The stunning differences between MMT and MS Sunday, Oct 7 2018 

BACKGROUND

You may find it strange that two economics philosophies – Modern Monetary Theory (MMT) and Monetary Sovereignty (MS) – can agree on the same, fundamental truth, and yet diverge into markedly dissimilar paths.

The fundamental truth of both MMT and MS is:

A money issuer cannot unintentionally run short of its own sovereign currency.

The U.S. government is a money issuer. It issues U.S. dollars. In the early 1780s, the U.S. government created laws from thin air, and some of those laws created the U.S. dollar, also from thin air.

The government created as many dollars as it wished, and it arbitrarily gave those dollars a value it related to an arbitrary number of ounces of silver. Subsequently, the federal government arbitrarily has changed the value of the U.S. dollar several times.

This unlimited power to issue unlimited money and to change its value, is known as Monetary Sovereignty. The federal government is sovereign over the dollar.

U.S. cities, counties, and states use dollars, but they are not the issuers of the U.S. dollar. They are not Monetarily Sovereign. They can run short of dollars.

Similarly, the euro nations, France, Germany, Italy, et al use the euro, but they are not the issuers of the euro, so they can run short of euros. The issuer of the euro is the European Union, which being Monetarily Sovereign, cannot unintentionally run short of euros.

Every form of money, including the U.S. dollar, is a form of debt.

All debt requires collateral. The collateral for federal money/debt is “full faith and credit.”

This may sound nebulous to some, but it actually involves certain, specific and valuable guarantees. For the U.S. dollar, these guarantees include:
A. –The government will accept only U.S. currency in payment of debts to the government
B. –It unfailingly will pay all it’s dollar debts with U.S. dollars and will not default
C. –It will force all your domestic creditors to accept U.S. dollars, if you offer them, to satisfy your debt.
D. –It will not require domestic creditors to accept any other money
E. –It will take action to protect the value of the dollar.
F. –It will maintain a market for U.S. currency
G. –It will continue to use U.S. currency and will not change to another currency.
H. –All forms of U.S. currency will be reciprocal, that is five $1 bills always will equal one $5 bill and vice versa.

Laws have no physical existence. You cannot see, hear, taste, smell, or touch a law. Having no physical existence, the creation of laws is unlimited. The government could create a billion laws tomorrow, if it so chose.

Every form of money in history has been created by laws, written, oral, or understood.

No money in history has had a physical existence. Gold, for instance, which does have a physical existence, is not and never has been, money.

In its raw form gold merely is a barter commodity, no different from any other material that is bartered. When gold is stamped into coins, the face value of the coins represents money, as a title to money, while the physical gold remains a barter commodity.

It is quite normal for a coin’s face value and the barter value to differ. This is true, not only of gold coins but of all coins — copper, nickel, silver, etc.

When the barter value exceeds the face value, coins often are melted down or simply sold by weight. At one time this even was happening to copper pennies.

Because gold has a physical existence, it cannot be created in unlimited amounts. Unlike U.S. dollars, gold coins cannot be created in unlimited amounts.

Just as a house title is not a house, and a car title is not a car, a paper dollar is not a dollar. Having no physical existence, dollars can be created in unlimited amounts by our Monetarily Sovereign federal government.

If it wished, the U.S. federal government could create many, many trillions of dollars today, at the stroke of a computer key.

“It’s our little secret. Don’t tell the people we don’t need or use their tax dollars.”

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.”

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.

Even entities that are not Monetarily Sovereign — banks, businesses, people, euro nations — have the power to create dollars, though this power is limited. Since all money is debt, all creators of debt can create money.

When you borrow from a bank, the bank credits your checking account, which increases the M1 money supply. Bank assets are not used for lending. The dollars you borrow are newly created.

By law, a bank cannot create unlimited dollars. It is limited to a percentage of its capital. (Contrary to popular myth, reserves do not limit bank lending, since reserves are freely available from the federal government.)

Even you can create dollars. When you use your credit card, the merchant receives new dollars, while you still retain your dollars until you pay the credit card bill.

Money is created in two ways and destroyed in two ways:

Dollars are created by:
A. Federal bill paying
B. All forms of dollar lending (mortgages, bank loans, credit card spending)

Dollars are destroyed by:
A. Federal Taxing
B. Repayment of loans

(State and local government taxing does not destroy dollars. Those tax dollars are stored in private sector banks. It is federal taxes that are destroyed upon receipt.)

Given its unlimited ability to create U.S. dollars, the U.S. government has no need to ask anyone for dollars — not you, not me, not China.

This means the U.S. neither levies taxes nor borrows for the sake of obtaining dollars to spend.

Even if all its tax collections and all so-called “borrowing” totaled $0, the U.S. government could spend unlimited amounts and pay unlimited creditors, forever.

What wrongly is termed “federal debt” actually is the total of deposits into T-security accounts. When T-securities mature, the federal government pays them off by returning the dollars in them to the T-security owner. No tax dollars are involved.

Neither you nor your grandchildren are liable for the federal “debt” (deposits).  Federal taxes do not pay for federal deposits.

The government creates new dollars by the very act of paying creditors. To pay a creditor, the federal government sends to the creditor’s bank instructions, telling the bank to increase the balance in the creditor’s checking account.

At the moment the bank obeys those instructions, new dollars are created and added to the money supply measure called, “M1.”

If the federal government creates new dollars by paying bills, and so does not need to tax, why indeed does it levy taxes?

MMT and MS agree on three reasons to levy taxes:
1. To control the economy by making some products, services, and activities more or less expensive.
2. To give the appearance that the government does not have the unlimited ability to create dollars, and therefore to discourage the populace from demanding unlimited benefits.
3. To force the populace to demand dollars, and given that Value = Demand/Supply, taxes provide value to money.

All of the above constitutes part of the underlying truths with which both MMT and MS agree.

WHERE MMT AND MS DIVERGE

It is from here, that the two philosophies diverge, and that divergence begins with reason #3, above.

Image result for dollar bill

A title to money, supported by taxes and by the full faith and credit of the government.

MMT claims that taxes are necessary to create demand, and thus give value to money.

A leader of MMT, Professor Randall Wray has written: “Taxes or other obligations (fees, fines, tribute, tithes) drive the currency.”

MS agrees that while taxes do create demand and do give value, they are not necessary.

It is quite possible for money to have value without the need for taxes.

There are, in fact, thousands of money examples that have demand unsupported by any form of tax. Some are listed here.

Additionally, product and service coupons represent money for which there is no tax. And, there are currencies in which taxes are collected, but have scant value.

Image result for coupons

A title to money, not supported by taxes but only by the full faith and credit of the manufacturer.

Many currencies have been used for tax payments, but yet are subject to hyperinflation.  Taxes did not rescue those currencies from value loss.

What then “drives” the demand for a currency? As with every other thing, Reward and Risk drive demand. (Demand=Reward/Risk)

For money, Reward is the acceptance by others, plus the interest paid to the holder of a currency.

That is why the Federal Reserve increases interest rates when it wishes to fight inflation (i.e, to increase the value of a dollar). Risk is the threat of inflation and the full faith and credit of the issuer.

Initially, the demand for a currency relies on the perceived value of the full faith and credit supporting the currency.

When you borrow, your note is a form of money, the demand for which is determined by your full faith and credit. Your lender considers your note to be money; your full faith and credit, not federal taxes, are key determinants of your note’s acceptance as money.

The question about whether taxes are necessary to provide demand for a currency, is one area of divergence between MMT and MS. But there is a far more important conflict, and it involves the most fundamental goals of each discipline.

The stated fundamental goal of MMT is to achieve full employment and price stability.

Understanding Modern Money:The Key to Full Employment and Price Stability
To achieve its goal, MMT proposes the Jobs Guarantee (JG). Supposedly, price stability is achieved by considering unemployed people as “buffer stock,” i.e. interchangeable pieces to be slotted into vacant jobs.

As Professor Bill Mitchell (no relation) inimitably describes it:

“The MMT Job Guarantee . . .  is a buffer stock mechanism which unconditionally hires at a fixed priced in order to redistribute labour resources from an inflating sector to a fixed price sector or from a zero bid state to a fixed price state.“

To an MMT economist, these are not viewed as people, but rather as minimum-wage, “labor resources” to be “redistributed.”

Report: A minimum-wage job can’t pay the rent anywhere in U.S. 

A full-time minimum wage isn’t enough money to rent an averagely priced one-bedroom home anywhere in the U.S., according to an annual report issued this week by the National Low Income Housing Coalition.

An “inflating sector” is one in which salaries are rising. MMT wishes to “redistribute” “labor resources” to a sector where salaries are stagnant.

The idea is that when workers are scarce, salaries ordinarily would rise, hypothetically causing inflation. But the government’s minimum-wage, “buffer stock” would come to the rescue of businesses, and hold salaries down.

And when workers are plentiful, salaries normally would fall, causing some element of deflation, but the buffer stock would receive minimum wages, which would mitigate the reduction in salaries.

But workers still would be stuck with minimum-wage salaries.

The MMT approach has problems, among which are:
1. There is no clear relationship among unemployment, inflation, and salaries. U.S. inflations have been related to oil prices.

Blue=median wages; Red=Consumer Price Index; Yellow=Unemployment;

2. The term “buffer stock,” implies a monolithic, machine-like workforce, where “labor resources” (aka “people”) can be slotted-in wherever needed, like dumb pegs in a business board. The term does not include such human variables as age, income requirements, job skills and requirements, geography and numerous other human preferential factors.

To MMT, you are not a person; you are “buffer stock” and a “labor resource.”

3. The easy availability of minimum-wage jobs discourages above-minimum-wage job availabilities, People would not be paid extra for above minimum-wage effort, so effort is discouraged.

The MMT’s JG proposes offering federal, state, local government and private sector jobs (an unknown percentage of each) to all those who want minimum-wage jobs.

Presumably, by adjusting the minimum wage, some measure of full employment can be achieved. “Full employment” does not mean total employment, but rather, everyone who wants a job that the government offers, gets one.

While the goal of MMT is full employment and price stability, MS suggests a far different direction.

The goal of MS economics is not to force people to labor, but rather to improve people’s lives.

This requires narrowing the Gaps between the various income/wealth/power groups, as expressed by Gap Psychology.

“Rich” is a comparative concept.  You are “rich” if you have $100, and the rest of the population has only $10, but you are poor if you have $1,000 and the rest of the population has $100,000.

So the two ways to become “rich,” are to receive more for yourself, or to force others to receive less. Either way will do.

It is a rule of human psychology that we want the income/wealth/power Gap below us to widen and the Gap above us to narrow.

Said another way, we wish to distance ourselves from lower income/wealth/power people, while coming closer to the higher income/wealth/power people.

This accounts for middle-income people resenting lower-income people receiving government benefits, even when those benefits cost the middle-income nothing.

Visceral hatred of immigrants is due to Gap Psychology — the fear that the poor are coming closer to us.

To achieve its goal of improving people’s lives, MS proposes the Ten Steps to Prosperity (below).

Rather than forcing people to work in order to receive minimum wages, the Ten Steps to Prosperity provides a path and a means to a better life.Image result for two separate paths

The Ten Steps give people the time and incentive to become educated in the area of their own choice, to work or not, where pleasant and convenient, and to become truly productive rather than toiling in a dead-end, make-work job.

While MMT’s JG views people as “buffer stock,” MS’s Ten Steps view people as human beings, with preferences, goals, and desires, who will contribute more to America in a meaningful job that pleases them, rather than in a mind-numbing task.

SUMMARY

In summary, MMT and MS begin at the same factual place, but then wildly diverge.

Modern Monetary Theory (MMT) promotes the economist’s business view that “buffer stock” (aka “people”) must labor and accede to redistribution, in order to receive government benefits.

Perhaps the fundamental error of MMT’s JG is the tacit and false belief that there are not enough minimum-wage jobs in America.

The economists of MMT seem to believe that a significant number unemployed people want, but are unable to find, minimum wage work at restaurants, casinos, beauty shops,  amusement parks, landscapers, garment factories, as cashiers, ushers, hosts, farm workers, home cleaners, etc.

Monetary Sovereignty (MS) promotes the humane view that the role of government is to improve people’s lives, and this does not require people to labor for minimum wages at onerous tasks.

Take your pick.

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

Economics in a thousand words Wednesday, Apr 27 2016 

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

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Science is the search for cause and effect. The human thought process first answers the question, “What?” then seeks, “Why?” and “How?”

Scientific thought begins with facts, from which are derived data and finally conjecture (hypothesis).

Scientific proof comes from physical evidence, predictability, and reproducibility. In chemistry, a physical science, the prediction can be made that combining chlorine with sodium will produce (predictability) common salt. So chemists repeatedly combine those two elements (reproducibility), and repeatedly produce salt (physical evidence).

Social sciences, of which economics is one, rely on the vagaries of human thought, emotion, superstition and belief. Predictability, reproducibility and physical evidence often are lacking.

What then constitutes proof in economics? There are no proofs in economics. There only are facts and data from which emerge hypotheses.

Hypotheses are not certainty. Facts and data can breed multiple hypotheses. The lack of scientific certainty can produce emotional certainty, with resultant firm beliefs leading to strong disagreements. (Think of disagreements about religion and politics.)

Though the science of economics is massively complex, and even includes its own mysterious technical jargon, the layperson can understand basic economics by learning just a few facts.

The following are what I believe to be those important facts of economics. If you, or any person, holds a conjecture that does not comport with these facts, this is your opportunity to eliminate a conflicting hypothesis from your beliefs.

Facts:

  1. All money is debt. There is no, nor ever has been, any form of money that is not debt.
  2. The value of debt/money is supported by collateral, which determines its acceptance.
  3. All money is created by debtors, who owe the holders of money, full faith and credit as collateral. The collateral for the U.S. dollar is the full faith and credit of the U.S. government.
  4. The secondary collateral for money may be a physical asset, for instance gold, a house, a car, land, etc. While gold, houses, cars and land are not in themselves money, additional collateral can increase the acceptance of money.
  5. All money is created by laws.  In the late 1770’s, the new U.S. federal government created laws from thin air. Some of these laws created the original dollars, also from thin air. Money-creation laws may be written, oral or mutually understood. All laws and all forms of money are no more than ideas, with no physical existence. The federal government’s legal device for money creation is deficit spending.
  6. Any person or group of people can create money, simply by passing or agreeing to laws that create debt. Such money creators are known as “borrowers” and “debtors.” Examples are: Banks that accept deposits (which they owe to depositors), mortgagors (who owe to mortgagees). In each case, the acceptance and Value of money is based first on the borrower’s full faith and credit.
  7. In addition to full faith and credit, the Value of money is based on Supply and Demand, according to the formula: Value = Demand/Supply.
  8. Demand = Reward/Risk. The Reward for owning money is interest, with increased rates causing increased Demand. The Risk of owning money is inflation.
  9. Laws have no physical existence. Having no physical existence, laws can be created in unlimited quantities by any person or entity, their only effective limit being their acceptance.
  10. Because all money is created by laws, money can be created in unlimited quantities by lawmakers. This is known as Monetary Sovereignty, the unlimited ability to create a sovereign currency by the creation of laws.
  11. Lawmakers never can unintentionally run short of their own sovereign currency. The simple expedient of passing a new law, gives the lawmakers unlimited ability to pay any debt denominated in their own sovereign currency.
  12. A lawmaking entity never needs to ask (by taxing or borrowing) outside entities for supplies of its own sovereign currency. The U.S., for instance, being Monetarily Sovereign, neither needs nor uses taxing or borrowing to pay its obligations.
  13. Federal financing is unlike personal financing. Federal deficits are not directly linked to federal debt. Deficits, the difference between taxes and spending, are not directly linked to federal debt, the total of deposits in T-security accounts at the Federal Reserve Bank. Federal deficits could exist without federal debt, and federal debt could exist without federal deficits.
  14. U.S. “borrowing” consists solely of providing safe storage and investment of its own sovereign currency, the dollar, via Treasury accounts (bills, notes and bonds) at the Federal Reserve Bank, i.e bank accounts. (The term “debt” for these accounts can be misleading in that unlike personal and business debt, FRB accounts are not a burden on the Monetarily Sovereign federal government. The FRB accounts are paid off, as are all other bank accounts, by simple transfers of existing dollars from the FRB accounts to checking accounts.)
  15. A Monetarily Sovereign entity pays debts denominated in its own sovereign currency, by creating its sovereign currency ad hoc, and delivering that sovereign currency to creditors. The entity neither needs, nor uses, nor even retains taxes denominated in its own sovereign currency.
  16. Inflation (i.e price inflation) is the loss in Value of a currency compared with the prices of goods and services. Value (or Price) = Demand/Supply.
  17. Inflation can be caused by any combination of:
    1. An increase in the Supply of a currency
    2. A decrease in the Demand for a currency
    3. An increase in the Demand for goods and services
    4. A decrease in the Supply of goods and services.
    5. An decrease in the Reward for owning money (interest)
    6. An increase in the risk of owning money (cumulative inflation)

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    You now know the most important facts in the science of economics.

    The following is a mention of selected data and conjecture. The purpose of this mention is to address certain common misconceptions about money.

    The sole purposes of taxing are political and as money-supply control.

    Politically, taxes give the illusion that they pay for spending. The purpose is to limit financial demands by the populace. (Many leaders fear that demands for money would grow excessively if the populace ever were to understand that the federal government is not limited in its ability to pay bills.)

    1. Leaders claim that money creation (incorrectly called “printing”) will lead to an uncontrollable inflation and,
    2. Leaders fear that the gap between the rich and the rest will narrow.

    (The gap is what makes the rich rich. Without the gap, no one would be rich, and the wider the gap, the richer they are. So, the rich want the gap to widen. They pay politicians, the media, university economists, and other influentials to cut deficit spending [money creation] and to tell the populace that the federal government is monetarily non-sovereign, federal taxes are necessary for federal spending, and federal “debt” is owed by taxpayers.)

    Historically, inflations have been caused by a decrease in the Supply of goods and services (primarily, oil and secondarily, food), with an increase in the Supply of currency being an exacerbating government response, not the initial cause.

    Historically, inflations have been prevented and cured via interest rate control and increased Supply of goods and services.

    Though some economists recommend controlling inflation by reducing the supply of money (increased taxation and/or reduced spending), these devices are determined by Congress, and therefore are slow, politically controversial and inexact. By contrast, interest rate increases can be accomplished quickly by the Federal Reserve and in small increments.

    For comparison:

    Meteorology, like economics, currently suffers limited predictability and reproducibility, primarily because of the mathematically chaotic nature of weather. Like economics, it one day may mature as a science, when computer modeling of historical data improves.

    Religion is not, and never will be, a science. It is based solely on one fact (the universe exists), with no data leading to the prime conjecture, the existence of one or more gods, and no proofs.

Rodger Malcolm Mitchell
Monetary Sovereignty

 

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Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually Click here
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)

10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.
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10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

THE RECESSION CLOCK

Recessions begin an average of 2 years after the blue line first dips below zero. A common phenomenon is for the line briefly to dip below zero, then rise above zero, before falling dramatically below zero. There was a brief dip below zero in 2015, followed by another dip – the familiar pre-recession pattern.
Recessions are cured by a rising red line.

Monetary Sovereignty

Vertical gray bars mark recessions.

As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.

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Mitchell’s laws:
•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money.
•The more federal budgets are cut and taxes increased, the weaker an economy becomes..

•No nation can tax itself into prosperity, nor grow without money growth.
•Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
•A growing economy requires a growing supply of money (GDP = Federal Spending + Non-federal Spending + Net Exports)
•Deficit spending grows the supply of money
•The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
•The limit to non-federal deficit spending is the ability to borrow.

Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.

•The single most important problem in economics is the Gap between rich and the rest..
•Austerity is the government’s method for widening
the Gap between rich and poor.
•Until the 99% understand the need for federal deficits, the upper 1% will rule.
•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..

MONETARY SOVEREIGNTY

Are there good deficits and bad deficits? Friday, Mar 4 2011 

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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While Congress struggles with plans to cut federal deficits (i.e. cut federal money creation), and simultaneously tries to encourage banks to lend (i.e increase private money creation), it might be instructive to see why this is exactly the wrong approach. Please go to a post I wrote last June (since updated), titled, Is federal money better than other money?

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

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

–Economic policy that’s stuck in reverse, by Senator Jeff Sessions Tuesday, Jan 25 2011 

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.

Here are some excerpts from an article titled, “Economic policy that’s stuck in reverse,” by Senator Jeff Sessions

Monday, January 24, 2011

As record levels of federal spending bring us ever closer to a tipping point, the Obama administration blissfully continues business as usual. We have seen no real plan, no strong leadership, no apparent willingness to confront the growing danger on the horizon.

At no point in his article does Senator Sessions say exactly what that “tipping point” or the “danger on the horizon” is. Will the federal government run out of money? Will we have uncontrollable inflation? Will taxes be forced up? The Senator never says, perhaps because the answer to all three questions is a resounding, “No.” Or perhaps because Senator Sessions has no idea what the answer is, and enjoys using scare words.

Last month, President Obama would agree to maintain current tax rates only if Congress would agree to increase federal deficit spending. We are headed toward a cliff, yet the president hits the accelerator.

Again, no explanation of “the cliff.” Does he mean he economic accelerator, the last thing the party not in power ever wants?

Meanwhile, others are moving in the opposite direction. England has a plan to cut its deficit by 86 percent in just four years. New Jersey Gov. Chris Christie has a plan to close his state’s funding gap without raising taxes. Even California’s new liberal governor has put forward a plan to cut state spending by 9 percent.

Here Senator Sessions demonstrates he does not understand the implications of Monetary Sovereignty. New Jersey and California are not monetarily sovereign, so cannot survive on tax money alone. They need to reduce spending or increase taxes. England is Monetarily Sovereign, but their politicians know as little about economics as do our politicians. If England ever were to reduce its deficit by 85%, they will have a recession or depression. (Worldwide, the nation with the smartest economists and politicians may be Monetarily Sovereign China, which so far has shown no fear of deficits, and thus has had the fastest recovery.)

Just days ago, former Federal Reserve chairman Alan Greenspan ominously warned that U.S. debt may lead to a bond market crisis in two to three years.

Reminder to Senator Sessions: This is the same Alan Greenspan, under whose financial leadership, the nation went into the worst recession since the Great Depression. He has no credibility, nor do the people who quote him. Imagine a Fed chairman who is unaware the U.S. federal government does not need to create T-securities out of thin air, because it already has the power to create dollars out of thin air.

A debt crisis continues to spread through Europe that could reach our financial markets any moment. Now is the time to act. Yet the president continues to resist any meaningful steps to secure our financial future.

Specifically what has the European monetarily non-sovereign debt crisis to do with U.S. budgets? How will reducing our budgets stave off the European debt crisis? Senator Sessions never says, because presumably he has no idea.

To begin turning the corner, I propose that any effort to raise the debt ceiling be tied to no less than a sustained 10 percent reduction of current discretionary spending. Though this is only a first step, it would finally be a step in the right direction – one the country can easily absorb.

A “reduction in spending” is a synonym for a “reduction in money creation,” which invariably has led to recessions and depressions. See: Growth summary. Senator Sessions doesn’t read history. But, O.K., he has me sold. Let’s start with cutting Congressional salaries and perks. Let’s eliminate Congressional health insurance, and let those folks pay for it themselves. No more “fact-finding” junkets to warm climates in winter. Reasonable, Senator?

On Tuesday, President Obama will deliver his State of the Union address. Soon after, he will come forward with a new budget. This is a defining moment for his presidency. His proposals cannot be timid. And he must demonstrate that he is at last willing to shed his Keynesian worldview.

Guarantee: Senator Sessions has no idea what a “Keynsian worldview” is. But it makes him sound learned.

As we enter the annual budget season, Washington will need to consider the kind of change this country has not accomplished since 1997 – when a strong Republican Congress passed a budget that converted soaring deficits into surpluses.

Hmm. Wasn’t it a Republican president named Reagan, who instituted our greatest post-war deficits? And is he really taking credit for the Democratic Clinton surpluses, which caused the Republican Bush recession? Ah, details, details.

We need a budget with a bold vision – like those unveiled in Britain and New Jersey; one that reduces both the size of the deficit and the size of the government. We need a budget that does not require tax increases as the price for spending cuts – because while the spending cuts may disappear, the economic drain of higher taxes will not. And we need a budget that turns us back from the cliff so we can head down a new road – toward leaner government, responsible spending and a thriving private sector.

Again, the cliff? What is that cliff? Will we ever be told? Probably not. Anyway, what we really need is Congressional leaders who understand economics, so we wouldn’t continue to average one recession every five years. Is that too much to hope for, at least from the ranking Republican on the Senate Budget Committee?

By the way, I recently was interviewed on radio station WNZF by Abby Romaine. Click this link to hear the show: Radio Interview

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity.

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