Tag: all money is debt

–Letters to the Chicago Tribune

The debt hawks are to economics as the creationists are to biology.

I read the Chicago Tribune. It’s my hometown newspaper. Over the years I have written many letters to the editors, trying to help them understand our economy. I have failed.

The Tribune editors still live in the gold standard world, where the money supply and the government’s ability to pay its bills is limited. In short, the Tribune editors are debt-hawks.

I should have done this long ago, but I now have decided to begin posting my Tribune letters all in one spot — here. I put today’s letter in this post, and subsequent letters will be in the comments, below.

My hope: Some of you will write to Pat Widder, chief economic correspondent (Can you believe they have one?), and give her the facts. Perhaps if she hears from enough people . . . who knows? Maybe she’ll decide to learn something. Her Email is: PWidder@tribune.com
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10/19/10

Pat, I don’t get it. Why do the Tribune editors intentionally resist knowledge?

In today’s editorial, “Stop Spending, Part I, your editors refer to the proposed $250 payment to each Social Securities recipient as “$14 billion that the government doesn’t have, putting the taxpayers of today and tomorrow deeper in debt.” Nothing could be further from the truth.

First, the government “has” an unlimited amount of money. The government became monetarily sovereign in 1971, the end of the gold standard, and since then, has had the unlimited ability to create money. To say the government does not “have” money is more misleading than the lies our worst politicians tell.

Second, although Illinois taxpayers do pay for Illinois spending, and Chicago taxpayers do pay for Chicago spending, U.S. taxpayers do not pay for U.S. spending. The reason: Illinois and Chicago are not monetarily sovereign; the U.S. is. And in a monetarily sovereign nation, taxpayers do not pay for government spending. There is zero relationship between federal taxes and federal spending. Taxpayers do not owe federal debt.

Are your editors being deliberately dishonest or are they too lazy to learn the facts? It has to be one of the two. When I see the typical, misleading political advertising these days, all I can think is, “My God, the Tribune is worse.”
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Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity

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–Elect me and I will build America

The debt hawks are to economics as the creationists are to biology.

Since this is the season for campaign promises, here are mine. When you elect me, I promise to: (O.K., I’m not running for office, but this is what I would do.)

Reform Congress

I will work to end the Senate filibuster rule. I find the notion of one person being able to thwart the will of Congress and the American people, and to prevent the appointment of federal judges and other federal personnel, to be repugnant. It’s a bad rule.
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Improve Social Security and Medicare

1. I will end FICA. This is the worst tax in America for reasons explained at FICA . Briefly, it’s a regressive tax that discourages hiring and discourages spending, and has no function. The federal government does not use FICA taxes.

2. I will reduce the retirement age back to 65 (early retirement at 62).

3. I will stop taxing Social Security benefits. Only a government mentality could pay people benefits, then tax the benefits. It makes as much sense to tax SS benefits as it would to tax Medicare benefits, i.e. no sense at all.

4. I will pay everyone, man or woman, married or single, who begins to claim benefits at age 65, the same Social Security benefit, regardless of prior earnings. Under the current system, the people who need benefits most are paid the least.

5. I will increase Medicare payments to doctors and hospitals to equal the current levels paid by private insurance companies. The current Medicare payment levels discourage doctors from accepting Medicare, and discourage young people from entering the medical profession.

6. I will include long-term care as part of Medicare. Current long-term care policies as too expensive for lower income people.

7. I will eliminate all “donut holes” and other similar limitations from Medicare Part D (drug coverage). I will cover all drugs, generic or branded, from day 1.
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Rescue the States, Counties and Cities

The primary reason the states, counties and cities are in such bad shape: They are not Monetarily Sovereign. Mathematically, inflation and population growth make long-term survival on taxes alone, impossible for any monetarily non-sovereign government. Such governments must have money coming in from outside, via exports and/or federal assistance. I will pay each state $10,000 per person in the first year, then $5,000 inflation-adjusted each year thereafter.
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Cut Income Taxes

I will cut income taxes from the bottom up. Each year, I will increase the standard deduction by $10,000. At the end of the first decade, the standard deduction would be $100,000, and the vast majority of taxpayers will file their taxes on a postcard. (This will impact charities, all of which except faith-based, should be supported by the government, anyway.)

I will eliminate business taxes. The economy is business. Taxing business = taxing the economy, exactly the opposite of what a growing economy needs.
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Support Education

I will pay all students a salary for the job of attending school. (See: Salary 1 and Salary 2 and Salary 3 ).
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Spend Liberally on Research and Infrastructure

I will offer federal support to a myriad of science research and development projects – medical, physical, military, energy – together with rebuilding our aging roads, bridges and dams. Under my watch, we will go back to the moon and on to Mars.
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Raise Interest Rates

If any debt hawks have read this far, they undoubtedly are foaming at the mouth about the federal debt being “unsustainable” (nonsensical for a monetarily sovereign nation) and inflation. There is no post-gold standard relationship between federal deficits and inflation, (See: Inflation) And federal deficit spending reduces unemployment (See: Unemployment ) there is a distant point, when federal spending could be sufficient to cause inflation. So, I will take peremptory action to increase the value of money, by increasing interest rates.

This will strengthen the dollar, providing us with more imports of better goods and services at lower prices. (See: Stronger dollar )

Higher rates also will be stimulative, as it will force the federal government to pay more interest on its debts, thereby adding money to the economy. See: Interest

On a related subject, I will increase FDIC to $1 million, to protect more Americans’ savings.

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So that’s a good start for my first year in office. What do you think? Do I have your vote?

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

No nation can tax itself into prosperity

–Do you know what you want? Deficits vs. exports vs. stronger dollar vs. inflation

The debt hawks are to economics as the creationists are to biology.

Here is a little test for you. Check all you believe will help the U.S. economy:
|__] 1. Reduced federal deficits
|__| 2. Increased exports (positive balance of trade)
|__| 3. Stronger dollar
|__| 4. Low inflation

Actually, it’s not so “little” a test. Many lay people, including most politicians and media people, would check all four. But you, being smarter, realize that #2 and #3 are incompatible. A stronger dollar makes our exports more expensive, while making imports cheaper. So to achieve increased exports or even a positive balance of trade, the dollar must weaken. This comes as a great disappointment to those who equate “stronger” with better. Sorry.

Now we get to the tricky pair: #1, reduced federal deficits vs. #2, increased exports. Who doesn’t want those?

Federal deficit spending increases the number of dollars in the economy, which many people reject because of fears about inflation. Ironically, these same people want increased exports – a positive balance of trade – which also increases the number of dollars in the economy. In short, federal deficit spending and exporting essentially are identical.

In the first case, the federal government buys, and pays with dollars, for goods and services. It is the customer. In the second case, foreigners buy, and pay with dollars, for goods and services. Foreigners are the customers. In both cases, dollars are added to the U.S.economy.

Admittedly, there is are differences. First, unlike exports, federal deficit spending adds to the federal debt, which most people mistakenly believe adds to our tax burden. However, because spending by a monetarily sovereign nation is not constrained by taxes, or any other income, there has been no historical relationship between tax collections and deficits, no will there be. See: Summary, numbers 9 and 9a. Your grandchildren will not, and actually cannot, pay for deficits. So this supposed “difference” amounts to a non-difference.

Second, while federal deficit spending adds to the world’s supply of dollars, our positive balance of trade does not. So, which is better? A growing economy requires a growing supply of money. So, any amount of inflation, plus population growth requires increases in the nominal supply of currency, just for GDP to remain level, let alone grow. Because the dollar is the world’s reserve currency, world GDP growth requires ongoing growth in the world’s supply of dollars. So, on balance, federal deficit spending is more beneficial to America and to the world, than is U.S. exporting.

Returning to the four questions, above, I suggest that this would be the ideal mix for America and the world:

1. Increased federal deficits, for world economic growth
2. Reduced exports (negative balance of trade), to supply the world with dollars.
3. Stronger dollar, for more imports, providing us with better goods and services at lower prices
4. Modest inflation, to stimulate present demand for goods and services.

Sadly, the U.S. federal government wants to do the opposite –reduce deficits, increase exports and reduce the value of the dollar — and that is just a sampling of reasons why we fall into a recession, on average, every five years. With a record like that, why do Americans believe what their leaders tell them?

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

No nation can tax itself into prosperity

–The trade deficit myth

The debt hawks are to economics as the creationists are to biology.

WASHINGTON (AFP) 10/14/10: The US trade deficit ballooned in August as the gap with China hit a fresh record, official data showed Thursday, suggesting further weakness in the economic recovery.

The Commerce Department said the August trade deficit rose nearly nine percent from July to 46.3 billion dollars. That was far worse than economists predictions of a 44.5 billion dollar gap. […] “The ongoing, American job-destroying leakage of national wealth to China confirms the House’s wisdom in passing the anti-currency manipulation bill last month,” said Alan Tonelson, a research fellow at the US Business and Industry Council.

“President Obama finally needs to wake up as well, urge Senate passage, and help American businesses and their employees fight foreign protectionism,” he said.

Look at the pejorative words used to describe the trade deficit: “Ballooned,” “weakness,” “far worse,” “job-destroying,” “leakage of national wealth,” “foreign protectionism.” Sounds like we are one step from financial disaster, and the trade deficit is pushing us there.

But what does “trade deficit” mean? Simple: It means foreign countries send fewer of our dollars to us, than we send to them. Where did the dollars we send to foreign countries come from? We created them out of thin air. And were did the dollars foreign countries send to us come from? We created them too, also out of thin air.

The U.S. is monetarily sovereign, meaning the U.S. federal government has the unlimited ability to create dollars – as many as it wants, whenever it wants. Given that unlimited ability, why would we care how many U.S. dollars foreign governments send us?

Further, our imports help supply us with the world’s best, cheapest, most convenient, most desirable goods and services, else we wouldn’t import them. We get the best of everything, and all we have to do is give the world our dollars, which we create at the touch of a computer key. So what’s the problem?

“But,” you say, “all this importing destroys American jobs.” Oh, really?

First, let’s be honest, it really isn’t jobs we want. We want money. Not that Americans are lazy, but for the vast majority of people in this world, jobs merely are a means to an end, and the end is acquisition ability.

So when we bemoan unemployment, we really bemoan lack of income. Unemployment and employment figures should be replaced with acquisition-ability figures. If domestic unemployment were 90%, but every man, woman and child had the financial ability to acquire everything he/she wanted, we would be a wealthy country. (Think of a nation with all the citizens living on generous, guaranteed pensions, and all the work being done by foreigners – something similar to an extreme Saudi Arabia.)

Today, the problem is not that the economy is starved for jobs. The problem is that the economy is starved for money. Ironic isn’t it, when you consider that our own government can create all the money we need.

Second, the main inhibition of job creation is not foreigners working for low wages and receiving “strong” money. The main problem is taxes. We want our businesses to be more competitive, so what do we do? We tax them.

We want businesses to hire more people, so we make them pay a FICA tax on every single hire. And we make them pay a tax on the profits they otherwise could use for expansion and hiring.

Then we tax the employees, so they have less to spend on goods and services. And we want more investment, so we tax the profits on investment. And when the federal government is finished taxing, the states levy more taxes, and the counties levy even more and the cities levy more, yet.

And when every American is taxed, taxed and taxed again, we blame foreigners for ruining our economy.

Rather than railing against foreign protectionism, our first step should be to cut taxes – especially since the federal government, the unlimited creator of dollars, neither needs nor uses tax money.

If the federal government immediately would eliminate FICA, and support Social Security and Medicare by deficit spending, the recession would end, today. And if the federal government would send each state a flat amount of money according to population – say $10,000 per person – we would have instant prosperity for all states, counties and cities.

Trade deficit merely means sending more dollars overseas than “overseas” sends to us. This leaves us “starved” for dollars, and all the while we are the sole creators of dollars. Does this make sense?

And oh yes, deficit spending has not caused inflation since we went off the gold standard in 1971. Not only are we a long way from inflation, but inflation easily is cured. So let’s not use phony fears of inflation as an excuse for keeping those economy destroyers called “taxes.”

Oh, you don’t believe me about inflation? Well consider this. The effect of exports is to bring dollars into the U.S. economy, which is identical with what federal deficit spending does. So if you like exports, you should like federal deficit spending, for exactly the same reason.

“The fault is not in our foreign neighbors, but in ourselves.”

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

No nation can tax itself into prosperity