–Et tu, Netanyahu? Israel joins the ranks of suicidal nations

Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Austerity = poverty and leads to civil disorder.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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We know that both President Obama and Mr. Romney are ruled by the upper 1% income group, and though Obama makes some weak pretense at supporting the lower 99%, Romney is more honest. He makes no secret of his desire to spread the income gap between rich and poor. His vow to dismantle Obamacare (aka Romneycare) is only the more egregious of his cut spending, cut benefits, cut aid to the poor genuflection to the Tea right.

Similarly, the entire, monetarily non-sovereign, euro zone is in thrall of economy-devastating austerity (i.e. austerity for the poor, not for the rich), and will continue to slice away at government spending until the 99% begin to erect guillotines and do some slicing of their own.

Then there is the UK. It does not remember why it wisely rejected the euro and remained Monetarily Sovereign, retaining the unlimited ability to create it’s own sovereign currency. So, wrongly thinking the finances of a Monetarily Sovereign government are like the finances of monetarily non-sovereign people, it embarked on a serious austerity plan. It cut its deficits.

Now it is shocked – shocked! – that cuts in government deficts impoverish the citizenry. As UK citizens receive less money, they spend less, which in turn, impoverishes businesses, which then fire people, who then have even less money to spend. And on and on we go, in the downward helix of deficit cuts, to depression.

The record of deficit cutting austerity approaches perfection. Wherever it is tried it succeeds – succeeds, that is, in tanking the economy. Around the world, dozens of anemic economies have had the leeches of austerity applied, and as the financial blood is drained, the doctors scratch their heads and wonder why their patients sicken and die.

And now comes Israel:

Israel eyes austerity after prosperous year
By Jean-Luc Renaudie | AFP

Prime Minister Benjamin Netanyahu, who has long boasted how Israel has avoided the fiscal fate of Spain and Greece, is poised to unveil tough austerity measures likely to hit the underprivileged. The measures will aim to make up part of the budget deficit that has climbed to 4.0 percent of Israel’s GDP — twice that which was expected for 2012.

Translation: “Because we have not become Spain and Greece, I must cut deficits to make us into Spain and Greece.”

Sound familiar? The dreaded budget deficit, which by mysterious coincidence, seems to rise in lock step with economic growth, now is being blamed for — what? — economic growth? Or just being misnamed “deficit”?

Never mind that a government deficit = private sector surplus, and the bigger the deficit, the more money people spend, and the more businesses grow.

And everywhere the dreaded deficit is “cured,” the underprivileged suffer, but isn’t that the whole point?

Taxes on cigarettes and beer have already been hiked this week, and according to media reports the government will also be raising VAT from 16 to 17 percent and introducing a 2.0 percent income tax rise in households with an annual income of at least a million shekels ($245,000, 199,300 euros).

Also expected is a combined 700-million-shekel ($171 million) cut from the budgets of all ministries with the exception of defence, education and welfare. A spokesman for Netanyahu told public radio on Thursday that the projected measures would raise the annual tax burden of each Israeli household by 1,740 shekels ($426/347 euros).

But these could only be the beginning, with Finance Minister Yuval Steinitz preparing an additional series of tax rises for 2013.

Translation: “See, it goes like this. We’ll raise taxes, which will take money out of the private sector. And we’ll spend less, which will put less money into the private sector. By draining the private sector of money, we’ll crush the economy — well, not the whole economy. The rich will be all right. It’s the poor who will be crushed, which will give the rich even more power. Simple, huh?”

“There are no free lunches,” Netanyahu said this week in an attempt to justify the austerity plan.

This is known as “governing by slogan.” Sounds wise; means nothing.

“Those who say that we can spend lavishly… endanger the state of Israel and could easily lead it to the brink of bankruptcy, as is the case of leading European economies,” Netanyahu said.

Er, ah, excuse me, Ben, but the euro nations are monetarily non-sovereign, and cannot control their money supply. They can be bankrupt. Israel is Monetarily Sovereign, has the unlimited ability to create shekels, so never can be forced into bankruptcy.

Ah, details, details.

Israeli officials also fear that the major international rating agencies, which had hitherto provided Israel with a clean bill of health, will lower their ratings.

Oh, woe! Lower ratings would mean Israel would pay a higher rate on borrowing — which as a Monetarily Sovereign nation, it doesn’t need to do. Further, a Monetarily Sovereign nation has the unlimited ability to pay any interest rate.

So, the problem is . . . ?

Until now, the Jewish state had effectively escaped the sub prime crisis of 2008 and the beginning of the current crisis in the eurozone. “To ensure stability, we must take unpopular measures,” said Harel Locker, director general of Netanyahu’s office.

Translation: “Heaven forbid we continue to do what has worked. To ensure stability, we must change the very thing that gave us stability.”

And even within the coalition, several religious and ultra-nationalist parties denounced the “anti-social” character of Netanyahu’s plan for 2013, an election year. It is the planned increase in Value Added Tax (VAT), which will affect all Israelis, that has come in for the harshest criticism.

One of the main critiques levelled at Netanyahu is his intention to give a huge “gift” to multinationals by halving the taxes on monies earned in Israel and which are transferred abroad, from 25 percent to 12 percent.

See the pattern? Social programs (for the 99%) will be cut. The VAT (which mostly punishes the 99%) will be increased. Taxes on multinationals (affecting the 1%) will be halved. It’s the same the world over.

In a defensive statement on Thursday, Netanyahu said that “even after the steps we will take, families in Israel — middle-class and underprivileged — will remain with more money in their pockets” thanks to measures such as free education from the age of three, tax benefits for working families and free dental care for children.

And central bank chief Stanley Fischer was quoted as saying that Netanyahu’s planned measures were “very serious progress” which displayed “very responsible leadership by the economic decision-makers.”

Translation: “We’ll take 10 shekels from your left pocket and put 5 shekels in your right pocket. Stanley Fischer says this is good for you, so it must be. Would Stanley lie to you?”

Clearly, Israel has learned a great deal from American politicians, about how to screw the 99%. All of this is possible only because the 99% has been kept ignorant by the 1% — not just ignorant, but resolutely ignorant. (Try explaining Monetary Sovereignty to your friends, and you’ll see the meaning of “resolutely ignorant.”)

Bottom line: Deficit cuts (aka “austerity) will destroy Israel, especially the 99%, as deficit cuts have destroyed every nation where they have been implemented, and even now are destroying America.

Rodger Malcolm Mitchell
Monetary Sovereignty

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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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports

#MONETARY SOVEREIGNTY

The cattle, dumb, drooling and defeated, obediently slump into the slaughterhouse, with never a “moo” in protest.

Today, Congress continues its politicized debates about the best way to destroy health care and the American economy. With friends like these, who needs enemies?

Every economist is familiar with this equation:

Federal Deficits – Net Imports = Net Private Saving

It describes how money flows in the economy. Every economist also knows this equation:

GDP = Private Consumption and Investment + Federal Spending – Net Imports

Both equations tell you: When federal deficits are reduced, fewer dollars are created, the saving rate in reduced and the economy suffers. None of this is hypothesis or prediction or guess-work. These equations simply are the actual facts of federal financing. They cannot be debated. They are as certain as Assets = Liabilities + Equity.

Yet the media, the politicians, the old-line economists and the public, at the behest of the upper 1% income group, deny these fundamental truths. Here is yet another example:

Detroit Free Press

Health care overhaul will reduce deficits, Congressional Budget Office finds
By Ricardo Alonso-Zaldivar and Andrew Taylor, July 25, 2012

WASHINGTON — President Barack Obama’s health care overhaul will reduce, rather than increase, the nation’s huge federal deficits during the next decade, Congress’ nonpartisan budget scorekeepers said Tuesday, supporting Obama’s contention in a major election-year dispute with Republicans.

Republicans insist the plan will raise deficits — by trillions, GOP presidential candidate Mitt Romney says. But that’s not true, the Congressional Budget Office said.

The CBO gave no updated estimate for deficit reductions from the law, approved by Congress and signed by Obama in 2010. But it did estimate that Republican legislation to repeal the overhaul — passed recently by the House — would itself increase the deficit by $109 billion from 2013 to 2022.

Translation: “To hell with facts. Deficit reduction is good for America. Fewer dollars help expand he economy. Applying leeches cures anemia. A drought helps crops grow. Trust us.”

Tuesday’s budget projections were the first since the U.S. Supreme Court upheld most of the law last month. The CBO said the law’s mix of spending cuts and tax increases would more than offset new spending to cover uninsured people.

As expected, the budget office said the law will cover fewer uninsured people because the Supreme Court ruled that states won’t have to sign on to a planned expansion of Medicaid for their low-income residents.

Thirty million uninsured people will be covered by 2022, or about 3 million fewer than projected this spring before the court ruling, the report said.

Translation: “To reduce deficit spending by our Monetarily Sovereign government – a government with the unlimited ability to create dollars – about 3 million more people will do without health insurance. Two great results — slower growth for the economy and poorer health care for millions of Americans.”

As a result, taxpayers will save about $84 billion from 2012 to 2022.

Translation: “Don’t tell anyone this secret, but there is no historic relationship between federal taxes and federal spending, so taxpayers will save nothing. Nothing. But, because the public is stupid, we’ll keep feeding them this nonsense. They never will catch on.”

Democrats immediately hailed the findings as vindication for the president. “This confirms what we’ve been saying all along: The Affordable Care Act saves lots of money,” said Senate Majority Leader Harry Reid, D-Nev.

Translation: “To the degree the ACA cuts deficit spending, your savings will be lower. You’ll learn to like being poorer.”

Republicans said they remain committed to repealing it, anyway. When combined with other budget-cutting measures, GOP leaders say that repeal ultimately will reduce deficits. Romney says that if elected, he will begin to dismantle the law his first day in office.

Translation: “Not only do we want to cut the deficit, which will reduce GDP growth, but we want to cut health care coverage for millions of people. Now, if only we could cut Social Security benefits, we’d have a perfect trifecta to increase the income gap between the upper 1% income group and the lower 99%.”

Bottom line: The federal government can and should provide fully-paid Medicare to every man, woman and child in America. It would improve health care for you, for your friends, family and neighbors, stimulate economic growth, and reduce unemployment.

But, the cattle, dumb, drooling and defeated, obediently slump into the slaughterhouse, with never a “moo” in protest.

Rodger Malcolm Mitchell
Monetary Sovereignty

Sadly, I must award three dunce caps to the American people, who have allowed the media, the politicians and the old-line economists to get away with saying that taking dollars out of the economy benefits the economy. Think, people, think.

#MONETARY SOVEREIGNTY

–Loans, deposits, fiscal prudence and financial nuttiness, all rolled into one.

Visualize this: You deposit $1000 into your bank savings account.

What have you done? You have lent your bank $1000. That money was not a gift; it was a loan. Your bank now owes you $1000, plus interest. Your deposit has increased your bank’s total debt by $1000.

There is zero difference between a “deposit” and a “loan.” They are identical in every way.

Banks love to be in debt. In the old days, a bank would give people toasters, if people would lend it money.

Like all debt, your loan to your bank creates dollars. When you deposit (lend) that $1000 into your bank savings account, you still own $1000. Remember, it was not a gift. But now the bank also has $1000, which it invests to make more money.

So where there were $1000, now there are $2000. You have created $1000, and added it to the money supply, simply by lending to (depositing with) your bank.

Banks brag about their indebtedness. Big banks tell the world how much they owe. “We have $10 billion in deposits (debts).” Banks advertise to get people to lend to (deposit with) them.

The media, the politicians, the old-line economists and the debt hawks do not criticize banks for accepting too many deposits (borrowing too much money). When your bank borrowed that $1000 from you, no one said that debt (deposit) is “unsustainable.” No one told the bank its deposits (debts) are too high and it should “live within its means” by not accepting more deposits (borrowing more money).

No one published a debt clock showing how much of the bank’s debt you supposedly owe, when it is the bank that owes you.

At some time after you have lent your bank money, you will decide you want your money back. As the banks creditor (“depositor” and “creditor” are synonyms), you will say, “I want to end the $1000 loan (deposit). Give me back my money.”

The bank can return your $1000 in several ways. One way: It can give you a check for $1000, which you will deposit in (lend to) your checking account — perhaps at the same bank. Or, it simply can debit your savings account loan and credit your checking account loan (Checking accounts also are loans to banks).

I hope I have beat this dead horse enough to make the point: A loan is a deposit; a deposit is a loan. “Loan” and “deposit” have exactly the same meaning. The total of deposits is the total debt.

Now, let’s say that instead of lending your bank $1000, you decide to lend the U.S. government $1000. How will you do it? You will reduce the size of your bank checking account and deposit $1000 into your T-security account, at the Federal Reserve Bank. You have reduced your loan to your bank and increased your loan to the federal government.

You have caused the federal debt (deposits) to increase $1000. But, the Federal Debt is nothing more than a total of deposits in the Federal Reserve Bank.

The media will express concern about the size of the federal debt (deposits). The politicians will look for ways to reduce the federal debt (deposits). The old-line economists will write articles saying the federal debt (deposits) are too high. The debt-hawks will put up signs warning about the size of the federal debt (deposits).

All of these people will want you to transfer dollars back from your T-security account at the Federal Reserve Bank, to your private bank checking account. They will want you to reduce the size of your deposits with the federal government, while you increase the size of your deposits with private banks.

They even will put up debt clocks showing how much of the federal government’s debt you supposedly owe, when it is the federal government that owes you.

Now consider the irony. The federal government is Monetarily Sovereign; private banks are monetarily non-sovereign. Financially, the federal government is much stronger than any private bank.

Banks can and do become insolvent, and be unable to repay their loans (deposits), but fortunately, most bank loans (deposits) are guaranteed by the federal government (FDIC). So the irony is, the media, the politicians, the old-line economists and the debt hawks want you and your fellow Americans to increase your lending (deposits) to private banks, while you reduce your lending (T-securities) to the financially most powerful entity in America, the federal government.

They call it, “fiscal prudence”! I call it “financial nuttiness.”

Next time a media writer, politician, old-line economist or debt-hawk says the federal debt is too high, ask him why he thinks the nation is safer when private bank deposits increase while Federal Reserve Bank deposits decrease. Ask why private banks should borrow more so the federal government’s bank can borrow less.

Then smile while he stumbles for an answer.

Rodger Malcolm Mitchell
Monetary Sovereignty

#MONETARY SOVEREIGNTY

–Why Canada is Doomed

Canada has found the magic economic elixir we all should drink – at least according to this article

Smart Economics: Canada Teaches US Lessons in Fiscal Responsibility
John GiokarisinBusiness, National Debt

If lawmakers in Washington want to find out how sound economic policy and fiscal responsibility looks like on a national level, they need look no further than our neighbors to the north. That’s right, Canada.

Ever since Conservative economist Stephen Harper became prime minister of Canada in 2006, the country has seen revenues and investment increase, unemployment and deficits decrease, and for the first time in history, the average Canadian household is richer than the average American by $40,000.

You may be asking yourself, “How the heck did that happen?” Here’s how:

For starters, when Harper and his Conservative minority-government came to power six years ago, they implemented a series of tax cuts. Canada’s corporate tax rate has been lowered from 22% in 2006 to 15% in 2012.

The U.S., however, has maintained a 39.2% corporate tax rate (when including state and local taxes), now making us the highest in the world.

Right. Taxing corporations is the worst possible economic idea plan. A corporate tax is nothing more than starving the goose that lays the golden eggs.

Canada’s income tax rates are also substantially lower than America’s – setting its top bracket income tax rate at 29% vs. America’s 35%.

Another wise move. Because the U.S. and Canada are Monetarily Sovereign, taxes do not support government spending, so not only should be reduced, but actually could be eliminated. A Monetarily Sovereign government has no use for tax dollars.

Along with tax cuts, Harper has enacted significant government spending cuts. He reduced federal spending last year by 6.2% primarily by eliminating waste and prioritizing spending by department. For instance, he implemented budget increases for departments entrusted with security and law enforcement – such as a 21% boost to jails — but cuts of roughly 20% to unnecessary environmental protection programs.

Uh oh. Spending cuts to “unnecessary“(?) environmental programs?

In his 2012 budget, he pledged to cut $5.2 billion in federal spending every year for the next three years. Among the cuts are $31 billion from provincial health transfers, $377 million slashed from foreign aid and international development, 10% trimmed from CBC’s funding over three years and eliminating the Canadian penny.

More “Uh oh.” “Health care transfers” are the dollars the Canadian government gives to the provinces (like our states) to support health care, post-secondary education and welfare. The Canadian government is trying to balance its budget on the backs of its poorest citizens. Sound like a good idea?

Harper’s administration has worked to streamline the approval process for resource development and to collaborate on a broad, market-focused national energy strategy to capitalize on the country’s vast natural resources. They identified a handful of priority areas, such as regulatory reform, improving energy efficiency and developing new energy export markets.

Translation: Environment be damned. Cut regulations. Drill, baby. Drill!

And what is the result of these tax cuts, spending reductions, and energy job creation? Are people starving and children crying? Are trees dying and birds not flying? Did the sun not come up again?

No, quite the opposite. Canada has now seen their unemployment rate drop from a post-recession high of 8.3% in 2009 to 7.2% in 2012.

Their budget deficits have been cut in half from $53.8 billion in 2009 to $24.9 billion in 2012 and the country’s now on the path to balancing its budget by 2015. They are now the #1 supplier of foreign oil to the U.S.

Short term, Canada is turning itself into China, where exports trump environment, but long term will be quite another matter. An example of this short-term thinking can be found in the following, which was referenced by the above article:

Budget: Deficit to be eliminated over three years; moderate economic growth expected
By Gordon Isfeld, Postmedia News, 3/29/12

OTTAWA — The federal government nailed down its moving target for balancing the budget on Thursday, saying it will eliminate the shortfall over the next three years and post a surplus by 2015-16, as Canada’s economic outlook improves.

“In less than two years, we have already cut the deficit in half,” Finance Minister Jim Flaherty said. “We did it by ending our targeted and temporary stimulus measures, and by controlling the growth of new spending.”

The government on Thursday cut its deficit estimate for the current year to $24.9 billion from $31 billion — roughly in line with economists’ expectations — and set the shortfall for 2012-13 at $21.1 billion. The deficit is expected to shrink to $10.2 billion in 2013-14 and go down to $1.3 billion the following year.

The surplus (!) should come in at $3.4 billion in 2015-16, and reach $7.8 billion a year later.

Before we get too giddy at Canada’s “sound economic policy,” let’s look at a couple of fundamentals:

Gross Domestic Product = Government Spending + Private Investment and Consumption + Net Exports Simple algebra says that for the left side of the equation to go up, the right side must go up.

For GDP to rise, Government Spending and/or Private Investment and Consumption and/or Net Exports must rise. But Canada’s model depends on reduced Government Spending. So for the plan to succeed, Private Investment and Consumption and/or Net Exports not only must rise, but must rise more than Government Spending falls.

But Canada is not planning for just a balanced budget. No, Canada wants a budget surplus. This means taxes must exceed spending. A budget surplus requires that more dollars come out of the economy than will be pumped back in.

With fewer dollars available, how will Private Investment and Consumption, not just increase, but increase more than the reduction in Government Spending? The answer: It can’t. There is no magic where fewer dollars lead to greater Investment and Consumption.

And that brings us to the final term in the equation: Net Exports. Canada traditionally has had a positive balance of trade:

If Canada can, as it seems to promise, ignore the environment, cut regulations, and “drill, baby, drill,” Net Exports might be sufficient to support economic growth, (the German model).

But at what cost? Is reduced government spending which for a Monetarily Sovereign nation, costs nothing, worth reduced support for health care, post-secondary education, welfare and the environment?

Being Monetarily Sovereign, Canada can support any size government deficit, but can Canadians support support reductions in their health, education and environment?

My prediction: Unless Canadian Net Exports somehow rise to even higher levels than ever (probably requiring a major rape of the Canadian and world environment), the Canadian economy is doomed.

Monetarily non-sovereign governments, like the provinces (or American states), cannot spend, long term, more than their income. But, for a Monetarily Sovereign nation to run a balanced budget, much less a net surplus, is the height of suicidal lunacy.

Back in 2005, I predicted the euro nations were doomed (“Because of the Euro, no euro nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the euro.“)

My prediction was based on reduced money supply. It took six years for the euro cracks to widen enough for the world to see. Canada’s cracks may not take that long.

Rodger Malcolm Mitchell
Monetary Sovereignty

#MONETARY SOVEREIGNTY

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