Is it possible for one human being to get so much wrong about our economy?

If someone sets a world record, perhaps they could expect applause. In that vein, let’s give a massive round of applause to Veronique de Rugy, who has set a world record for economic myth dissemination.

Her bio reads:

Veronique de Rugy is the George Gibbs Chair in Political Economy and Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist.

Her primary research interests include the US economy, the federal budget, taxation, tax competition, and cronyism.

Her popular weekly columns address economic issues ranging from lessons on creating sustainable economic growth to the implications of government tax and fiscal policies.

She has testified numerous times in front of Congress on the effects of fiscal stimulus, debt and deficits, and regulation on the economy.

Presumably, she believes in using research results to come to her conclusions. Or at least, that is her claim. But what research supports the following nonsense?

WATCH: See How Leeches Can Be A Surgeon's Sidekick | WAMU
The Fed applies leeches to cure anemia. Ms. de Rugy agrees.

Congress and the Federal Reserve Could Be Setting Us Up for Economic Disaster
If lawmakers keep spending like are, and if the Fed backs down from taming inflation, then the government may create a perfect storm.
VERONIQUE DE RUGY | 12.29.2022 12:20 PM

In the final week of 2022, we Americans can foresee two significant economic risks in 2023. The first one is a probability that the Federal Reserve will get weak-kneed and stop raising interest rates before inflation is truly under control.

The second risk is that Congress will continue to spend and borrow money irresponsibly.

The likely mix of these two hazards would all but ensure that our economic misery lasts much longer than necessary.

At this point in the article, we don’t yet know which “misery” she means, especially since she considers not raising interest rates or increased spending “hazards.”

And by the way, the federal government never borrows dollars. It has the infinite ability to create its own sovereign currency, the U.S. dollar. So why would it ever borrow what it has the endless ability to create?

If ever it did borrow, it quickly could pay the dollars back simply by creating dollars.

Let’s start with the first risk.

In theory, to tame inflation, the Fed will need to push real interest rates not only high—as it has already done—but higher than the highest rate that the Fed is now targeting, and in fact much higher than most investors can remember.

Substitute the word “myth” for the word “theory,” and you have a correct statement. In the history of the universe, inflation has never been caused by interest rates that were too low. Anyone so devoted to research as Ms. de Rugy claims to be, should know this.

I challenge her, or anyone else, to provide an example of inflation caused by low-interest rates or cured by high interest rates.

There have been thousands of inflations worldwide, regular inflations and hyperinflations, and eventually, almost all have been cured — but never by raising interest rates.

All inflations in history have been caused by shortages of critical goods and services, and those cured were cured only when the shortages were cured.

It even is possible for high rates to cause shortages, i.e., cause inflations, by interfering with production.

The primary effect of raising interest rates is to reduce demand and supply. These reductions make the de Rugys of the world think that is the way to cure inflation. The reasoning is if demand drops, then people won’t pay higher prices. (If supply decreases, prices will rise, but de Rugy doesn’t consider that.)

What de Rugy et al. don’t understand is that recession is another word for reduced supply and demand.

GDP = Federal Spending + Non-federal Spending – Net Imports. Thus, reduced spending = recession.

In short, de Rugy wants to cure inflation by causing a recession. Not only is that nuts, but it can also lead to stagflation, the worst of all worlds.

Such high rates will have two main effects: popping the stock market and real estate market, along with any other asset bubbles that we’ve witnessed in recent years.

The economic downturn that would follow would increase unemployment rates significantly.

Here she admits she wants to “pop the stock market and real estate market,” aka cause a recession (“economic downturn”, maybe a depression.

She also admits she wants to “increase unemployment rates significantly.” Presumably, her employment is secure, so she feels comfortable increasing other people’s unemployment.

On the other hand, if the Fed stops tightening too early, we will continue to suffer high inflation and slower growth.

When is “too early” to begin curing inflation? She never says.

And why does tightening (raising interest rates) “too early” lead to more inflation? And why does “too early” cause slower growth when “the right time” doesn’t slow growth? She never explains.

Her whole concept is a confusing mess.

The rise in unemployment might be pushed back for a while, but because no inflationary policy can continue forever, it will inevitably arrive.

And the longer we delay its arrival, the worse it will be. Unfortunately, facing such challenges, I worry that Fed Chair Jerome Powell will not make the better (and more complex) choice and hold the line on inflation.

Does anyone understand what the hell she is saying? “Too soon,” “too late,” “hold the line.” What exactly is she suggesting Powell do?

It doesn’t matter because her suggestions are so deviant from reality that trying to understand them would be useless.

First, the pressure that he already faces from, for example, Sens. Bernie Sanders (I–Vt.) and Elizabeth Warren (D–Mass.) to stop raising rates will only intensify as the economy slows down and the unemployment rate increases.

Yes, Sanders and Warren are likely to say, “Stop raising rates” when we start sliding into recession, and people lose jobs. To de Rugy, Sanders and Warren are wrong. She apparently wants full foot on the brakes so we can go into complete depression.

Second, as interest rates increase, the amount of interest payments on the government’s debt will grow.

With no money to pay those interest obligations, the Treasury will increase borrowing—a move that will further raise the budget deficit.

This is beyond ignorant. She believes there will come a time when the government runs out of money. This person supposedly specializes in “the US economy, the federal budget, taxation, tax competition, and cronyism.” Incredible.

She also believes that the Monetarily Sovereign U.S. government, which has the infinite ability to create U.S. dollars, resorts to borrowing U.S. dollars.

What do real experts think?

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

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.”

Statement from the St. Louis Fed:
“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.”

Get it, Ms. de Rugy? The government cannot become insolvent. It does not borrow dollars (i.e. it does not depend on credit markets). It ca,n produce as many dollars as it wishes.

So there never can be a time when, as you said, the government “will have no money to pay those interest obligations.” It always has money, and you should know that.

When complaints about rising deficits become loud, it won’t be long before President Joe Biden’s administration, and others in Congress demand an end to the interest rate hikes.

This practice is called fiscal dominance and it creates a real risk of further fueling inflation.

Never in history has an end to interest rate hikes caused inflation.

Finally, there is the risk that market actors will also pressure the Fed to protect them against losing the inflated wealth they’ve reaped as a result of two decades’ worth of irresponsible monetary policy.

“Irresponsible monetary policy is Ms. de Rugy’s term for a growing economy. By formula, adding dollars to the economy causes an increase in Gross Domestic Product, not inflation.

In fact, as of now Wall Street investors are showing signs that they believe the Fed may soon abandon its policy of high-interest rates to avoid a recession.

It’s hard to blame them because that’s precisely what the Fed has done in the past.

That’s right. In the past, high-interest rates have led to recessions, which is precisely what Ms. de Rugy recommends.

So, will the Fed blink? Politicians aren’t known for doing the right thing when times get hard, and it would be naïve to assume that Fed chairs are immune from this.

Powell, too, is a politician, as he demonstrated with his unwillingness to acknowledge the surging inflation problem—created by the government’s own spending and stimulus—until it was too late. He could surprise us, of course, by courageously enforcing much-needed monetary discipline.

No, no, no. The inflation was NOT created by the government’s spending. The inflation was created by COVID-related shortages of oil, food, transportation, computer chips, lumber, housing, etc.

The spending and stimulus prevented a depression.

The second threat comes from politicians in Washington, right and left, doing their best to make the mess caused by the Fed just that much worse.

Indeed, just as the Fed is pushing interest rates sharply higher, irresponsible “leaders” are launching a new “spend and borrow” spree to the tune of $1.7 trillion all wrapped in a reckless end-of-the-year omnibus bill.

The Fed is pushing interest rates higher, which will do nothing to cure the shortages that cause inflation.

However, the $1.7 trillion spending bill may defeat inflation if it is directed toward obtaining and distributing the scarce goods and services.

This 4,155-page bill is guaranteed to be inflationary.

No such thing. The bill will not cause inflation. It will grow GDP by $1.7 trillion.

It will make Powell’s job harder and the rate hikes needed to control inflation larger. That will only increase the chance that the Fed will cave to pressure to extend the crisis further into the year 2023.

The Fed may cave to pressure — by raising interest rates and thereby creating more inflation together with a recession.

But that’s assuming the Fed won’t cave to the administration and monetize all that new borrowing, adding more fuel to the inflation fire.

There is no “borrowing” to monetize. The U.S. government does not borrow U.S. dollars. PERIOD. 

Contrary to popular misunderstanding, T-bills, T-notes, and T-bonds do not represent federal borrowing. They represent deposits into privately owned accounts.

The deposited dollars never are touched by the federal government. They are owned by depositors.

The government creates its own dollars each time it pays a bill.

The bottom line is this, people: Grab your antacids because if our leaders don’t start thinking differently, 2023 is likely to be painful.

The above statement is the only correct line in Ms. de Rugy’s entire article.

SUMMARY

Federal spending increases GDP. The U.S. federal government cannot run short of dollars, so it never borrows dollars. Inflations always are caused by shortages of goods and services and never by federal spending.

Government spending does not lead to shortages. Government spending can cure shortages by aiding the production and obtaining of scarce goods and services.

Ms. de Rugy simply does not understand economics. She advocates causing a recession to cure inflation, like applying leeches to cure anemia.

You are correct if you believe I am angry at Ms. de Rugy. If she does research, she should know that raising interest rates does not cure the shortages that cause inflation.

Ms. de Rugy is in a position to promulgate the truth, yet she spreads a lie that harms America. And yes, that makes me angry. It should make you angry, too.

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 People’s Lives.

MONETARY SOVEREIGNTY

Economics and a tin foil hat

Image result for make america ignorant again

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It takes only two things to keep people in chains:

The ignorance of the oppressed
and the treachery of their leaders.

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Imagine you have been feeling unusually tired, so you visit your doctor, who performs various tests.  Here is the resultant conversation:

Doctor: Based on the results of your tests, you have severe anemia. You don’t have enough healthy red blood cells.
You: What do you recommend?
Doctor: Leeches.
You: But don’t leeches remove blood. How will that help?
Doctor: If you have too many red blood cells, eventually that will cause strokes, heart attacks, embolisms, even death. Excessive red blood cells is not sustainable.
You: But I thought I had too few red blood cells, not too many. Shouldn’t I be taking iron or vitamin B-12 or something?
Doctor. Oh, no. Excessive iron eventually will cause heart attack or heart failure, diabetes mellitus, osteoporosis, hypothyroidism, and a bunch of other symptoms. And too much vitamin B-12 eventually will cause a rare form of acne. Yes, excessive iron and B-12 are not sustainable.
You: When would the adverse effects of adding iron and vitamin B-12 to my diet occur.
Doctor: It’s impossible to say.
You: So what should I do?
Doctor: Leeches.

In summary, your doctor said you have too few red blood cells, then said the usual cures — iron and B-12 — cannot be sustained and will cause many diseases, and instead suggested removing your blood cells via leeches.

Can you draw any parallels with the following excerpt, which essentially expresses the beliefs of today’s economics:

Sustained Budget Deficits: Longer-Run U.S. Economic Performance and the Risk of Financial and Fiscal Disarray
Allen Sinai, Peter R. Orszag, and Robert E. Rubin, Brookings Institute

The U.S. federal budget is on an unsustainable path. In the absence of significant policy changes, federal government deficits are expected to total around $5 trillion over the next decade.

Such deficits will cause U.S. government debt, relative to GDP, to rise significantly. Thereafter, as the baby boomers increasingly reach retirement age and claim Social Security and Medicare benefits, government deficits and debt are likely to grow even more sharply.

The scale of the nation’s projected budgetary imbalances is now so large that the risk of severe adverse consequences must be taken very seriously, although it is impossible to predict when such consequences may occur.

Let’s pause to examine exactly what a federal deficit is. A federal deficit is the difference between federal tax collections and federal spending.

Thus, a federal deficit is the net number of dollars the federal government adds to the economy, aka the “private sector.”

Dollars are the lifeblood of our economy. Our economic growth is measured in dollars. Gross Domestic Product (GDP) is our usual economic measure; it is a dollar measure.

Because GDP is a dollar measure, GDP rarely can grow while the dollar supply is falling

The graph below shows the essentially parallel paths of GDP growth vs. perhaps the most comprehensive measure of the dollar supply growth, Domestic Non-Financial Debt:

Because deficits and GDP growth go hand-in-hand, why do conventional economists argue against deficits? What are the “severe adverse consequences” to which the authors refer?

Again from the Brookings article, here is what the “science” of economics tells you:

Conventional analyses of sustained budget deficits demonstrate the negative effects of deficits on long-term economic growth.

This is what economists say, though the facts speak otherwise, as you easily can see from the above graph.

What school of thought deliberately ignores easily obtainable facts in favor of intuitive belief? No, not science. Religion.

Economics is a religion, dressed in the clothing of a science.

Under the conventional view, ongoing budget deficits decrease national saving, which reduces domestic investment and increases borrowing from abroad.

The authors make the amazing claim that adding dollars to the private sector reduces domestic investment.  How giving dollars to consumers and to businesses can reduce investment, never is explained, simply because it makes no sense, whatsoever.

. . . and increases borrowing from abroad.

Obviously, adding dollars to the private sector will not cause you or your business to borrow, so we assume the authors mean the federal government will have to borrow.

But the federal government is Monetarily Sovereign. It has the unlimited ability to create brand new dollars, ad hoc, every time it pays a creditor. It never can run short of dollars, unintentionally.

Not only does the federal government (unlike state and local governments, which are monetarily non-sovereign) not need to borrow, but indeed it does not borrow.

Those T-securities (T-bonds, T-notes, T-bills) which supposedly are evidence of borrowing, actually are evidence of accepting deposits in T-security accounts — similar to bank savings accounts.

The government issues T-securities, not to obtain those dollars it can create forever, but rather to help control interest rates, to provide safe dollar investments, and to provide a basis for the dollar being the world’s reserve currency.

The article then follows with pseudo-scientific gobbledegook, which I will try to explain:

Interest rates play a key role in how the economy adjusts. The reduction in national saving raises domestic interest rates, which dampens investment and attracts capital from abroad.

The Fed, not national saving, arbitrarily controls interest rates via the Fed funds rate. Actually, it is interest rates that increase saving rather than the other way around. Capital coming in from abroad is economically stimulative — a good thing.

The external borrowing that helps to finance the budget deficit is reflected in a larger current account deficit, creating a linkage between the budget deficit and the current account deficit.

The reduction in domestic investment (which lowers productivity growth) and the increase in the current account deficit (which requires that more of the returns from the domestic capital stock accrue to foreigners) both reduce future national income, with the loss in income steadily growing over time. 

But, wait. The authors express a concern about the “loss of future national income, ” meaning the economy will lose dollars.

But losing dollars is exactly what happens to the economy when the federal government runs a surplus. It is a federal deficit that adds dollars to the economy.

In short, conventional economists decry deficits that add dollars to the economy, while simultaneously decrying deficits they claim will subtract dollars from the economy.

This is science?

The authors of the article then go off on a magical mystery tour of what deficits will cause:

Substantial ongoing deficits may severely and adversely affect expectations and confidence, which in turn can generate a self-reinforcing negative cycle among the underlying fiscal deficit, financial markets, and the real economy:

  • As traders, investors, and creditors become increasingly concerned that the government would resort to high inflation to reduce the real value of government debt.

The common, nonsense idea is that inflation makes debt easier to pay with cheaper dollars. But so-called federal “debt” consists of T-security deposits, which the government pays off by simply transferring the dollars that exist in T-security accounts back to the checking accounts of T-security holders.

Whether, at the time of redemption, a dollar is “worth” $10 or $0.01 is completely irrelevant. Existing dollars, whatever their worth, are transferred. Period.

  • The fiscal and current account imbalances may also cause a loss of confidence among participants in foreign exchange markets and in international credit markets, as participants in those markets become alarmed not only by the ongoing budget deficits but also by related large current account deficits.

First, to clarify the gobbledegook, there may be a loss of confidence in a certain currency, but there never is a loss of confidence in “foreign exchange markets.”

Foreign exchange rates are determined by inflation, which in turn, is determined by interest rates and by product scarcity. When a nation raises its interest rates, it increases the demand for its currency. It is said to have “strengthened its currency.”

The U.S. has the financial ability to strengthen or weaken its currency at will, or simply to determine exchange rates at will.

  • The increase of interest rates, depreciation of the exchange rate, and decline in confidence can reduce stock prices and household wealth, raise the costs of financing to business, and reduce private-sector domestic spending.

Apparently, there are different levels of gobbledegook, because this last paragraph has reached a higher level yet.

“The increase of interest rates” and the “depreciation of the exchange rate” are exact opposites. The effect of increasing interest rates is to increase exchange rates. It’s like saying that increases of demand reduce prices. Total nonsense.

An increase in rates can reduce stock prices, but this does not “reduce household wealth.” Average household wealth is more associated with the total money supply (which is increased by federal deficits), and by the Gap between the rich and the rest (which is narrowed by deficit spending, especially on social programs.)

Incredibly, subsequent paragraphs exceed prevous gobbledegook standards. Here are a few of the “Henny Penny, the sky is falling” excerpts:

  • The disruptions to financial markets may impede the intermediation between lenders and borrowers
  • . . . potentially substantial increases in interest rates
  • . . . become relatively illiquid
  • . . . adversely affects the balance sheets of banks and other financial intermediaries;
  • . . . reduce business and consumer confidence
  • . . . discourage investment and real economic activity
  • . . . worsen the fiscal imbalance
  • . . . harmful impacts on the economy
  • . . . substantially magnify the costs
  • . . . asymmetries in the political difficulty of revenue increases and spending reductions

Oh, the list of problems goes on and on, and yet even a modest bit of scientific research shows these problems absolutely do not happen. How can we be so sure?

History.

Back in 1940, when the Henny Penny’s claimed the federal debt was a “ticking time bomb, the debt was $40 Billion. And every year thereafter, authors of “learned,” scientific, economics publications have used the “ticking time bomb” example or something similar, to “prove” the federal debt and deficit are “unsustainable.

Today, the federal debt has grown to $14 TRILLION, and we still are sustaining. The ticking time bomb still is ticking, and economists, having learned nothing, still write the same ridiculous articles.

Science changes because of discoveries. Read almost any science book from 100 years ago, and you will find it substantially out of date. And 100 years from now, today’s science books will be obsolete.

What does not change? Religion. The Torah, the Christian Bible, the Koran, all remain quite similar to what they were 100 years ago or 1000 years ago, with only the most minor of linguistic adjustments.

While science is based on evidence, religion is based on belief.

And that is why economics, as currently practiced, is a religion, or at best, a failed science, akin to astrology, phrenology, creationism, homeopathy and a tin foil hat.

Sadly, today, tomorrow, and in the future, you will continue to read the same anti-science about the federal debt. The religious are a stubborn people.

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

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•All we have are partial solutions; the best we can do is try.

•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 no matter how much it taxes its citizens.

•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.

•Until the 99% understand the need for federal deficits, the upper 1% will rule.

•Progressives 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 the rich and the rest.

•Austerity is the government’s method for widening the Gap between the rich and the rest.

•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..

MONETARY SOVEREIGNTY

–The depression cometh

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Historically, whenever dollars have been taken from our economy, or even when dollar growth has been reduced, the economy has gone into recession or depression. (See: Cause of recessions and depressions)

Congress and the President insist the federal deficit must be reduced. There are but two methods for reducing the deficit: Increase federal taxes and/or reduce federal spending. Both methods reduce the number of dollars in the U.S. economy.

7/29/11: Roya Wolverson, Time Magazine: “The bad news just keeps coming. The U.S. economy grew even less than expected in the second quarter, at a rate of 1.3%, down from what many economists predicted would be 1.8% or higher. The reasons for the continued lackluster performance haven’t changed. Consumers, squeezed by higher gas and other prices, are buying less of everything from electronics to meals out to new furniture.”

Recently, I posted, “Based on where Obama and the Tea/Republicans are headed, there will be a depression (not just a recession) next year. Only a miracle of realization, by both parties, can save us now. (See: Depression in 2012)

7/30/11: Alan Rappeport, Pharmaceuticals Magazine: “Merck, the US drug company, will cut as many as 13,000 jobs, or 13 per cent of its workforce, as it looks to slash costs and invest in emerging markets. The cuts, to be achieved by 2015, follow those announced last year when Merck said it would reduce its staff by 17 per cent. Merck has been looking to achieve the savings it promised when it acquired Schering Plough for $41bn in 2009.”

Congress and the President remain ignorant. They continue to call for increased taxes and/or spending cuts. The depression cometh.

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


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

MONETARY SOVEREIGNTY

–Welcome to the United States of Lemming

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Welcome to the United States of Lemming.

Like the proverbial lemmings, who commit suicide by following their leaders off a cliff, our leaders take our nation off an economic cliff and we blindly follow. In the United States of Lemming, there is a myth and there are facts. “Everyone” believes the myth, and “no one” believes the facts.

Here is the myth. The federal deficit and debt are too high, unsustainable, a drag on our economy, a burden on our government and an impediment to economic growth.

Here are the facts:

1. Reduced deficit growth leads to recessions. Look at this graph and tell me when recessions begin and how they are ended:

Recessions begin when deficit growth declines

That’s right. Recessions begin after a series of declines in deficit growth. Recessions end with increases in deficit spending. Now our government again plans to cause the next recession by cutting deficit spending.

Our lemming government leads us over the economic cliff.

2. Federal deficits = net non-federal savings – current account deficit. This is an accounting identity.

The current account = money flowing out the the country. This includes imports above exports (balance of trade), interest paid and foreign aid. For the U.S., the current account almost always is negative, meaning more money flows out of the country than into the country. To keep the domestic money supply from falling, the federal government always must run a deficit.

The rest of the deficit goes to net savings. In simplest terms, net savings are your dollars minus your debt. If you have $1,000 in the bank, but owe $200, your net savings are $800. The only source of net savings is federal government deficits. Without federal deficits, there can be no net savings. This is an accounting fact.

A deficit reduction of $1 trillion = a net savings reduction of $1 trillion for the non-federal sector (you and me). With 300+ million people in America, every $3 trillion in deficit reduction causes a $10,000 loss in each person’s net savings. That’s $10,000 taken out of your pocket, an additional $10,000 taken from your spouse, and $10,000 taken from each of your children. What do you think that will do to our economy and your personal finances?

Our lemming government leads us over the economic cliff.

3. Debt reduction (federal surplus) results in depressions:

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.

The reason is clear. Federal surplus = economic deficit. This too is an accounting identity. Federal debt is a reflection of federal deficits — the amount of money the federal government adds to the economy. For debt to be reduced, not only must deficits be reduced; they must be entirely eliminated. Federal surplus is an extreme form of deficit reduction.

Our current account already draws money from our economy. Combine that draw-down with a federal surplus, which also pulls money from our economy, and you create a massive, economic money loss. Our most recent federal surplus came at the end of the Clinton administration. Because the surplus was brief, it caused only a recession, which was cured by the Bush deficits. Had the surplus lasted longer, it would have caused a depression.

Our lemming government leads us over the economic cliff.

4. In 1971, the U.S. went off the gold standard, and became Monetarily Sovereign.. The purpose and the effect was to give the U.S. the unlimited ability to pay any bills of any size at any time.

To pay a bill, the federal government instructs a creditor’s bank to mark up the creditor’s checking account. This process erroneously is termed “printing money,” but nothing is printed.

When you and I pay a bill, money is transferred from our account to our creditors account. By contrast, when the federal government pays a bill no money is transferred. Instead, the creditor’s checking account is marked up and money is created by the payment of the government’s debt.

Because no money is transferred, no taxes or borrowing are required for the government to send these mark-up instructions. If taxes and borrowing fell to $0 or rose to $100 trillion, neither event would affect by even one penny, the federal government’s ability to pay its bills.

Despite concerns that deficits may cause inflation, historically this has not been the case. The value of money is determined by two factors: supply and demand. Inflation concerns center on increased supply. But increased demand is anti-inflationary. Demand increases when interest rates rise or when the value of goods and services increases. Both effects have been responsible for this graph, showing no relationship between federal deficits and inflation:

Deficits don't cause inflation

Deficit spending has not caused inflation. Yet, for unknown reasons, the federal plan, agreed to by virtually all media, all politicians and all old-line economists, is to cut deficits and reduce the money supply and our savings.

Our lemming government leads us over the economic cliff.

5. “Debt Outstanding Domestic Nonfinancial Sectors” is the measure of all forms of money in the nation. As you can see, this total debt growth parallels Gross Domestic Product, the most commonly used measure of economic growth.

GDP vs debt

By cutting federal deficits, the government will reduce Domestic Nonfinancial Debt which will reduce Gross Domestic Product.

The only way to stop this suicidal march is for each of us to contact the media, contact the politicians, even contact a professor you may know, and give them the facts.

Or, like the mythical lemmings, we can follow the crowd, accept our fate and jump over the recession and depression cliff.

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


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

MONETARY SOVEREIGNTY