Tag: all money is debt

–Let’s destroy the food, clothing and shelter of the rich

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

Here’s an idea to help our economy. The rich have access to more food, more clothing and better shelter than have the poor. So let’s take some food, clothing and shelter from the rich and destroy it.

What? You don’t see how that can help the economy? You think it’s a stupid idea? Well, maybe. But isn’t it identical with what the politicians want to do right now?

You see, money is the food that makes the economy run. Today’s economy is starved for money. Yet, the politicians want to increase federal taxes on the rich, which will destroy some economic “food.” That’s right, federal taxes destroy money. The federal government doesn’t use taxes for spending. There is zero relationship between federal taxes and federal spending. (This is different from state and local governments, which do rely on taxes for spending.)

So, if you understand that taking food, clothing and shelter from the rich, and destroying it is useless and harmful, then you also understand that increasing federal taxes on the rich is equally useless and harmful. And if you understand it, why don’t your federal government representatives understand it?

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

No nation can tax itself into prosperity

–Mr. Felix Salmon quotes popular myths

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

On August 19, 2010, Felix Salmon posted:

“There aren’t many things that the government can do to try to boost the number of jobs in the U.S., but at the top of the list has to be attempts to boost lending to small and medium-sized businesses. . . This morning, a Treasury announcement showed one way that this can and should be done. Treasury’s CDFI Fund has awarded just over $100 million to 180 local financial institutions, including $750,000 to my own credit union. That kind of money, leveraged and lent out to small businesses, can do more for creating jobs than just about any other government program. The CDFI initiative is small beer, however, compared to the Small Business Jobs and Credit Act, which would create a $30 billion fund to be used to encourage small banks to lend to small businesses. Combined with standard bank leverage, that could mean $300 billion in new, job-creating loans.”

Isn’t it odd that people who want the federal government (which cannot go bankrupt) to borrow less, also want the private sector (which is subject to bankruptcy) to borrow more? Mr. Salmon quotes the myth of fractional-reserve banking. It doesn’t exist. A bank’s lending is not limited by its reserves. A bank could have $0 reserves and still lend billions. The federal government lends all banks sufficient money to cover any amount of reserves. Bank lending is limited by capital, not reserves.

Popular wisdom holds that banks are at fault for not lending enough. Nonsense. Rather than trying first to indebt business, the government first should provide business with profits. It does this by buying goods and services, in short, by deficit spending.

Business borrowing is not the first stimulus for business growth. Profits come first; then borrowing. To borrow today in hopes of profits tomorrow, is a dangerous game. It’s exactly what homeowners did and this kind of thinking was the single most important reason for our recession. Small businesses go bankrupt so often, because they borrow without profits to support their borrowing. A loan should leverage profits, not hopes.

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

No nation can tax itself into prosperity

–Britain’s grand experiment: The debt hawk agenda

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

This should be interesting.

Here are some quotes from The Economist:
“The budget, unveiled by George Osborne, the new chancellor of the exchequer, in June: To balance the books, he raised some taxes, notably VAT, but three-quarters of the savings will come from spending cuts. Most government departments will shrink by a quarter, though Mr Osborne excluded the National Health Service from his savagery. In the heated debate between Keynesian economists (who worry that a weak world economy needs more government spending) and fiscal hawks (who believe deficits must be tackled now to stave off Grecian disaster), Britain is the prime exhibit for tough love.”

“Mr Osborne plans to get the job essentially done by 2014-15. If all goes to plan, the deficit will fall from 11% of GDP in 2009-10 to 2.1% in 2014-15. The structural deficit, which strips out the effects of the economic cycle, will drop from 8.7% of GDP to 0.8%. On a similar basis, the government will by then be running a small surplus on the current budget, which excludes net investment (due to be slashed anyway over the next couple of years). This is a much faster retrenchment than the previous Labour government envisaged. It planned to return the cyclically-adjusted current budget to balance in 2016-17. Labour’s fiscal consolidation would have amounted to 4% of GDP by 2014-15; Mr Osborne is aiming at 6.3%.”

Never mind that Britain can’t have a “Grecian disaster.” Britain is monetarily sovereign. Greece is not. Completely different situations. Raise taxes; cut spending. Government runs a surplus. That is the debt hawk mantra. If Britain actually follows through on these steps (doubtful), it will suffer terribly.

All you debt hawks out there; what is your prediction?

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

No nation can tax itself into prosperity

–Why Medicare and Social Security are not “adequately financed”

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

Soon you will read about this new report:

2010 Social Security Trustees Report, August 6, 2010: “. . . the Medicare HI Trust Fund is adequately financed until 2029, and the Social Security OASI and DI Trust Funds are adequately financed until 2040 and 2018, respectively. . . significant longer term financial imbalances of the programs still need to be addressed .”

By:
Timothy F. Geithner, Secretary of the Treasury, and Managing Trustee
Hilda L. Solis, Secretary of Labor, and Trustee
Kathleen Sebelius, Secretary of Health and Human Services, and Trustee
Michael J. Astrue, Commissioner of Social Security, and Trustee

For Mr. Geithner et al, “adequately financed,” means tax revenues will equal or exceed spending. When, spending exceeds taxes, Medicare and Social Security will be “inadequately financed,” i.e insolvent.

To put it gently, Mr. Geithner et al do not know what they are talking about.

Visualize a scenario where there are zero federal taxes. The federal government has no income, not even any money, yet sends you a check for $10 trillion dollars. You deposit the check in your bank. Will the check bounce? No. Your bank will send the check to the Treasury, which will credit your bank and debit its own balance sheets for $10 trillion. The bank now has $10 trillion, which it credits to your account, allowing you to buy a few thousand Rolls Royces or the State of Montana, whichever you prefer.

The government can send you checks endlessly, in any amount. With each check, the government merely debits its balance sheet and credits your bank account. The government balance sheet is just a score sheet, though it misleadingly is called “debt.” Whether that score sheet reads $10 trillion or $100 trillion makes no difference to the score sheet. The only limit is the artificial “debt limit,” on which Congress votes periodically. There is no functional limit on what any balance sheet can read. The government can write a check of any size, despite zero taxes, credit your account for any amount, and enter any amount into its score sheet.

Taxes may be levied for several social reasons (cigarette and liquor taxes are examples), but supplying the government with spending money is not one of them. The government creates money by spending. It does not use tax money. Therefore, all federal debt is sustainable, endlessly.

Because Social Security and Medicare are federal agencies, the government can support them endlessly, without any FICA taxes at all, merely by mailing checks. Sadly, the wrongheaded beliefs of Mr. Geithner et al have led to the deterioration of Social Security and Medicare benefits.

At one time, the “normal retirement age for Social Security benefits was 65. Today, it is age 67 for people born after 1969. Mr. Geithner’s kind of reasoning has cost Americans two years worth of benefits. Further, these benefits are subject to income tax. Thus, you pay tax on your FICA payments and pay tax again on your benefits – a double tax. Finally, despite paying FICA taxes for years, the day you die all benefits cease. You could pay FICA for 40 years, and if you die at age 60, your estate will receive nothing – all because of the false belief that taxes pay for federal spending.

Medicare payments also are so restricted many Americans purchase supplementary insurance to cover what Medicare does not – all because of the false belief that taxes pay for federal spending.

We pay penalties for believing taxes support federal spending. We pay penalties for believing Medicare and Social Security could go bankrupt unless FICA is increased or benefits reduced. We pay penalties for believing the federal deficits are “unsustainable.” We pay penalties for the misinformation coming from our leaders. We pay penalties for believing them.

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

No nation can tax itself into prosperity