Ludicrous. The Fed Chair is clueless or lying. Stagflation, here we come.

This is what happens when the Fed Chair is clueless or lying:

It took only a 10-minute speech from Federal Reserve Chairman Jerome Powell on Friday to clarify that monetary policy would be relentlessly tightened in the months ahead. Investors dumped stocks, sending the S&P 500 Index down 3.4% following two days of gains.

And it all was based on two Big Lies that the federal government can run short of dollars, and that federal deficits cause inflation.

Both Big Lies are so obvious, so easily debunked, that it’s hard to believe they are accidental or based on ignorance. Lies that big and easily seen simply must be intentional.

Powell: Fed’s inflation fight could bring ‘pain,’ job losses
By CHRISTOPHER RUGABER
August 26, 2022

JACKSON HOLE, Wyoming (AP) — Federal Reserve Chair Jerome Powell delivered a stark warning Friday about the Fed’s determination to fight inflation with more sharp interest rate hikes:It will likely cause pain for Americans in the form of a weaker economy and job losses.

Powell believes the way to fight inflation is to cause a recession (aka a weaker economy and job losses).

But inflation is not the opposite of recession. The opposite of inflation is deflation. We can have inflation and recession at the same time. It’s called “stagflation,” a problem for which the Fed knows no cure (though there is one).

The message landed with a thud on Wall Street, sending the Dow Jones Industrial Average down more than 1,000 points for the day.

“These are the unfortunate costs of reducing inflation,” Powell said in a high-profile speech at the Fed’s annual economic symposium in Jackson Hole. “But a failure to restore price stability would mean far greater pain.”

The pain is wholly unnecessary. Inflation is not a problem. It is the symptom of a problem, the shortage of crucial goods and services.

Today’s inflation is caused by shortages of oil, food, shipping, lumber, paper, computer chips, many chemicals, labor and a long list of other goods and services. Most of those shortages resulted from COVID.

To cure a problem one must cure the causes. Low interest rates did not cause inflation, so raising interest rates will not cure inflation.

GRAPH I:

There is no relationship between low interest rates (red) and inflation (blue). Raising rates leads to recessions (vertical gray bars).

The U.S. had extremely low interest rates for more than a decade, beginning 2009, and inflation remained low. Clearly, low rates were no a cause of inflation, so raising rates will not cure inflation.

As the above graph shows, however, raising interest rates leads to recessions.

Further, there is no relationship between inflation and federal deficit spending, so increasing federal spending will not cause inflation:

GRAPH II:

There is no relationship between federal deficit spending (green) and inflation (blue). Reduced spending growth leads to recessions (vertical gray bars).

Therefore, the Fed is promoting two activities — raising interes rates and reduced federal deficit spending — neither of which willconomy, even as the unemployment rate has fallen to a half-century low of 3.5%.

It has also created political risks for President Joe Biden and congressional Democrats in this fall’s elections, with Republicans denouncing Biden’s $1.9 trillion financial support package, approved last year, as having fueled inflation.

The $1.9 trillion financial package did not fuel inflation, but it did help hold off a recession. For political purposes, the GOP wants to see inflation and recession come during the Biden administration, so they denounce federal deficit spending.

And here comes the ridiculous part:

Some on Wall Street expect the economy to fall into recession later this year or early next year, after which they expect the Fed to reverse itself and reduce rates.

Wall Street is correct. That is exactly what will happen. If the Fed continues it interest rate increases, and the federal government doesn’t increase its deficit spending, we will have a recession.

Then the Fed will cut interest rates, which again will accomplish nothing. But the Fed will picture itself as struggling mightily and bravely against inflation and recession.

Any failures will be “beyond their control,” and any successes will “result from their actions.” They can’t lose.

Powell reminds me of a child sitting in the back seat with a toy steering wheel. Whenever the car turns, he turns his wheel. He thinks he is driving the car but he is only going through motions.

A number of Fed officials, though, have pushed back against that notion. Powell’s remarks suggested that the Fed is aiming to raise its benchmark rate — to about 3.75% to 4% by next year — yet not so high as to tank the economy, in hopes of slowing growth long enough to conquer high inflation.

Graph I showed that interest rate increases lead to recessions. Graph III shows that raising interest rates will will have an adverse effect on real Gross Domestic Product growth. (GDP is shown as negative growth).

GRAPH III:

GDP (purple) is shown as negative growth which matches the peaks and valleys of interest rates (red).

After raising its key short-term rate by a steep three-quarters of a point at each of its past two meetings — part of the Fed’s fastest series of hikes since the early 1980s — Powell said the Fed might ease up on that pace “at some point,” suggesting that any such slowing isn’t near.

Powell said the size of the Fed’s rate increase at its next meeting in late September — whether one-half or three-quarters of a percentage point — will depend on inflation and jobs data.

An increase of either size, though, would exceed the Fed’s traditional quarter-point hike, a reflection of how severe inflation has become.

The Fed chair said that while lower inflation readings that have been reported for July have been “welcome,” he added that, “a single month’s improvement falls far short of what (Fed policymakers) will need to see before we are confident that inflation is moving down.”

Nothing the Fed has done, to date, has reduced inflation. Any inflation reductions have come from reduced shortages of oil and other commodities. The car turned, and Powell sitting in the back seat thinks he turned it.

“The historical record cautions strongly against prematurely” lowering interest rates, he said. “We must keep at it until the job is done.”

Yes, Chairman Powell, you keep turning your toy steering wheel, and after we go through a stagflation, which will end with increased federal deficit spending to cure shortages, you can claim credit.

(The Fed’s interest rate) hikes have led to higher costs for mortgages, car loans and other consumer and business borrowing.

Home sales have been plunging since the Fed first signaled it would raise borrowing costs.

Translation: The Fed already has begun to cause a painful recession while inflation continues.

Powell is betting that he can engineer a high-risk outcome: Slow the economy enough to ease inflation pressures yet not so much as to trigger a recession.

The little boy in the back seat furiously spins his steering wheel.

At last year’s Jackson Hole symposium, Powell listed five reasons why he thought inflation would be “transitory.” Yet instead it has persisted, and many economists have noted that those remarks haven’t aged well.

America asked the man who said inflation was “transitory,” now asks the same man to cure inflation. Powell neither has the know-how nor the tools.

He doesn’t understand was causes inflation (shortages) nor how to cure it (spend to cure the shortages). He is applying leeches to cure anemia, hoping that won’t make the anemia worse.

Stagflation, here we come. Ludicrous.

In summary:

  1. Raising interest rates does not cure the causes of inflation, which are shortages of key goods and services.
  2. Reducing federal deficit spending does not cure the causes of inflation, but does lead to recessions.
  3. Increasing interest rates does not cure the causes of inflation, but does lead to recessions.

Conclusion: The Fed actions will not cure inflation but will cause a recession. Increased federal deficit spending to cure shortages will prevent a recession, and will not cause inflation.

Biden cuts student loans. The rich panic — and the right-wing lies about it.

Any service the federal government provides to help the average people runs into two major objections from the right:

  1. COST: The cost is unaffordable; it will cause inflation; it will burden taxpayers.
  2. FAIRNESS: It’s unfair to those  people who pay or have paid for the service

Objection #1, “Cost,” consists entirely of economic ignorance.

First, the federal government, being Monetarily Sovereign, never can run short of its own sovereign currency, the U.S. dollar. It can create infinite dollars at the touch of a computer key.

Former Fed Chairman, Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

Former Fed Chairman, 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.”

Thus, no federal expenditure or federal debt is “unaffordable,” an cost never should be an issue. The only issue should be, will the project benefit the American people?

Second, inflation always is caused by shortages of key goods and services, most often energy and/or food, never by federal spending.

There is no historical relationship between federal deficit spending (red) and inflations (blue).

Third, federal finances are different from state/local government, business, and personal finances. Uniquely, the federal government does not rely on any form of income when paying its obligations. State/local governments, etc., are monetarily non-sovereign, and so, can run short of dollars.

In fact, all federal tax dollars are destroyed upon receipt by the Treasury. Taxes are paid from checking accounts, the contents of which are part of the M1 money supply measure.

Upon reaching the Treasury, they become part of no money supply measure, effectively disappearing.

The federal government has the infinite ability to create dollars. There is no answer to the question, “How much money does the federal government have? Effectively, it has infinite dollars. Adding tax dollars to infinity does not change infinity.

Objection #2, “Fairness,” when taken to its illogical conclusion means the federal government never should initiate any new spending, because earlier, some people did not receive that aid, and today, some people will not receive that aid.

It’s the “If-I-didn’t-get-it,-they-shouldn’t-get-it” proposition, an appeal to selfishness and envy, but not to logical economics.

Here begins the explanation of right-wing logic from Reason.com:

Forgiving Student Debt Without Abolishing the Federal Loan Program Is Morally Wrong
Biden’s debt forgiveness will do absolutely nothing to change the incentive system that created this doom spiral in the first place.
Robby Soave | 8.24.2022 

President Biden formally unveiled his student loan debt forgiveness plan on Wednesday, and will use his executive authority to cancel up to $20,000 of debt for borrowers who make less than $125,000 per year.

“When I campaigned for president, I made a commitment that I would provide student debt relief,” said Biden. “I am honoring that commitment today.”

Biden will cancel $10,000 of federally held student loan debt for all borrowers who make less than $125,000 a year, and $20,000 for recipients of Pell Grants, which are need-based.

Biden’s action is nothing more than what government was formed to do, and has been doing, since its inception: Financially supporting people.

Social Security is based on that concept. So is every form of poverty aid. So is Medicare. So is free elementary and high school.

For example, Medicare first was signed into law in 1965, so the right-wing could claim it is  “unfair” to all those people who were sick before 1965.

Also, most of those dollars help people who have reached a certain age, so according to right-wing logic, it is “unfair” to those who are younger. The dollars also aid people who have certain medical conditions, so if you don’t have those conditions, Medicare suppoedly is “unfair” to you.

The policy will impact up to 43 million people and cost the government at least $300 billion (in all likelihood, it will cost much more than that).

Ultimately, U.S. taxpayers—many of whom did not take out loans to pay for school—will be on the hook for the money. A very conservative estimate of the cost per taxpayer is $2,100.

That is a statement of the Big Lie that federal taxes fund federal spending. The reality is that not one tax dollar you ever have paid, or ever will pay, funds any federal expenditure. Not one.

The federal government creates new dollars, ad hoc, to pay all its financial obligations. Federal taxes have only three   purposes:

    • To help the government control the economy by taxing what it doesn’t like and by giving tax breaks to what it wishes to encourage.
    • To assure demand for the U.S. dollar by requiring taxes to be paid in dollars.
    • To make you believe federal spending is funded by taxes, so you won’t ask for benefits.

This last purpose is an invention of the very rich, who can grow richer only by widening the income/wealth/power Gap.

“An entire generation is now saddled with unsustainable debt in exchange for an attempt, at least, at a college degree,” said Biden.

“The burden is so heavy that even if you graduate, you may not have access to the middle-class life that the college degree once provided.”

Millions of students cannot contribute to America’s strength because they are hamstrung by excessive debt. Millions more won’t even attend college for fear of falling into debt.

The problem for all of us is that America does not benefit from the brainpower of so many millions of our young people.

What is the right-wing solution? It has none other than to stop helping students. It is the same right-wing solution to all federal spending. Stop helping those who need help. Raise taxes on the poor. Reduce benefits for the poor.

In short, the conservative solution to the non-existent “problem” of federal spending is to stop helping the poor and middle classes (but to continue to give the rich tax breaks).

This is quite an indictment of the federal student loan program, so one might have expected that Biden’s generous debt forgiveness plan would be accompanied by serious reforms to the underlying system that produced such inequities.

After all, the government is conceding that its loan program has scammed millions of desperate people. Their situation is so dire, their prospects of repayment so dim, that Biden is requiring everyone else to pitch in and help them.

“Serious reforms” never are explained. But when you begin with the premise that the federal government can’t afford to help, combined with the reality that many people can’t afford college, no “serious reforms” are possible.

In essence, right-wing has created its version of an impossible perpetual motion machine and then challenges the left-wing to create one.

And no, not a single taxpayer will be “required to pitch in.” Federal spending costs federal taxpayers nothing.

Biden’s debt forgiveness plan will do nothing—absolutely nothing—to fundamentally change the incentive system that created the doom spiral in the first place.

Degree-seekers will continue to borrow large amounts of money to buy useless educations; indeed, they might feel even more to do so now that this precedent has been set.

The term “useless educations” tells you all you need to know about the right-wing attitude toward a college education which is: Rich kids should get them; the poor shouldn’t.

It is true that paying off student debts disincentivizes universities from financial efficiency. But there is a solution, and ironically, it is already in use.

I call it the “Medicare solution.” Medicare and its supplements pay doctors. So one might claim that doctors would raise rates to take advantage. But they don’t for a very simple reason. Medicare won’t let them. Medicare sets limits.

Have these limits hurt medical care? Well, yes, to some degree, mostly because the limits are too low, which is why we now have concierge doctors — doctors who charge a fixed, annual payment in addition to what they receive from Medicare.

And yes, these doctors are able, by dint of having fewer patients, to offer better, more personal care. But no one is left without healthcare, so long as they qualify for Medicare.

And therein lies the problem. Younger people generally don’t qualify. There is no reason why the federal government cannot fund Medicare for every man, woman, and child in America.

Similarly, there is no reason why the federal government cannot fund a college education for everyone who wants one.

Meanwhile, colleges and universities will have even less incentive to lower costs.

Economic researchers have often found that the government’s subsidized student loans cause educational institutions to jack up their prices for obvious reasons: If the feds cover the cost on the front end, no matter what it is, universities have every incentive to raise the sticker price.

Forgiving student loan debt exacerbates this problem since it encourages more reckless borrowing. Indeed, the Committee for a Responsible Federal Budget estimates the cumulative student debt level will return to current levels in just a few years.

Doctors and hospitals also have no incentive to lower cost other than the fact that Medicare won’t pay them if they try to raise prices.

A “College For All Who Want It” program could operate in the same way. Federal dollars could go only to those colleges that charge a federally agreed-upon tuition.

There are structural incentives that push students to borrow money that they can never hope to pay back, and the fact that so many people have fallen into crippling debt is a compelling reason to change these incentives.

No rule says the federal government must lure people down a path that leads to financial ruin with some frequency. Congress can sharply limit, or even end, this practice.

Right, Congress could eliminate student debt by paying for colleges, rather than lending money to students. There is not a single financial reason why the federal government lends to anyone. It does not need repayment of the dollars it has the infinite ability to create.

A one-off cancelation of some level of debt held by borrowers who happen to be in dire straits at this specific moment does nothing to fix the underlying problems; on the contrary, it exacerbates them. It is a slap in the face to everyone who either paid down their college debt or made different educational choices to avoid accruing it.

A one-off cancelation of some level of debt helps borrowers. It is easier to service a smaller debt than a larger one.

But it is true that it doesn’t fix the underlying problem which is: The federal government never should lend. It only should give.

And now, Mr. Soave finishes with one final statement of The Big Lie:

If Biden wanted to make the strongest conceivable case for forgiving some college debt, this course of action needed to be paired with serious changes to the entire higher education system. Otherwise, he is simply engaged in a vast transfer of wealth, taking hard-earned money from those who did not fall prey to the federal government’s scam and awarding it to those who did.

There is no transfer of wealth; there is no transfer of money from those who did not receive student loans. The money comes from the federal government which created it out of thin air.

As Ben Bernanke told Scott Pelley on 60 Minutes: “It’s not tax money… We simply use the computer to mark up the size of the account.”

ROBBY SOAVE is a senior editor at Reason.

Pitiful that while a “senior editor” does not understand basic economics, he writes about economics. No wonder the public is confused.

Rodger Malcolm Mitchell
Monetary Sovereignty

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

The strange connection between Elvis Pressly and the GOP’s Ron DeSantis

A friend convinced me to see the movie “Elvis.” First reluctantly, and then surprisingly, I saw an excellent flick that put a  human spin on what I previously had considered to be nothing more than a drugged-up entertainment idol. 1956 Picture of Elvis Presley on Stage Performing Singing Dancing King of Rock | eBay

A critical part of the film was the reaction of politicians to the pelvis-pumping entertainer.

They faked so much outrage at Pressly’s gyrations that they arrested him and threatened him with lengthy jail terms.

There is nothing like the demented shock a politician can exude when trying to prove his own strict morality.

According to the movie, Pressly had to join the U.S. army to escape that phony outrage and vengeful punishment for wriggling onstage.

And that is the Ron DeSantis connection.

DeSantis is of the same ilk as the oh-so-pure Pressly badgers. He feigns anger at those who would remind us of dark corners in American life.

Yes, this shining city on a hill has warts. Plenty of them.

We have bigots. To deny that fact is to deny the roundness of the world.

And yes, white Americans held black Americans as slaves. And even today, the traffic stop of a black driver sometimes escalates into the driver’s death.

And gay Americans have been, and still are, persecuted. As are emotionally troubled Americans. As are pregnant women.

But rather than exposing a disease as a step toward curing it, DeSantis wants to pretend it doesn’t exist. Not only pretend, he wants to punish anyone who tells the truth. This is how he demonstrates his self-proclaimed moral superiority to naive Trumpers.

Thus, the so-called “don’t say gay” bill makes the tacit, outrageous claim that Americans should pretend perfection, hide imperfections, and punish those who wish to shed light on the darkness. Prohibition history: How the ban on booze produced the modern American right.

America has nothing to fear from the truth. We are a great nation, but we are not without flaws.

Facing and acknowledging those imperfections demonstrates strength. Hiding them reveals cowardice and malevolence.

Just as pretending we had no COVID encouraged COVID, pretending we have no criminals encourages criminals.

Pretending we have no bigotry encourages bigotry.

Pretending our elections were rigged encourages anti-voting laws that really do rig elections.

Hiding the truth encourages the lie.

Every decade has its phony “holier than thou” extremist blue-noses. All religions suffer from them.

You saw them smashing liquor bottles during the Prohibition years. You see Sunday “blue laws.”

DeSantis’s denial of bigotry encourages the bigots. His denial of fact encourages the liars.

His denial of logic encourages the nuts. When Puritanical adults outlawed Elvis Pressly’s stage wriggles, they turned him into an idol.Gov. Ron DeSantis signs school safety bill, 3 months after approval

DeSantis gives parents the right to sue teachers and school boards for disclosing uncomfortable truths.

Each parent’s unique personal discomfort provides the basis for punishment.

DeSantis claims that uneducated parents are better able to teach children than are degreed teachers.

If so, why do we have public schools, and why do we educate teachers? Why not simply save money and tell parents to teach their own kids?

Shall we be guided by the lowest common denominator?

If this is the new America, the uncomfortable truth is that we have turned the asylum over to the inmates. The GOP sides with the coup plotters. The Supreme Court sides with gerrymanderers.

DeSantis, indeed the entire GOP, is a mean-spirited, hate-filled, Trumpist bully, sucking up to right-wing bigots with phony moral outrage.

America, you get what you vote for.

Rodger Malcolm Mitchell
Monetary Sovereignty

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

What the “don’t say gay” laws really mean

I live in Florida, so I always am interested in what our governor, Ron DeSantis (the world’s most anti-Trump Trumper), is doing.

Florida prosecutor removed for abortion stance sues DeSantis | Courts News | Al Jazeera
DeSantis

Recently, he has become quite concerned that our children were taught the wrong things according to conservative ideology.

If you share his concerns, here is how Gov. DeSantis has begun to protect your children from evil thoughts with his so-called “Don’t say gay” law:

Bans instruction or classroom discussion about LGBTQ issues for kindergarten through third grade. For older students, discussion about gay and transgender issues has to be “age appropriate or developmentally appropriate.”

It aims to “reinforce the fundamental right of parents to make decisions regarding the upbringing and control of their children,” according to the text of the legislation.

Empowers parents to sue the teacher and the school district over any teachings they don’t like.

It requires schools to tell parents when their child receives mental health services.

The purpose of the law is to prevent teachers from “sexualizing kindergartners” and “grooming young kids” because, as you know, that is what teachers try to do.

It also is well known that children decide to be gay, perhaps because being gay provides so many social benefits of popular acceptance.

Teaching children about alternative sexuality will cause children to choose to endure the pleasant bigotry and bullying that comes with being gay.

(In that regard, I cannot remember when I decided to be straight. It must have been before I was finished with the third grade.)

According to DeSantis and others of similar ilk, this represents the cause/effect link between learning about something and, as a result, deciding to be that thing. 

Further, because uneducated parents know more about teaching your children than do trained teachers, they should be given the right to determine what should or should not be taught to your children in public schools.

The last thing we want is some college-degreed teacher deciding how to teach your children when uneducated strangers are more capable.

Finally, children often have emotional problems and cannot trust their parent to have the knowledge, experience, and mature compassion to help. So they mistakenly come to a trusted, knowledgeable adult, like a teacher.

We want to put a stop to that.

The children should deal with the problem themselves or put their trust in the hands of a possibly immature, uneducated, drunken, drug-addled, strict, or even missing parent (choose one or more).

In that regard, I suggest similar laws be created to outlaw teaching the facts about:

  1. Naziism, lest it convinces children to become Nazis.
  2. Communism, lest it grooms children to become communists
  3. Gun violence, lest it foments the desire to shoot people
  4. Mass murders, lest it inspires children to become mass murderers
  5. Hate crimes, lest it spurs children to commit hate crimes
  6. Islam, lest it instigates children to become Muslims
  7. Dictatorships, lest children are galvanized to become dictators
  8. Bigotry, lest it inspires children to express hatred for people.
  9. Crime, lest it animates children to become criminals
  10. Bullying, lest it goads children to become bullies
  11. American history, lest it encourages children to kill and steal land from Native Americans.
  12. The Salem witch trials, lest it emboldens children to hunt down and kill women for being witches.
  13. Democracy, lest it induces children to accept the results of elections won by opposing candidates.
  14. Donald Trump, lest it creates a desire in children to become lying, cheating, cruel, ignorant, immoral, womanizing traitors to America.

Example: A child feels confused and disturbed by an attraction to someone of the same sex. The child might seek advice from a teacher because the child does not trust his/her parent.

By law, the teacher immediately must ignore the child or report to the parent, so the parent can beat these bad feelings out of the child. It is the Christian way to solve the problem.

Gov. DeSantis hopes you will not understand that giving parents the right to sue teachers for anything the parent doesn’t like is an example of “Cancel Culture.” He hates cancel culture and will do away with it.

That is what he hopes.

And I hope this clarifies your understanding of good, proper, conservative thinking.

Rodger Malcolm Mitchell
Monetary Sovereignty

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