Insurance for all . . . and more.

A government’s sole purpose is to improve and protect people’s lives. No rational person would take dollars from the economy and give them to a federal government that has the infinite ability to create dollars.

Our Monetarily Sovereign government’s greatest asset is its infinite ability to create and spend its sovereign currency, the U.S. dollar. The federal government cannot unintentionally run short of dollars.

 

It can pay any bill and fund any enterprise based on dollars and do it without the need to collect a penny in taxes. In fact, federal taxes (unlike state/local taxes) are destroyed upon receipt.

The U.S. federal government has infinite dollars.

Though the federal government may not always be good at running things, it is outstanding at paying for things.

Consider retirement. Social Security pays for retirement life by issuing money. Though the government collects the FICA tax, this tax doesn’t fund Social Security. Like all other federal taxes, FICA dollars are destroyed.

But Social Security, unlike private retirement plans, does not rely on stock market or bond market investments or any other form of income, and it does not need to make a profit or even to break even.

Pay no attention to the Henny Penny claims of the Social Security fund’s insolvency. Social Security can become insolvent only if the federal government wants it to. Benefits could double or triple or begin at age 0 rather than in the 60s, and SS always will be able to pay benefits.

Consider Medicare. This program, too, is funded by federal money creation. Despite what you have been told, Medicare is not financed by taxes but by federal money creation.

Medicare does not do medical treatments; Medicare pays for medical treatments.

Social Security and Medicare replace insurance companies as retirement and healthcare insurance providers. Having no need for income or profits and having the unlimited ability to pay for anything, the federal government is a much better source of insurance dollars than any private sector insurance company.

We previously have recommended instituting Medicare for All and Social Security for All. In that same vein, we recommend Life Insurance for all.

The federal government already provides life insurance for its civilian employees. Worldwide Assurance for Employees of Public Agencies (WAEPA) is one version:

As a non-profit formed For Feds, By Feds, we understand what it takes to help provide peace of mind. More than 46,000 Feds and their families choose WAEPA’s portable life insurance coverage to help protect the future of their families.

While we actively provide more than $10 billion in coverage to Feds, we’ve refunded over $100 million in premiums since 1996. That’s one way how WAEPA serves Feds who serve our country.

Short-Term Disability Insurance — WAEPA’s newest product provides paycheck protection for eligible illnesses or injuries.
 
You can receive up to $6,500 in coverage a month for up to six months to replace lost income if you’re out of work due to recovery.
 
Underwritten by New York Life Insurance Company, 51 Madison Ave., New York, NY 10010

Another is Federal Employees’ Group Life Insurance (FEGLI):

The Federal Employees’ Group Life Insurance (FEGLI) Program is a life insurance program for Federal and Postal employees and annuitants, authorized by law (Chapter 87 of Title 5, United States Code).

The Office of Personnel Management (OPM) administers the Program and sets the premiums.

FEGLI does not build up cash value. You cannot take a loan out against your FEGLI insurance. OPM has a contract with the Metropolitan Life Insurance Company (MetLife) to provide this life insurance.

MetLife has an administrative office called the Office of Federal Employees’ Group Life Insurance (OFEGLI). OFEGLI is the contractor that adjudicates claims under the FEGLI Program.

While Medicare and Social Security replace private insurance companies, WAEPA and FEGLI pay private insurance companies to administer their programs.

Either approach has advantages, but all have two glaring weaknesses.

  1. The federal government unnecessarily extracts premiums from the private sector.
  2. None of the programs offers comprehensive coverage, as though the government needed profits or even breakevens. It doesn’t.

The WAEPA website includes this chart:

It shows neither plan is comprehensive nor complete, which is not surprising. Two other federal programs, Medicare and Social Security,  are not comprehensive or complete.

But why? Given that the federal government has infinite financial resources, why should any plan it supports offer less than the optimum? 

Why does Medicare have a 20% deductible, along with limited coverages and not covering drugs or dental care, etc., without an extra cost? Why are Social Security benefits so meager? In WAEPA and FEGLI, why is one spouse’s life insurance death benefit less than the other’s?

The federal government repeatedly acts as though it can run short of dollars. It works like a monetarily non-sovereign entity. And why does the federal government extract a tax to fund something when it has the unlimited ability to support anything?

BOTTOM LINE

  1. The federal government has infinite dollars. It can pay any debt denominated in dollars. No such obligation is a burden on the government or on taxpayers.
  2. A healthy economy needs a continual input of dollars. Federal deficit spending prevents and cures recessions.
  3. A government’s sole purpose is to improve and protect people’s lives.
  4. No rational person would take dollars from the economy and give them to a federal government that has the infinite ability to create dollars.

Therefore, the federal government should fully fund the following comprehensive, no deductible, tax-free programs for every man, woman, and child who wants to participate:]

  • Healthcare insurance (aka Medicare for all)
  • Retirement insurance (Social Security for all)
  • Life insurance
  • College
  • Salary for attending college
  • Food support [aka Supplemental Nutrition Assistance Program (SNAP)]
  • Rental (living quarters) support

Objections:

  1. Federal spending causes inflation: In previous posts (here, here, here, and elsewhere, we have demonstrated that federal deficit spending does not cause inflation. Shortages cause inflation. Inflations are cured by curing the shortages, which can be accomplished with the aid of federal deficit spending.
  2.  If given these benefits, people would refuse to work. We suggest this is not true, as demonstrated by the fact that people at all wealth strata continue to work.

    The total of human wants never is satisfied.

    If the government pays for an apartment’s rent, the family wants a bigger apartment, a car, a yacht, or a vacation home. People always want more for themselves, their children, and charity.

The single most valuable asset owned by the U.S. federal government is its Monetary Sovereignty — its unlimited ability to create and control the value of the U.S. dollar.

Unfortunately, the government and many information sources refuse to acknowledge this great asset, so we slog along with poverty, hunger, homelessness, illness, lack of education, recessions, and depressions.

The federal government has the power to mitigate or prevent them all with the application of its Monetary Sovereignty. 

Rodger Malcolm Mitchell
Monetary Sovereignty

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

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MONETARY SOVEREIGNTY

Good news, if true. CBO: Deficits are falling now, are set to soar later

Assuming the following headline is correct, it’s short-term bad news for the economy, but great long-term news:

“CBO: Deficits are falling now, are set to soar later” Courtenay Brown. Neil Irwin, Axios

The federal government’s budget deficit is expected to shrink this year before skyrocketing in the years ahead, the Congressional Budget Office (CBO) said Wednesday.

Why is it short-term bad news but great long-term news? Because this is:

    1. Federal deficit spending goes into the economy as an economic growth stimulus.
    2. The federal government has infinite dollars; it never can run short of dollars.
    3. The economy does not have infinite dollars. To grow, it needs a growing input of dollars from the federal government.
    4. Federal spending is funded not by federal taxes but by *federal money creation. Federal tax dollars are destroyed upon receipt by the Treasury.
    5. Federal spending does not cause inflation; shortages of critical goods and services cause inflation. Inflations can be cured by additional federal spending to obtain and distribute scarce goods and services.

*Here is how the federal government creates dollars:

  • To pay a bill, the federal government sends instructions (not dollars) to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account (“Pay to the order of”)
  • When the bank does as instructed, new dollars are created and added to the M1 money supply.

  • This transaction is then cleared by the Federal Reserve

Similarly, dollars are destroyed when you pay taxes:

  • To pay taxes, you take dollars from your checking account. Those dollars were part of the M1 money supply.
  • When your dollars reach the Treasury, they disappear from the M1 money supply. They cease to exist in any money supply measure.

Because the Treasury has access to infinite dollars, there can be no money supply measure for Treasury dollars. Your tax dollars are destroyed.

The federal government collects tax dollars, not to fund spending, but to:

  1. Control the economy by taxing what the government wishes to discourage and giving tax breaks for what it wishes to encourage.
  2. To create demand for dollars, which must be used for tax payments. This helps stabilize the dollar.
  3. To create the impression that federal taxes are necessary to fund federal spending. This discourages the public from asking for federal benefits. 

Restricting federal benefit spending on benefits helps widen the Gap between the rich (who run America) and the rest of us. Widening the Gap makes the rich richer.

Why it matters: America’s reprieve from climbing deficits is only temporary as coronavirus-related government spending wanes and tax revenues increase.

The use of the word “reprieve” is misleading. Climbing deficits are essential for economic growth.

By the numbers: The CBO projects the budget deficit will shrink to $1 trillion this year, down from $2.8 trillion in 2021.

Shrinking budget deficits reduce the amount of money coming into the economy and thereby lead to recessions.

Recessions (vertical gray bars) result from reduced federal deficit growth and are cured by increased federal deficit growth.

It’s expected to rise to more than $2 trillion in 2032, reaching 6.1% of GDP, up from a projected 4.2% this year.

The deficit as a percentage of GDP is a meaningless number. It has no predictive significance.

GDP (blue) rose during periods of falling Debt/GDP and during periods of rising Debt/GDP. The ratio, Debt/GDP, has no predictive value.

Federal debt held by the public is estimated to dip from 100% of GDP at the end of this year to 96% in 2023, reflecting rapid inflation that is causing GDP to expand more rapidly. It’s expected to reach 110% of GDP — the highest ever recorded — by the end of the decade.

A meaningless fact. Whether an economy has a high or a low Debt/GDP ratio tells nothing about the health of that economy. For example:

Top Countries with the Lowest Debt-to-GDP Ratios (%)

    1. Brunei — 3.2%
    2. Afghanistan — 7.8%
    3. Kuwait — 11.5%
    4. Congo (Dem. Rep.) — 15.2%
    5. Eswatini — 15.5%
    6. Burundi — 15.9%
    7. Palestine — 16.4%
    8. Russia — 17.8%
    9. Botswana — 18.2%
    10. Estonia — 18.2%

Top Countries with the Highest Debt-to-GDP Ratios (%)

    1. Venezuela — 350%
    2. Japan — 266%
    3. Sudan — 259%
    4. Greece — 206%
    5. Lebanon — 172%
    6. Cabo Verde — 157%
    7. Italy — 156%
    8. Libya — 155%
    9. Portugal — 134%
    10. Singapore — 131%
    11. Bahrain — 128%
    12. United States — 128%

The Debt/GDP ratios tell you nothing about the economic health of the nations. The data come from an article by WorldPopulationReview.com, which falsely states:

“Nations with a low debt-to-GDP ratio are more likely to be able to repay their debts with relative ease. Nations whose economies struggle to produce income or which have an oversized debt tend to have a high debt-to-GDP ratio.

This is a perfect example of belief overcoming obvious facts.

The U.S. is Monetarily Sovereign. A Monetarily Sovereign nation has the infinite ability to pay debts denominated in that nation’s own sovereign currency. Such countries have the unlimited ability to create sovereign currency. They never can run short.

By contrast, a monetarily non-sovereign — for instance, a euro nation like Greece, Italy, or Portugal — can have difficulty paying its debts.

The belief that a high Debt/GDP ratio mitigates debt repayment ability All the concerns about the U.S. federal deficit or debt being too high are based on ignorance about government financing.

Clearly, the WorldPopulationReview.com authors of the above article know little-to-nothing about Monetary Sovereignty. 

Details: The CBO is now expecting higher interest rates over the coming years than it did in the last forecast, as the Federal Reserve acts to try to contain inflation. Higher interest rates would strain the nation’s fiscal position further.

America’s fiscal position is clear. It always can pay any debt denominated in dollars. Even if the U.S. federal government didn’t collect a penny in taxes, it could pay off any financial obligation.

Further, the so-called federal “debt” is not the federal government’s debt. It is the total of deposits into privately-owned Treasury Security accounts. 

To purchase a T-security (T-bill, T-note, T-bond), you deposit dollars into your T-security account. The government never touches those dollars. Periodically the government adds to the balance, but it never uses the dollars for anything.

The dollars remain in your account until maturity when they are returned to you. This functions similarly to a bank safe deposit box, the contents of which are not a debt of the bank.

Last July, for example, the CBO projected that the 10-year Treasury yield would average 2% in 2023; now that projection is 2.9%.

In the CBO projections, interest costs alone will pass $1 trillion in 2030.

Translation: Federal interest payments will add 1 trillion growth dollars to the economy by 2030. The federal government, being Monetarily Sovereign, easily can make these payments without collecting taxes.

As this post was being written, another relevant article appeared. It is an excellent example of the economic ignorance that mischaracterizes the federal “debt.”

Biden’s Student Loan Debt Forgiveness Plan Now Estimated To Cost $400 Billion
According to a new report for the Congressional Budget Office, student loan debt forgiveness will likely completely wipe out gains made by the Inflation Reduction Act—and then some.
Emma Camp | 9.27.2022

The “gains” are deficit reductions that the author wrongly believes will benefit the economy and mitigate inflation. They will not, though they will mitigate economic growth and probably cause stagflation.

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.

The sweeping student loan forgiveness plan will wipe all the budget savings created by the Inflation Reduction Act—and then some.

Translation: “The sweeping student loan forgiveness plan will add federal dollars to the economy, thereby stimulating economic growth.”

In a letter published on Monday, the Congressional Budget Office (CBO), a nonpartisan federal agency, estimated that Biden’s student loan debt forgiveness plan will increase the cost of student loans by $400 billion.

Translation: ” . . . will decrease students’ loan cost by $400 billion. It will stimulate economic growth by keeping more money in the economy and by encouraging more young people to attend and finish college..”

That’s more than the White House originally projected, and it means that the fiscally imprudent debt relief effort will end up swamping the modest budgetary savings achieved by last month’s passage of the Inflation Reduction Act by more than $150 billion.

Translation: ” . . . it means that the fiscally prudent debt relief effort will end up overcoming the economy’s budgetary losses caused by last month’s passage of the Inflation Reduction Act by more than $150 billion.

. . . the plan is likely to massively increase the national deficit by over $150 billion.

Translation: “. . . the plan is likely to massively increase the economy’s money supply by over $150 billion.”

Student loan forgiveness stands to be a massively expensive project—one that not only erases recent gains in spending reduction but manages to make the problem significantly worse than the status quo.

Translation: “Student loan forgiveness stands to be a massively beneficial project—one that not only erases recent economic losses in income reduction but manages to make the economy significantly better than the status quo.”

The so-called “problem” is the increased federal deficit, which is not a problem at all. It is necessary for a growing economy.

Only one thing could make “the problem worse than the status quo”: Running a federal surplus, which invariably leads to recessions or depressions.

SUMMARY

Federal finances differ from personal, business, and state/local government finances.

Those who bemoan a growing federal deficit and debt do not understand that a Monetarily Sovereign entity can pay any size debt instantly. It does so by creating its own sovereign currency.

Gross Domestic Product (GDP), a measure of the economy, is a measure of spending. A growing economy requires a growing supply of money. By deficit spending, the federal government creates new dollars and adds them to the economy. 

Thus, by increasing the money supply, federal deficits help boost GDP. That is why falling federal deficit growth results in recessions, which are cured by increased deficit growth.

For the above reason, the oft-quoted federal Debt/GDP ratio does not indicate anything about the economic health of a Monetarily Sovereign nation. 

Further, the misnamed federal “debt” is not the federal government’s debt. It is the total of privately owned deposits into Treasury Security accounts.

The next time you read or hear negative comments about the federal deficit or debt, know this: The author of those comments doesn’t understand how U.S. federal finances work — or doesn’t want you to understand.

Rodger Malcolm Mitchell
Monetary Sovereignty

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

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THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

MONETARY SOVEREIGNTY

 

Fed Chair Powell pushes the economy over the cliff. Next stop: Stagflation

WASHINGTON (AP) — Intensifying its fight against high inflation, the Federal Reserve raised its key interest rate Wednesday by a substantial three-quarters of a point for a third straight time and signaled more large rate hikes to come — an aggressive pace that will heighten the risk of an eventual recession.

Barring the kind of miracle that allows Jerome Powell to come to his senses, we very soon will be in a stagflation — a combination of stagnation and inflation — and Jerome Powell will not know what to do about it.

The past interest rate increases have done nothing to halt or even moderate inflation. So, Chairman Powell does the only “sensible” thing. He keeps doing what repeatedly has failed, praying that somehow, in some way, magic will happen.

He is not “heightening the risk of recession.” He intentionally is causing a recession. He says so himself but uses oblique language to describe it.

Trust me. I’m doing this to cure your acrophobia.

The officials also forecast that they will further raise their benchmark rate to roughly 4.4% by year’s end, a full point higher than they had envisioned as recently as June.

And they expect to raise the rate again next year, to about 4.6%. That would be the highest level since 2007.

By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan.

Get it? To fight higher prices, the Fed will raise the prices of mortgages, autos, and business operations — and just about every other thing you wish to buy.

And some people believe this nonsense.

Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.

“Cooling the economy” is the Fed’s way of saying, “causing a recession.”

Here is the definition of a recession: “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”

Sounds like “cooling,” doesn’t it?

Sadly, the Fed doesn’t have the courage or morals to tell the truth, which is that they want to cause a recession as a way to end inflation. So they say they are going to “cool” the economy”

What makes them feel the economy needs “cooling”?

One measure of the economy’s “heat” is unemployment. A “hot” economy should have low unemployment. According to the Fed’s metric, the Fed should raise interest rates when unemployment goes down.

Similarly, when unemployment rises, you might expect the Fed to cut rates We should see the unemployment rate and the interest rate move in opposite directions.

Is that what we see?

When unemployment (red) goes up, and the economy could use some stimulus, the Fed tends to raise interest rates (green), which is anti-stimulus. By the Fed’s own philosophy, interest rates should rise when unemployment goes down, But we see the opposite.

In short, the Fed is consistent. It consistently does exactly the opposite of what it claims the economy needs. The reason: The Fed focuses on the false premise that inflation is caused by low interest rates and is cured by raising interest rates.

And as far as the economy needing “cooling,” what exactly does it mean? What does it mean for an economy to be too hot?

Here’s an interesting graph:

It shows one of the prime measures of economic growth, the annual change in real per capita gross domestic product. If anything should measure the “heat” of an economy, this is it.

A year ago, in early 2021, one might have said the economy is pretty “hot.” No longer. The economy now seems to be growing at a normal rate. So why does it need “cooling”?

Notice what happens before we have a recession. The annual change drops, which is exactly what the Fed wants to happen now.

I’ve been at this for twenty-five years, and I still don’t know what it means for an economy to be too hot. What I do know, however, is what causes inflation: Shortages of key goods and services.

Today, we have those shortages, not because demand is too great, and not because interest rates are too low, and not because the federal deficits are too high. We have shortages because the confluence of COVID, the Russian war, and reduced oil pumping caused supply to constrict.

 

Falling gas prices have slightly lowered headline inflation, which was a still-painful 8.3% in August compared with a year earlier.

Think of it. The Fed has raised the benchmark interest rate almost 4 points — a massive change — and inflation didn’t budge, but falling gas prices moved the needle. That tells you something about the ineffectiveness of interest rate changes.

Here’s another interesting graph. It compares inflation to oil prices:

The parallels are stunning. Inflation follows oil prices because oil affects the price of every other product. The price of oil is determined by supply and demand. Increase the supply, and inflation will go down.

The same is true regarding demand. Decrease the demand for oil, and inflation will fall. But short of causing a recession, how does one decrease the demand for oil? The only answer is something we are just beginning to do: Find substitutes for oil. 

Most oil is used for energy, so businesses must expand production of solar, wind, nuclear, geothermal, and tidal energy sources — and this will require increased government spending and lower interest rates.

Speaking at a news conference, Chair Jerome Powell said that before Fed officials would consider halting their rate hikes, they would “want to be very confident that inflation is moving back down” to their 2% target.

He noted that the strength of the job market is fueling pay gains that are helping drive up inflation.

Powell, as an agent for the very rich, tells us that those nasty pay gains for the 99% are causing inflation. If only we could find a way to cut back on pay gains, all would be well.

“If we want to light the way to another period of a very strong labor market,” Powell said, “we have got to get inflation behind us. I wish there was painless way to do that. There isn’t.”

Translation: “The labor market is too strong. Unemployment is too low, and people are earning too much. So, I’m going to create a strong labor market by cutting economic growth. This will increase unemployment and cut salaries, which will be painful (to everyone but the rich).”

This is the logic that will help widen the Gap between the rich and the rest.

Fed officials have said they are seeking a “soft landing,” by which they would manage to slow growth enough to tame inflation but not so much as to trigger a recession.

Yet most economists are skeptical. They say they think the Fed’s steep rate hikes will lead, over time, to job cuts, rising unemployment and a full-blown recession late this year or early next year.

Job cuts, unemployment and a full-blown recession are exactly what the very rich want. Their incomes won’t be hurt. They won’t be fired. Their pay won’t be cut. And they’ll buy bonds paying higher interest.

Meanwhile, the working class will suffer, the Gap will widen, and all will be well with the world.

“No one knows whether this process will lead to a recession, or if so, how significant that recession would be,” Powell said at his news conference. “That’s going to depend on how quickly we bring down inflation.”

The way to bring down inflation is to cure the shortages that are causing inflation, not by causing a recession. The federal government needs to support farming, transportation, and the manufacturing and service industries.

One way: Cut business costs. Eliminate FICA and provide free health care insurance to every man, woman, and child in America. This would substantially reduce the cost of running businesses.

Eliminating FICA instantly would cut the prices of all goods and services. It’s a quick first step, easily done. Simply stop collecting the tax and have the government pay for Social Security and health care insurance.

In their updated economic forecasts, the Fed’s policymakers project that economic growth will remain weak for the next few years, with rising unemployment. They expect the jobless rate to reach 4.4% by the end of 2023, up from its current level of 3.7%.

This is the cure for inflation?? Weak economic growth and rising unemployment for years??? Some might say the cure is worse than the disease. That’s the best the Fed can do?

Historically, economists say, any time unemployment has risen by a half-point over several months, a recession has always followed.
Fed officials now foresee the economy expanding just 0.2% this year, sharply lower than their forecast of 1.7% growth just three months ago. And they envision sluggish growth below 2% from 2023 through 2025.

That gloomy forecast seems about right based on the reluctance to increase federal deficit spending and the plan to repeatedly increase interest rates.

Even with the steep rate hikes the Fed foresees, it still expects core inflation — which excludes the volatile food and gas categories — to be 3.1% at the end of next year, well above its 2% target.

Translation: “What we’re doing won’t help much, but it will hurt you, and most importantly, it will make you believe we’re doing something.

Powell acknowledged in a speech last month that the Fed’s moves will “bring some pain” to households and businesses.

Pain to the working class but not the rich — that’s the goal.

Inflation now appears increasingly fueled by higher wages and by consumers’ steady desire to spend and less by the supply shortages that had bedeviled the economy during the pandemic recession.

Utter nonsense. Prices can’t rise without supply shortages. But yes, reducing the cost of labor will help reduce inflation. And that can be accomplished by eliminating FICA while providing health care insurance to everyone.

Some economists are beginning to express concern that the Fed’s rapid rate hikes — the fastest since the early 1980s — will cause more economic damage than necessary to tame inflation.Mike Konczal, an economist at the Roosevelt Institute, noted that the economy is already slowing and that wage increases — a key driver of inflation — are levelling off and by some measures even declining a bit.

Part of the problem is a false belief that some economic damage is necessary to tame inflation — the false belief that the medicine must be bitter.

Even at the Fed’s accelerated pace of rate hikes, some economists — and some Fed officials — argue that they have yet to raise rates to a level that would actually restrict borrowing and spending and slow growth.

Translation: “The purpose of raising interest rates is to restrict borrowing and spending and to slow growth, but that won’t work.”

Huh?

Many economists sound convinced that widespread layoffs will be necessary to slow rising prices.

Translation: “It’s all the fault of the working class. They are making too much money. We’ll have to starve them a bit to control inflation.”

Research published earlier this month under the auspices of the Brookings Institution concluded that unemployment might have to go as high as 7.5% to get inflation back to the Fed’s 2% target.

SUMMARY

Interest rate increases will not reduce inflation. They will cause stagflation, courtesy of the Fed, who will blame it on the working class making too much money. The Fed will not blame the very rich for making too much money. The Fed knows who their bosses are.

Rodger Malcolm Mitchell
Monetary Sovereignty

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

MONETARY SOVEREIGNTY

Recession: Not If, But When

Raj Subramaniam | FedEx
Raj Subramaniam

FedEx CEO says he expects the economy to enter a ‘worldwide recession’
PUBLISHED THU, SEP 15 20226:38 PM EDTUPDATED THU, SEP 15 20228:25 PM EDT
Krystal Hur

FedEx CEO Raj Subramaniam told CNBC’s Jim Cramer on Thursday that he believes a recession is impending for the global economy.

The CEO’s pessimism came after FedEx missed estimates on revenue and earnings in its first quarter. 

As we have been telling you for months (years, actually), Jerome Powell will fail to stop inflation and instead will cause a recession or depression. There are two reasons.

  1. He has no idea what causes and what cures inflations, and
  2. He doesn’t have the tools, even if he knows.

So, today he, in essence, is using a chainsaw to slice the wedding cake and applying leeches to cure anemia. And then, when the chainsaw and the leeches make things worse, what will Powell do? He will use a bigger chainsaw and apply more leeches.

As I predicted, his interest rate increases have failed to end inflation. So, what will he do? He will raise interest rates again and again, of course. (The definition of insanity is doing the same thing repeatedly and expecting a different result.)

He refuses to learn from failure.

The primary reason why prices — any prices — rise is scarcity. It would be quite rare for overall prices to increase because consumers suddenly have more money in their pockets and spend more on everything.

When something prevents the supply of any one product (other than oil) from growing, we have an increase in that product’s price. (Oil is a special case because it has universal use.) To cause inflation — a general rise in prices — a general restriction in supply is required.

And that general supply restriction was provided by COVID., which caused so many supply disruptions that recovery is difficult. And to some degree, the pandemic still is with us.

Our recovery from covid is delayed COVID partly because the GOP didn’t want us to recover. They denied the need for masking, and vaxing, so they continued to spread the disease.

They wanted to be able to complain about Biden and the Dems.

Not that the Dems are entirely innocent. They still join the GOP in promulgating the false notion that federal deficit spending causes inflation.

Not only does federal deficit spending not cause inflation, but targeted deficit spending, to acquire and distribute scarce goods and services is the only government solution to inflation.

Powell thinks consumer demand is causing inflation. He wants to force consumers to demand less by making borrowing more expensive. But demand less what? Should we demand less oil? Less food? Less housing? Fewer cars?

If he fails to quell demand, which is likely, inflation will continue. If he succeeds in reducing demand, we will have a recession, for that is precisely what a recession is: Lack of demand.

In short, Powell is trying to fight inflation by causing a recession. Stagflation next? Then depression?

Inflations are caused by shortages. PERIOD. The only way to cure inflation is to remedy the shortages.

Today, we face many shortages ranging from oil to food, computer chips, lumber, paper, and the entire supply chain, including shipping containers, port facilities, and labor.

Some of the foods in short supply (and therefore experiencing price increases) are meat, poultry, dairy, eggs, and many vegetables. Will interest rate increases cure those shortages? Of course not. 

Will interest rate increases cure the oil, food, computer chip, lumber, paper, supply chain, shipping container, port facility, and labor shortages?

The whole Powell concept is based on ignorance.

Interest rate increases will exacerbate shortages by making production more difficult. Businesses will be less likely to borrow for upgrading machinery or hiring more and better quality labor.

As a result, production will not grow sufficiently, which means more shortages.

It will be the “leeches-to-cure-anemia” situation, where the supposed solution makes the problem even worse.

Eventually, inflation will end, but not because of Powell (who will claim credit). Inflation will end because businesses will catch up and begin to produce more, sell more, and ship more.

Meanwhile, we’ll have to suffer through sky-high interest rates, continual nonsense from Congress and Powell, ever more inflation, and excuses for cutting benefits to the not-rich. (There still will be plenty of tax benefits for the rich. Deficit worries don’t apply to them.)

 

Recessions (vertical gray bars) follow reductions in federal deficit growth (red) and are cured by increased federal deficit growth.

There is no relationship between federal deficit growth and inflation (blue). Peaks and valleys do not come close to matching.

The GOP is hopeless. It has become a nut factory. But, perhaps I will live to see the day when the Dems begin to admit that federal deficits are beneficial because they add growth and scarcity-fighting dollars — i.e., inflation-fighting dollars– to the economy.

Congress does the bidding of the very rich, who want the wealth Gap to grow. The pols promulgate the Big Lie that federal finances are like personal finances, where debt is a burden. But debt is not a burden on the federal government.

This gives Congress the excuse to cut deficit spending.

So, we will continue to lurch from one recession to the next, with the occasional depression thrown in for flavor.

And as for the public ever understanding, don’t make me laugh. Seventy million people saw what Trump did for 4 years, then voted for him. That tells you all you need to know about the public’s intelligence.

Come to think of it, the insanity of providing the same truths time and again and expecting a different result applies to me, too. I’ve been ready to quit for several years, but then I think of the world my grandchildren will endure, and hope springs eternal.

Rodger Malcolm Mitchell
Monetary Sovereignty

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MONETARY SOVEREIGNTY