further musing about “more or less Monetary Sovereignty” when she really means better or worse credit.

Bottom line: Monetary Sovereignty means exactly what it says: Being sovereign over a currency. The U.S., Australia, Canada, China, the UK et al are sovereign over their currencies. Germany, France, and Italy are not.

And by the way, a very good example of Monetary Sovereignty is the Bank in the game of Monopoly. By rule, it too cannot run short of Monopoly dollars, and never needs to borrow dollars or to obtain dollars from any source.

Contrary to the title of Ms. Coppola’s paper, Monetary Sovereignty not only is not a myth, but it is the foundation of economics.

If one does not understand Monetary Sovereignty, one simply cannot understand economics.

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

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The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

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